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31 Mount Pleasant, London WC1X 0AD UKTel +44 20 7903 2000 Fax +44 20 7837 0976
www.cruanalysis.com
LONDON | BEIJING | PHILADELPHIA | WASHINGTON
Global steel market outlookPrepared for:
CUSteel ConferenceShanghai, September 23rdth, 2005
Prepared by:
John JohnsonChief Representative, CRU Beijing
1821 Tower 2, Bright China Chang An Building, 7 Jianguomennei Avenue, Beijing 100005, China
Tel: 0086 10 65102206, email [email protected]
2
Presentation plan
Recent global steel price trends
– CRUspi
– Regional Prices
– Flats versus Longs
Discussion of latest market developments
– Focusing firstly on the global slowdown in the rate of growth in consumption, reduced production levels and the current global rebound in prices
Discussion of CRU’s outlook
– Outlining the reasons why prices should trend downwards again from 2006
Points to watch
3
In the last few month CRUspi has recovered some of losses after losing 60% of the gains made in 2004-2005. Is this the start of a global recovery in steel prices?
90
100
110
120
130
140
150
160
170
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S
CRUspi (for sheet products)
Global CRU steel price index (CRUspi), April 1994 = 100
Data: www.cruspi.com
2003 2004 2005
4
Regional prices do broadly move in similar directions, with a few exceptions, due to trade acting as a great leveller between markets
708090
100110120130140150160170180
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S
N.America
Europe
Asia
CRU regional steel price index (CRUspi) for main steel products, April 1994 = 100
Data: www.cruspi.com
2003 2004 2005
5
But flat products and long products can diverge, as they did in 2004, though even these markets seem to converge eventually
90
100
110
120
130
140
150
160
170
180
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A
Flat products
Long products
CRU steel price index (CRUspi) for sheet products, April 1994 = 100
Data: www.cruspi.com
2003 2004 2005
6
During the first and second quarters of 2005, year-on-year growth in world sheet consumption fell below 3% - the last time growth was this slow was three years ago…
0%
2%
4%
6%
8%
10%
12%
14%
16%
Q1e Q2e Q3e Q4e Q1e Q2e Q3e Q4e Q1e Q2e Q3e Q4e Q1e Q2e
Year-on-year changes in world apparent sheet consumption, %
Data: CRU Analysis. Note: e estimate.
2002 2003 2004 2005
7
The slowdown in the rate of growth in consumption has been most keenly felt in North America, followed by Europe (in Asia it has actually risen)…
-5%
0%
5%
10%
15%
Americas Non-China Asia Europe China
H2 2004 v H2 2003 H1 2005 v H1 2004
Year-on-year changes in apparent sheet consumption by country/region, %
Data: CRU Analysis.
8
Mills have responded to the slowdown in their orders by reducing operating rates, bringing forward planned maintenance and/or idling production facilities…
-10%
0%
10%
20%
30%
40%
Americas Non-China Asia Europe China
H2 2004 v H2 2003 H1 2005 v H1 2004
Year-on-year changes in sheet production by country/region, %
Data: CRU Analysis.
9
However, the final quarter of this year is likely to see an acceleration in the rate of growth in demand, primarily owing to renewed buying from stockists and service centres…
0%
2%
4%
6%
8%
10%
Q1e Q2e Q3e Q4e Q1e Q2e Q3f Q4f Q1f Q2f Q3f Q4f
Year-on-year changes in world apparent sheet consumption, %
Data: CRU Analysis. Note: e estimate, f forecast.
2004 2005 2006
Growth is expected to accelerate from Q4 2005, as buyers return to the market
10
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
J F MA M J J A S O ND J F MA M J J A S O ND J F MA M J J A
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5Inventories Months shipments-on-hand
North American sheet inventories have been drawn down sharply in recent months, and have now bottomed-out…Service centre inventories of carbon flat-rolled products*, m s.tons
Data: MSCI, CRU Analysis Note: * held at US & Canadian service centres.
2003 2004 2005
11
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1e Q2e Q3e
Apparent sheet consumption
Demand has rebounded on a quarter-on-quarter basis for the first time in over a year (by over 1m s.tons from Q2)…North American apparent sheet consumption, qtr-on-qtr changes, m s.tons
Data: CRU Analysis.
2003 2004 2005
12
0.0
0.2
0.4
0.6
0.8
1.0
1.2
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J
HR sheet CR sheet Coated sheet
With inventories and imports at low levels, andnumerous blast furnaces still off-line…Us imports of steel sheet (3-mth-avg), m s.tons
Data: AISI, CRU Analysis.
2003 2004 2005
13
200
300
400
500
600
700
800
900
J F MAM J J A S O ND J F MA M J J A S OND J F MA MJ J A S
HR coil CR coil HDG coil
The demand/supply balance has tightened significantly,and a price spike has occurred US Midwest sheet prices, fob mill, US$/s.ton
Data: CRU Analysis.
2003 2004 2005
14
-100
-50
0
50
100
150
200
250
300
350
400
J F M A M J J A S O N D J F M A M J J A S O N
US domestic vs German domestic
US domestic vs Far East import
As as result, the price premium that the US marketattracts over others is likely to rise in the near term…Difference between average sheet price in the USA and elsewhere, US$/tonne
Data: CRU Analysis.
2004 2005
15
15
16
17
18
19
20
Q1 Q2 Q3e Q4e Q1e Q2e Q3e Q4f Q1f
SA sheet production
High prices will also encourage local mills to bringblast furnaces back on-line and to increase output…North American steel sheet production (seasonally adjusted), m s.tons
Data: CRU Analysis.
2004 2005 2006
16
300
400
500
600
700
800
Q1 Q2 Q3 Q4f Q1f Q2f Q3f Q4f Q1f Q2f Q3f Q4f
HR coil CR coil HDG coil
As such, we forecast a fairly sharp downward pricecorrection to commence at the end of the year US Midwest sheet prices, fob mill, US$/s.ton
Data: CRU Analysis.
2005 2006 2007
17
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2e Q3e
Germany Italy UK
`
There has been little change to the modestperformance of the West European economy… Year-on-year changes in industrial production
Data: CRU Analysis, OEF.
2003 2004 2005
18
800
1,000
1,200
1,400
1,600
J F M A M J J A S O ND J F M A M J J A S O N D J F MA M J
2.0
2.5
3.0
3.5
4.0Inventories Months shipments-on-hand
An overhang of sheet inventories accumulatedin the first half of 2005…German stockholder inventories of sheet, ‘000 tonnes
Data: BDS, CRU Analysis.
2003 2004 2005
19
200
250
300
350
400
450
500
550
600
650
700
Q1 Q2 Q3 Q4 Q1 Q2 Q3f Q4f Q1f Q2f Q3f Q4f
HR coil CR coil HDG coil
After a moderate rebound in late 2005, European sheet prices are expected to trend downwards German domestic sheet prices, parity point, €/tonne
Data: CRU Analysis.
2005 2006 2007
20
In 2006 and 2007, the rate of growth in world industrial production is expected to slow slightly…
2%
3%
4%
5%
6%
2004e 2005f 2006f 2007f
World IP growth
Year-on-year changes in world industrial production, %
Data: CRU Analysis. Note: e estimate, f forecast.
21
Meanwhile, cost pressures - which were a major factor behind the surge in prices last year - are expected to progressively ease…
0
100
200
300
400
500
2001 2002 2003 2004 2005f 2006f 2007f
Iron ore (Hamersley fines) Hard coking coal Coke (12% ash)
Key raw materials prices, indexed, 2001 = 100
Data: CRU’s Steelmaking Raw Materials Team. Note: f forecast.
The easing of raw materials markets is reflected in our forecasts of lower prices
22
And with global sheet making capacity set to increase significantly during the coming years…
0
5
10
15
20
25
30
35
2005f 2006f 2007f
Hot-strip rolling Cold-rolling Galvanising
Expansions to effective world sheet making capacity, m tpy
Data: CRU Analysis. Note: f forecast.
Total: 36.7m tpy
Total: 48.5m tpy
Total: 36.1m tpy
23
But Chinese capacity is set to increase significantly during the coming years…
0
5
10
15
20
25
30
35
40
2004 2005 2006 2007 2008 2009
Hot-strip rolling Cold-rolling Galvanising
Expansions to effective world sheet making capacity, m tpy
Data: CRU Analysis. Note: f forecast.
24
Chinese net trade has been transformedChina, net imports of steel products
Data: Trade Data
‘000 tonnes
-2000
-1000
0
1000
2000
3000
4000
J2003
F M A M J J A S O N D J2004
F M A M J J A S O N D J2005
F M A M J J
25
And this is likely to mean that output growth will continue to outstrip demand
0%
5%
10%
15%
20%
25%
30%
35%
40%
2001 2002 2003 2004 2005f 2006f 2007f 2008f 2009f
Production App. Consumption
Chinese apparent sheet consumption and production, year-on-year changes
Data: CRU’s Steel Sheet Quarterly Service. Note: f forecast.
26
We believe that the ability to satisfy demand will increase faster than demand itself, and that sheet prices will - from the first quarter of 2006 - come under downward pressure…
300
400
500
600
700
800
900
Q1 Q2 Q3 Q4 Q1 Q2 Q3f Q4f Q1f Q2f Q3f Q4f
US Midwest, fob mill Germany, parity point China, import c&f
HR coil base prices, US$/tonne
Data: CRU Analysis.
2004 2005 2006
27
Which is likely to bottom out in 2007, when the expected low point in the demand cycle coincides with significant capacity expansions and reduced cost-push pressures
100
200
300
400
500
600
700
800
1999 2000 2001 2002 2003 2004 2005f 2006f 2007f 2008f 2009f
US Midwest, fob mill Germany, parity point China, import c&f
HR coil base prices, US$/tonne
Data: CRU Analysis. Note: f forecast.
28
Points to watch
29
We provide a CRUcial presence around the globe…
London, Beijing, Singapore, Washington, Seattle, Philadelphia, Raleigh, Sydney, Rio de Janeiro
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Please address questions or comments relating to this presentation to:
John Johnson, Chief Representative
CRU International Ltd Beijing Representative Office1821, Tower 2, Bright China Chang An Building7, Jianguomennei Avenue, Beijing 100005, China
Tel.: 10 65102206Fax.: 10 65102207Email: [email protected]