Outlook for the steel market

OUTLOOK FOR THE STEEL MARKETSherpa group meeting, Bruxelles, 13 March 2014

Agenda

• Current situation: global demand is slowly recovering

• Prospects for global steel demand until 2025

• Structure of EU steel exports• EU steelmaking excess capacity• Financial health of the European

steel industry

Apparent consumption of steel by region (Index 2007Q2=100, data from CRU)

44

48

52

56

60

64

68

72

76

80

84

88

92

96

100

104

2007 2008 2009 2010 2011 2012 2013

EU

North America

Japan

CIS

Production shares by region, % of world (before and after the crisis)

Africa1%

Asia56%

European Union16%

CIS9%

South America4%

North America

10%

Rest of the world4%

2007Africa

1%

Asia67%

European Union10%

CIS7%

South America3% North

America8%

Rest of the world4%

2013

Steelmaking capacity shares by region (% of world capacity)

Europe20.0%

CIS 9.1%

United States7.9%

Brazil2.7%

Africa2.2%Middle East

1.4%

China30.9%

India3.7%

Japan9.0%

Oceania0.6%

Others12.7%

World total 1372 MT in 2005

Europe13.6%

CIS 7.1%

United States5.2% Brazil

2.3%Africa1.7%

Middle East2.6%

China44.1%

India6.0%

Japan5.8%

Oceania0.4%

Others11.0%

World total 2268 MT in 2015

Regional steel trade developments (Thousands of tonnes)

0500

1,0001,5002,0002,5003,0003,5004,0004,500

Jan/

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EU (external trade)

Exportsimports

0

500

1,000

1,500

2,000

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3,000

3,500

Jan/

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NAFTA (external trade)

ExportsImports

0

1,000

2,000

3,000

4,000

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7,000

Jan/

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CIS

ExportsImports

0

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400

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South America

ExportsImports

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,000

Jan/

09

May

/09

Sep/

09

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10

May

/10

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10

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11

May

/11

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11

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/12

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12

Jan/

13

Asia (excl. China)

ExportsImports

0

1,000

2,000

3,000

4,000

5,000

6,000

Jan/

09

May

/09

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09

Jan/

10

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/10

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/11

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11

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China

ExportsImports

Sectors driving steel demand growth (in tonnage) during the next ten years

• 3 sectors expected to represent 90% of global steel demand growth up to 2025 – Construction (68%), driven by

residential, infrastructure projects in emerging economies

– Mechanical engineering (13%) – Energy transportation(9%), pipelines,

OCTG and other tubes.

Global steel demand by sector in 2011 and 2025

Construction, 845 mmt

60%

Transport, 275 mmt

19%

Mechanical engineering,

235 mmt17%

Others, 59 mmt4% 2011

Construction, 1506 mmt

64%

Transport, 398 mmt

17%

Mechanical engineering,

355 mmt15%

Others, 88 mmt4%

2025

mmt and % of total steel demand

Source: Metal Bulletin Research1414 mmt 2349 mmtCAGR 3.7%

Construction sector value added : growing share of emerging economies

• Shares in world construction value added in 2025:– NAFTA (18.3%), EU (10.8%), Japan (6.2% ), China (24%)

• China’s construction VA: CAGR 5.9% in a catching-up process– 175 airports in China in 2010 compared to 5,194 in the US– Urban residential floor space in 2011 was 31 m² per capita in China

compared to 82 in the US. – The urbanisation rate is expected to reach 51.5% in 2015 (target of

12th Chinese Five-Year Plan): 10 million new urban residents/year• India’s construction VA: CAGR 8.1% faster than China but

from a much lower base. – By 2025, India could have two cities of more than 25 million

inhabitants (New Delhi and Mumbai)• Strong infrastructure building also expected in South East

Asia, Africa and the Middle East.

Global steel demand for energy-related construction in 2011 and 2025


Wind, 5 mmt16%

Hydro, 3 mmt10%

Natural gas, 5 mmt16%

Coal, 17 mmt56%

Nuclear, 1 mmt2% 2011

Wind, 5 mmt17%

Hydro, 4 mmt13%

Natural gas, 5 mmt17%

Coal, 16 mmt51%

Nuclear, 1 mmt2%

2025

Source: Metal Bulletin Research31 mmt 31 mmtCAGR 0%

Global steel demand in the transportation sector in 2011 and 2025


Vehicles, 132 mmt48%

Shipbuilding, 37 mmt

13%

Railways, 21 mmt8%

Pipelines, 67 mmt25%

Containers, 8 mmt3%

Others, 9 mmt3% 2011

Vehicles, 146 mmt

37%

Shipbuilding, 40 mmt

10%Railways, 34 mmt

8%

Pipelines, 154 mmt

39%

Containers, 8 mmt2%

Others, 15 mmt4%

2025

Source: Metal Bulletin Research274 mmt 398 mmtCAGR 2.7%

The steel industry is a major supplier to the energy industry

178 MT that is 12 % of total finished steel production

Consumption of steel by energy industries (Mt)

Source : Worldsteel, Eurofer, Laplace Conseil analysis & estimates

Reducing quantity of steel per auto will limit growth in steel demanded by auto sector

Strong growth of auto production expected to continue in China

Regional demand for automotive steels, % share

Global excess capacity situation

600

800

1000

1200

1400

1600

1800

2000

2200

2400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

mmt World steel capacity and demand until 2015

Steelmaking capacity

Apparent consumption (finished steel)

Apparent consumption (crude steel)

0

100

200

300

400

500

600

700

800

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

mmt Capacity/demand gapCapacity/demand gap

EU has been a net steel exporter since 2009

Source: Eurostat.

-20000

-10000

0

10000

20000

30000

40000

50000

60000

2007 2008 2009 2010 2011 2012

Thousandtonnes

EU trade balance (total steel products)(External trade)

Net Exports Exports Imports

EU steel exports have shifted towards African markets from 2007 to 2012.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2012

2007

EU iron and steel exports by area(External trade)

Asia Middle East Other Europe North America South America Africa Oceania Others

The structure of exports -capturing the growth opportunity in emerging markets-

• The share of pipes and tubes (a major export item), has declined from 14.8% (2007) to 13.1% (2012) while bars became the largest export item in 2012.

• Exports of long products have been increasing steadily supported by robust construction activity in North Africa.

• Exports of high value-added products (e.g. galvanized sheets) have been increasing along with the growth of the auto sector in emerging markets.

• EU can take advantage of its good access to growing steel markets in Africa and Middle East.

Demand growing strongly in Europe’s neighbouring regions

50.0

100.0

150.0

200.0

250.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Evolution of steel demand (2002 = 100)Apparent steel use, finished steel

Other Europe CIS Africa Middle East

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2012

2007

EU iron and steel exports by product(External trade)

Semi Finished Products SectionsBars Wire RodsHot-rolled Sheets & Strips (Carbon Steels) Cold-rolled Sheets & Strips (Carbon Steels)Galvanized Sheets Tin PlatesPipes & Tubes Alloy Flat Steels

EU iron and steel exports (external trade) matrix in 2012 (thousands of tonnes)

Asia Middle East Europe (excl.EU) North America South America Africa Oceania Others Total Share Share

Japan ChinaChinese

TaipeiThailand India Iran Norway Switzerland Russia Turkey Canada

United States

Mexico Morocco (2012) (2007)

Iron Products 48.8 41.0 22.5 12.8 11.7 178.4 0.2 12.0 3.2 16.8 8.6 26.5 72.7 3.8 31.5 35.3 1.3 13.5 2.3 7.0 1.2 0.4 320.5 0.8 0.4

Ferro Alloys 23.5 4.8 0.6 1.1 7.0 44.7 1.0 5.3 1.2 7.9 6.0 13.9 63.1 6.5 153.2 159.6 4.4 17.3 4.3 20.3 6.3 0.0 316.6 0.8 0.5

Ingots & Semi Finished Products 4.2 31.3 67.9 1339.1 19.9 1526.8 0.0 122.9 7.4 70.9 4.1 734.1 891.3 90.1 472.2 562.3 49.9 85.6 350.7 544.7 6.9 0.0 3740.4 9.2 10.3

Rails & Accessories 1.3 16.3 6.4 4.6 13.3 69.4 6.7 154.1 7.8 67.1 83.0 59.5 276.7 50.7 89.9 140.6 3.7 136.8 1.7 123.1 12.3 0.0 912.9 2.2 2.0

Steel Sheet Piles 0.0 10.0 1.2 0.0 8.6 25.5 0.4 58.6 25.1 14.7 72.3 3.9 124.9 8.9 95.5 104.5 19.7 46.2 0.4 27.3 12.7 0.0 399.6 1.0 1.3

Sections 9.8 39.9 2.2 1.6 7.0 157.3 6.8 371.8 105.4 187.4 130.2 477.2 1075.0 186.8 177.4 364.2 118.0 471.5 127.5 662.9 8.3 0.2 3111.1 7.6 6.5

Bars 6.2 116.5 16.4 9.0 57.5 392.2 1.2 243.4 145.0 357.7 62.2 106.9 1050.8 84.0 305.0 389.0 55.9 308.9 104.7 3559.2 112.8 1.2 6057.5 14.9 8.6

Wire Rods 14.9 36.5 68.1 15.0 56.6 262.6 13.4 67.8 17.5 359.0 18.3 334.6 871.3 63.3 264.4 327.7 34.6 137.5 129.5 825.2 6.9 0.0 2499.0 6.1 4.1

Plates (Carbon Steels) 0.0 9.4 0.0 18.5 326.4 429.8 4.3 171.1 49.7 127.1 91.0 464.8 914.3 59.7 230.1 289.9 10.1 206.7 10.6 148.0 1.9 0.0 2161.9 5.3 9.2

Hot-rolled Sheets & Strips (Carbon Steels) 0.3 10.7 0.0 16.7 236.8 373.4 0.1 244.4 15.3 292.4 7.5 1376.6 1932.1 11.1 532.9 544.0 94.8 133.1 90.2 586.3 0.4 0.1 3813.7 9.4 11.1

Cold-rolled Sheets & Strips (Carbon Steels) 2.9 82.8 0.4 1.6 74.6 289.6 3.2 48.0 37.9 197.0 13.3 284.0 642.3 19.5 115.8 135.3 25.3 110.2 32.3 166.2 0.2 0.2 1392.0 3.4 4.3

Galvanized Sheets 1.8 148.0 0.0 2.9 49.8 348.7 8.2 155.7 66.6 139.7 145.1 506.9 1042.3 7.4 199.6 207.0 239.7 317.4 42.6 225.7 0.8 1.6 2299.2 5.6 4.8

Tinplates 0.4 26.4 0.2 9.5 47.7 122.8 0.0 90.1 2.6 10.5 58.9 70.5 169.5 0.1 192.5 192.6 54.9 126.8 23.2 124.2 20.7 0.1 846.8 2.1 3.3

Tin free 0.0 0.7 - 4.4 7.6 20.3 - 9.2 0.0 0.0 1.8 10.2 13.7 - 20.2 20.2 14.0 59.7 1.8 21.0 1.6 - 145.7 0.4 0.6

Other Coated Sheets 0.9 34.4 0.1 3.8 34.2 113.7 3.0 42.8 33.5 52.0 204.6 68.5 505.9 8.6 85.1 93.8 8.5 80.7 24.4 82.8 3.2 0.1 922.9 2.3 2.2

Electrical Sheets 0.2 45.3 2.5 5.5 112.4 191.3 0.0 21.8 0.7 54.8 2.1 47.8 123.4 10.1 24.1 34.2 2.3 20.7 4.0 21.6 0.9 29.7 443.7 1.1 0.8

Alloy Flat Steels 25.6 377.0 56.8 31.1 206.2 994.9 2.8 108.4 71.9 219.0 145.5 518.8 1026.7 64.8 654.6 719.5 348.1 550.7 32.4 460.1 49.6 30.4 3940.4 9.7 10.3

Pipes & Tubes 4.6 103.8 14.3 107.2 114.5 796.0 325.2 873.3 230.2 147.8 179.0 135.2 863.4 93.8 1455.6 1549.4 39.2 252.9 15.3 377.2 80.7 558.0 5351.0 13.1 14.8

Others 3.7 14.4 2.7 1.7 15.2 50.5 7.8 48.3 33.0 183.4 27.9 23.6 321.1 15.4 54.7 70.2 15.3 127.9 30.7 96.5 5.8 24.5 744.9 1.8 1.5

Total Steel Products 76.8 1103.5 239.5 1572.1 1388.3 6164.8 383.1 2831.6 849.6 2480.4 1246.8 5223.3 11844.9 774.4 4969.8 5744.2 1133.9 3173.4 1022.0 8051.9 325.7 646.1 38782.5 95.2 95.7

Cast Iron Pipes 0.0 0.2 0.4 0.0 0.3 2.9 0.0 16.2 12.2 17.6 3.3 3.7 54.3 0.1 0.9 1.0 0.1 12.5 1.6 11.3 0.2 0.0 98.4 0.2 0.3

Secondary Products 4.8 102.5 3.0 6.3 20.2 168.2 6.2 82.8 106.7 112.8 71.5 53.6 463.3 24.9 155.6 180.5 30.5 125.5 17.9 143.5 18.6 19.8 1202.2 3.0 3.1

Total Iron & Steel Products 154.0 1251.9 266.0 1592.3 1427.5 6558.9 390.5 2948.0 972.8 2635.5 1336.3 5321.0 12498.3 809.6 5311.0 6120.6 1170.2 3342.1 1048.1 8234.0 352.0 666.3 40720.2 100.0 100.0

0.4 3.1 0.7 3.9 3.5 16.1 1.0 7.2 2.4 6.5 3.3 13.1 30.7 2.0 13.0 15.0 2.9 8.2 2.6 20.2 0.9 1.6 100.0

0.2 3.7 0.8 0.9 4.0 15.1 2.9 10.7 3.6 7.8 3.4 15.0 37.6 1.6 14.7 16.3 2.8 6.6 1.7 12.5 0.8 0.3 100.0

Explanation of colors (Growth rate (%), 2012/2007): ■：Decrease □：+0-99% ■：+100-199% ■：+200-299% ■：+300% or overShare (2007)

Share (2012)

Source: Eurostat.

Frequent cycles of excess capacity in the EU

1974, just before the first oil shock 1979, just before

the 2nd oil shock

1990, just beforethe USSR collapse

2007, just beforethe financial crisis

Evolution of EU 28 crude steel production and capacity (Mt)

Source : Worldsteel, Laplace Conseil analysis

Davignon plan Manifest Crisis EU Enlargement process30 to40 Mt

Most flat steels are produced in BF/BOFs Most long steels are produced in EAFs

BOF100 Mt

EAF70 Mt

Recycled yield losses 16 Mt

FLAT92 MT

LONG62 MT

EU Crude Steel production in 2013 EU Finished Steel production in 2013

Source : Worldsteel, Laplace Conseil analysis

EBITDA on sales (EU and the rest of the world) in %

02468

10121416182022

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

EBITDA / Sales Europe

EBITDA / Sales ROW

Sources: Facset, OECD calculations

EBITDA on sales (EU steel industry) and global capacity utilisation ratio in %


60626466687072747678808284868890

0

2

4

6

8

10

12

14

16

18

20

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

EBITDA / Sales Europe

Global capacityutilisation ratio (RHS)

EBITDA on sales distribution for EU steelmakers in %

0

5

10

15

0 10 20 30 40 50


EBIT on sales (EU and the rest of the world) in %

-4-202468

1012141618

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

EBIT / Sales Europe

EBIT / Sales ROW


Debt on Ebitda (%) – European steelmakers

0

1

2

3

4

5

6

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012


Interest on assets (%) – European steelmakers


1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Price to book ratio – European steelmakers


0.0

0.5

1.0

1.5

2.0

2.519

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

12

Investment on assets – European steelmakers (%)

14

16

18

20

22

24

26

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012


R&D on assets – European steelmakers (%)


0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Thank you for your attention

Documents

Outlook for the steel market