From the outside, 456 Sylvan Ave. doesn't
look much different than any other two-story, commercial brick
building flanking one of the thoroughfares weaving its way
through the leafy green suburbs of Englewood Cliffs, N.J.
It's not until you pull into the parking lot
and get a closer look at the license plate on the rear bumper
of a black Ford F-150 pickup truck parked in slot No. 1 that
you begin to get the idea that 456 has something very special
going on under its roof. The license plate-4STEEEL
(sic)-is an understatement.
Follow the stairs up to the second floor and
there's no hiding the fact that steel is central to the
business at hand in the suite of offices and conference rooms.
Framed photos and paintings of blast furnaces, hot-strip mills,
steel coils and girders line the walls. And in an unexpected
tour de force, a trio of carefully cut-and-polished
electrodes double as end tables in the reception area.
Welcome to the offices of World Steel
Dynamics Inc. (WSD) and home away from home of Peter F. Marcus,
who in early 1999, together with staffers and associates at
PaineWebber Inc., formed their own separate and independent
company. And they've been going strong ever since.
On this particular morning, Marcus is busy
putting some finishing touches to Steel Success XXII,
the 22nd edition of an annual conference cosponsored by
AMM that over the years has evolved into the global
steel industry's biggest name, premiere information-gathering
and networking event.
Marcus takes a moment-before fielding
questions from AMM editor Jo Isenberg-O'Loughlin on
subjects ranging from steel futures to the emergence of
China-to lower the volume on an aria that threatens to drown
out his voice (an opera aficionado, he admits being partial to
Strauss) then quickly gets down to business.
AMM Last year, Steel Success
Strategies drew 1,200 attendees and so far this year's event is
running ahead of last year's. How do you explain its continued
Marcus The conference
is showtime. That is the first principal. It's show business.
After that, our conferences tend to give people who attend them
a huge amount of conceptual information. As a result, a lot of
ideas are going through their heads and by the time the
conference is over they are beginning to see the issues
examined with new eyes. That is what it is about.
AMM As maestro and ringmaster of
the SSS conferences, your public persona is high profile across
the global steel industry. Is there a different, more private
side to Peter Marcus and how comfortable are you talking about
Marcus I think by
definition a researcher is both an internal and an external
person. I think I am good at creating concepts and good at
selling them. How private am I? I have great relationships, I
know a lot of people and obviously I am quite egotistical.
Security analysts have to be. I believe a security analyst is
an industrial economist who must understand under what
conditions a firm has pricing power. World Steel Dynamics was
built on that foundation. And as a sub-point, economics is also
a study of the human equation in the marketplace. I am a
68-year-old guy who is well-to-do financially, who loves his
work, loves the people who work with me and thinks we are in
great shape as a private entity. And World Steel Dynamics-knock
on wood-seems to be remarkably beloved everywhere. People give
us information and trust us.
AMM Over the years, many of the
concepts you have coined have worked their way into the global
steel lexicon. Is that a deliberate strategy and what drives
Marcus I enjoy looking
at and inventing concepts to describe what's happening and what
might be happening. I decided pretty early in my career to try
to invent words or phrases that describe developments in the
steel industry. Concepts like the death spiral and volcano,
which were among the better ones. You have to be able to put a
spin on things, to titillate people to make the information and
idea always relevant to them. I also think you have to have
some humor in what you write. And to keep things interesting,
every report has to be new in a flexible format. In WSD's early
warning system, we have five reports-Global Steel
Alert, Inside Track, Truth and
Consequences, Thermometer and
Cyclone-all of which are free form. You'll notice they
have pretty good names.
AMM WSD executives and staff
generate a wide variety of steel-related information products.
Are there any among the organization's many offerings that you
personally take sole responsibility for?
together our early warning system action-oriented reports
requires, I think, one person to speak to everybody, assemble
all the information and make up one's mind what is going to
happen. So it's my responsibility, roughly every two weeks, to
speak to people all over the world, read like crazy and ponder
what might happen. For a number of years now, I have been
predicting with a fair lead time what was going to happen. It
has been working for quite a while.
AMM One area of the world U.S.
mills are extremely interested in is China, which is viewed as
a wild card and, in some circles, a major threat to North
American producers. What's your take?
Marcus I made my first
trip to China in the '70s. The Cultural Revolution had ended
about three years earlier. I started going twice a year about
five years ago and I now have two people in China. We have
coverage there, but it turns out China is an open information
society. The amount of information you can get is unbelievable.
I believe that in China the oversupply problem will be
encapsulated and will not be a major destabilizing event to the
global steel industry. It took three death spirals-1995, 1998
and 2001-in the Western World steel industry to change the
behavior pattern of the non-Chinese industry. China has had one
death spiral, in fall 2005, and might be heading into another
at this moment. So the question becomes Will China need to
experience three pricing death spirals, as was the case in the
West, to change pricing power? Or given the fact that China is
a command economy, in that companies there are permitted to
speak to one another about pricing, will they find a unique
Chinese solution to their problem? Traditionally, many players
in a high fixed-cost industry means price drops to marginal
cost. But why should the Chinese commit hara-kiri when
they have the means to get together and set prices and cut
AMM The theme of this year's SSS
conference is New World, New Opportunities, New Crises. In
terms of crises, you have previously identified four events as
having a destabilizing effect on the global steel industry. Two
of those events-the devaluation of the dollar in 1971 and the
revaluation of the Russian ruble in 1998-are currency-related.
How do you see the current controversy over the Chinese
renminbi sorting out?
Marcus Currencies make
a huge difference. One of the interesting things regarding the
global cost system or cost curve is that many of the countries
that are the lowest cost-Brazil, Ukraine, Russia, let's say-are
now experiencing sizeable currency appreciation. I believe
China, too, is in the midst of a quite sizeable currency
appreciation. I basically believe it is fixed-asset investment
spending, not household or government spending, that drives
global steel demand. And in China, with all those poor people,
I just don't see how they have the wherewithal to have a major
rise in consumer durable spending. Wages are so low in both
China and India that there is no way for the wage per hour in
10 years to become a very substantial number. So the key to
China's growth in per-capita income and, therefore, spending
power is to have a sizeable currency appreciation. When you get
that, consumer durable spending can kick in. In China, we
calculate that one renminbi spent on fixed-asset investment is
14 times more steel intensive than the equivalent in household
and government spending.
AMM In December last year you
signed a letter of intent with the New York Mercantile Exchange
to offer the SteelBenchmarker price discovery system developed
by WSD and AMM/Metal Bulletin on the exchange. What kind of
traction is SteelBenchmarker getting?
Marcus We have a
sizeable number of inputs and I think people are feeling good
about SteelBenchmarker, especially the U.S. numbers. I
feel our system is the most robust and accurate since we're
getting price opinions from buyers, middlemen and sellers. I am
hoping the system will serve as a foundation for huge trading
in futures. And I believe passionately and logically that steel
futures transactions are a triple win for the mills, the
middlemen and the buyers. The goal of World Steel Dynamics is
to provide the benchmark prices that everybody uses.
AMM This time last year, there
was almost as much drama and controversy offstage as there was
on with the takeover battle for Arcelor SA building to a
crescendo. Were you surprised by the outcome of the
Marcus What we learned
is that if you are a manager of a company with no major
shareholders that can prevent you from being taken over and
your stock is cheap, you run a major risk that someone is going
to bid for you. We are now in the world of merger mania. A
number of years ago, I put out a series of reports called
The Urge to Merge that, at the time, were
controversial basically because we consolidated the entire
industry into about eight different hands. It never could
happen but it was a way of making a point.
AMM It's been said that you're
more passionate about steel than many of the executives leading
the industry. What are your other passions?
Marcus Well, I enjoy
playing chess and sports such as golf. I have a tremendous love
of the opera. And I like to get out in the woods. I get away
when I can to a wonderful spot, a desolate place in the
Adirondacks where I can camp out. In general, I am a person who
on weekends tends to have solitude. I also am a person who
enjoys looking at the global economy and the changes that are
occurring. I love the work. I wake up many times in the middle
of the night and call China and India or early in the morning
and call Europe. I work night and day. There's a La-Z-Boy
recliner in a small office on the other side of mine. Sometimes
I take a nap three or four times a day to catch up on the sleep
I lost because of how early I begin.