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Deutsche Bank Markets Research
Europe
Steel
Periodical
Steel Price Tracker
Date
5 August 2014
US HRC prices continue to rise; Europe remains weak
US prices strengthen and push the spread over Europe to USD200/t
________________________________________________________________________________________________________________
Deutsche Bank AG/London
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 148/04/2014.
Bastian Synagowitz
Research Analyst
(+41) 44 227-3377
HRC Prices
400
450
500
550
600
650
700
750
800
850
900
950
1,000
1,050
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
Northern Europe USA China exports to Europe
USD/t
Plate Prices
500
550
600
650
700
750
800
850
900
950
1,000
1,050
1,100
1,150
1,200
1,250
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
Northern Europe Southern Europe USA
USD/tUSD/tUSD/tUSD/t
Raw Material Prices
150
200
250
300
350
400
450
500
550
40
60
80
100
120
140
160
180
200
220
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
Iron ore Fines 62% Fe, CFR Tianjin, China Shredded scrap, US (RHS)
USD/t USD/t
Upcoming events Date
Rautaruukki: Q2 14 results 07 Aug 2014
Salzgitter: H1 2014 13 Aug 2014
Short-term volatility in steel equities continues to be driven by macro woes/ commodity price movements. US prices have started to rise again and are now being quoted at a significant premium to most other markets. In Europe, prices have been falling (both North and Southern Europe) but have still not fully passed on the drop in variable costs (iron ore, coal and scrap). Hence, the key question is whether European prices can be defended. We retain our below-consensus earnings estimates on most stocks. Our top pick is ArcelorMittal (Buy, target price E16), as we believe the company is financially de-risked and should have strong earnings leverage to an economic recovery.
HRC: Northern European prices down USD6 (E2 in Euro terms) Northern European prices were down USD6 last week to USD555 (down E2 in Euro terms to E414). Southern European prices were up E1 to E406 (USD545). Prices have been stable in the past three months. While the latest attempt to increase prices has not been successful, it will be important for mills to stabilise steel prices now that iron ore prices have started to rise again and the weaker summer period is nearing.
Chinese exports to Europe: HRC prices up E4; spreads narrowing Chinese HRC prices were up E4 to E385 (USD516) last week. The spread between Chinese and Southern European prices narrowed to USD29 (USD32 last week). Prices have increased E12 in the past three months.
US HRC: prices up another USD8 US HRC prices increased USD8 to USD748 last week. The price gap relative to Europe has widened to USD193/t and the price differential relative to China stands at c.USD232/t. Some players have tried to increase prices and although progressing market consolidation and trade intervention in some steel grades might offer support, we believe the current US price premium to other markets is not sustainable as it incentivises trade arbitrage.
Plate: Southern European up E1 Southern European prices increased E1 to E475 (USD637) last week; prices remained flat over the past month. Northern European prices were flat at E519 (USD696). US prices decreased USD1 to USD937 last week.
Rebar: Southern European prices up E2 Southern European prices were up E2 at E436 (USD585) last week; prices have decreased E17 in the past three months. Northern European prices remained flat at E443 (USD594).
Iron ore: fines 62% Fe prices are stable Prices for fines 62% Fe were stable at USD95 last week. Chinese steel output increased 0.37% WoW to 1.808mt/day in the second 10 days of July.
Scrap: European prices up USD8 European prices were up USD8 to USD368 last week. US prices were flat at USD373. If current prices were to remain stable until end-Q3, the QoQ price increase for European scrap in Q3 would be USD6.
5 August 2014
Steel Price Tracker
Page 2 Deutsche Bank AG/London
Steel price summary Figure 1: Steel price summary
Prices for the week July 28- August 04
Bloomberg ticker
Price per tonne
Absolute change
(USD)
Per cent change
(USD)
Absolute change (E) Per cent change (E)
Index USD EUR 1w 1m 3m ytd YoY 1w 1m 3m ytd YoY 1w 1m 3m ytd YoY 1w 1m 3m ytd YoY
Hot-rolled coil (HRC)
N. Europe TSIPNEHR 555 414 -6 -14 -39 -53 -16 -1 -2 -7 -9 -3 -2 -3 -13 -33 -17 0 -1 -3 -7 -4
S. Europe TSIPSEHR 545 406 -1 -12 -19 -40 -19 0 -2 -3 -7 -3 1 -2 0 -24 -19 0 0 0 -6 -4
Turkey TSIPTKHR 593 442 7 1 8 -3 -10 1 0 1 -1 -2 7 8 21 4 -13 2 2 5 1 -3
US TSIPUSHR 748 558 8 17 -19 -6 33 1 2 -2 -1 5 9 22 6 4 18 2 4 1 1 3
Chinese exports to Europe TSIPCEHR 516 385 2 3 -2 -21 -199 0 1 0 -4 -2 4 9 12 -10 -11 1 2 3 -3 -3
Cold-reduced coil (CRC)
N. Europe TSIPNECR 669 499 -3 -8 -47 -64 -32 0 -1 -7 -9 -5 0 3 -16 -40 -30 0 1 -3 -7 -6
S. Europe TSIPSECR 631 471 -9 -23 -35 -64 -48 -1 -4 -5 -9 -7 -4 -8 -8 -40 -41 -1 -2 -2 -8 -8
Turkey TSIPTKCR 680 507 0 0 -2 -20 -23 0 0 0 -3 -3 2 9 16 -7 -23 0 2 3 -1 -4
US TSIPUSCR 886 661 11 15 -11 17 61 1 2 -1 2 7 11 23 15 23 39 2 4 2 4 6
Chinese exports to Europe & NA TSIPCECR 575 429 0 0 -23 -53 -25 0 0 -4 -8 -4 2 8 -1 -33 -24 0 2 0 -7 -5
Hot-dipped galvanized coil (HDG)
N. Europe TSIPNEGV 733 547 -4 -19 -47 -53 28 -1 -3 -6 -7 4 0 -4 -14 -31 15 0 -1 -2 -5 3
S. Europe TSIPSEGV 693 517 -8 -32 -42 -59 34 -1 -4 -6 -8 5 -3 -14 -12 -36 20 -1 -3 -2 -7 4
US TSIPUSGV 949 708 30 30 -1 19 83 3 3 0 2 10 26 34 24 24 54 4 5 4 4 8
Plate
N. Europe TSIPNEPL 696 519 -3 -12 -35 -10 28 0 -2 -5 -1 4 0 0 -7 0 15 0 0 -1 0 3
S. Europe TSIPSEPL 637 475 -2 -11 -30 -39 6 0 -2 -4 -6 1 1 0 -5 -22 -1 0 0 -1 -4 0
US TSIPUSPL 937 699 -1 6 20 73 128 0 1 2 8 16 3 16 39 64 89 0 2 6 10 15
Rebar
N. Europe
ope
TSIPNERB 594 443 -3 -20 -38 -61 -17 -1 -3 -6 -9 -3 0 -7 -12 -38 -18 0 -2 -3 -8 -4
S. Europe TSIPSERB 585 436 0 -15 -44 -63 -29 0 -3 -7 -10 -5 2 -4 -17 -40 -27 0 -1 -4 -8 -6
US NA 696 519 0 0 0 -11 -11 0 0 0 -2 -2 3 9 18 0 -14 1 2 4 0 -3
Iron ore as of 04 August 2014
Fines 62% Fe TSIPIO62 95 71 0 -1 -8 -37 -36 0 -1 -7 -28 -28 0 0 -4 -26 -28 0 0 -5 -27 -28
Fines 58% Fe TSIPIO58 81 60 0 0 -11 -41 -41 0 0 -12 -34 -34 0 1 -6 -29 -31 0 2 -9 -33 -34
Prices as of 31 July 2014
Scrap
US TSIPUSFS 373 278 0 6 -23 -52 15 0 2 -6 -12 4 0 8 -8 -35 8 0 3 -3 -11 3
Europe MBSFRSHR
368 274 8 14 12 -11 4 2 4 3 -3 1 6 13 15 -3 -1 2 5 6 -1 0 Source: The Steel Index, Bloomberg Finance LP
Industry valuations and risks
We use various methodologies to value the steel companies under our
coverage – from a DCF-based valuation to a normalised earnings approach and
a sum-of-the-parts (SOTP) analysis. Key industry risks: 1) global economic
growth not meeting expectations; 2) lower-than-expected steel prices, which
could result in earnings erosion; 3) raw material and other operating costs,
which might limit earnings growth; 4) the political influence of governments on
the steel trade; 5) expansion projects not progressing as expected; and 6) M&A
valuation and integration risks.
5 August 2014
Steel Price Tracker
Deutsche Bank AG/London Page 3
Steel price announcements
Figure 2: Recent price changes
Product category Date of announcement
Company Country Details
Flats
11 July 2014 China Steel Corp Taiwan Taiwan's largest steel producer, China Steel Corp (CSC), is asking Japanese long-term contract buyers of its hot-rolled coil to pay an extra Yen 1,000/metric ton ($9.86/mt). The increase applies for August-October shipments.
30 June 2014 US Steel US US Steel announced a $25/st sheet price increase Monday, catching by surprise at least some buyers who expected a move after the Fourth of July holiday. The increase is effective immediately and covers all spot flat-rolled orders, open quotations and negotiations.
20 June 2014 Benxi Iron & Steel (Bengang)
China Benxi Iron & Steel (Bengang) announced that it is trimming its pickled coil price by Yuan 110/metric ton ($18/mt) and trimming its premium for SPHC grade HRC to Yuan 30/mt. Consequently, Bengang’s ex-works price for Q235 5.5mm HRC in July will stay at Yuan 3,640/mt ($592/mt), for DC01 1.0mm CRC at Yuan 3,980/mt ($647/mt), and for DC51D+Z 1.0mm HDG at Yuan 4,580/mt ($744/mt). All prices exclude 17% VAT.
19 June 2014 Hebei Iron and Steel (Hegang)
China Hebei Iron and Steel (Hegang) has decided to cut its ex-works prices for hot-rolled coil, pickled coil and plate by Yuan 100/metric ton ($16/mt). The new policy will cut Hegang’s ex-works prices for Q235 5.5mm HRC and Q235 14-20mm plate to Yuan 3,500/mt ($567/mt) and Yuan 3,550/mt, respectively, while that for SPCC 1.0mm CRC will stay at Yuan 4,400/mt. All prices include 17% VAT.
Longs
01 August 2014 Nucor USA Nucor will raise base pricing for all carbon and alloy special bar quality products and cold-heading quality coiled bar products by $40/st, effective with September 1 shipments.
01 August 2014 Shagang China Shagang Group cut its rebar ex-works prices by Yuan 30/metric ton ($5/mt) for the August 1-10 period. The latest cut took Shagang’s prices for 16-25mm diameter HRB400 rebar to Yuan 3,170/mt ($513/mt) with 17% VAT.
31 July 2014 Icdas Turkey Icdas increased its prices for rebar and wire rod by TRY 5/metric ton. The company announced its sales price for 12-32mm diameter rebar at TRY 1,450/mt ($676) ex-works. Its price for 10mm dia rebar rose to TRY 1,460/mt ex-works ($681), while 8mm dia rebar was at TRY 1,470/mt ex-works ($685).
28 July 2014 Steel Dynamics Inc. USA Steel Dynamics Inc. announced a $10/st price increase effective immediately. However, all confirmed orders from last Friday will be price-protected if shipped before August 23.
28 July 2014 Gerdau Long Steel North America
Gerdau Long Steel announced a $10/st price increase effective immediately. However, all confirmed orders from last Friday will be price-protected if shipped before August 25.
Stainless
01 August 2014 Posco Specialty Steel (Posco SS)
South Korea Posco has cut domestic prices of austenitic coil by Won 100,000/metric ton ($97/mt) for August. The new base price for grade 304 hot rolled coil will be around Won 3.6m/mt ($3,483/mt), while 304 cold rolled coil will be Won 3.87m/mt ($3,745/mt).
30 July 2014 Yieh United Steel Corp (Yusco)
Taiwan Yieh United Steel Corp (Yusco) has cut the export prices of its 300-series stainless hot rolled and cold rolled sheets and coils by $70/metric ton for September loadings. Yusco also reduced the domestic prices of its 300-series HR and CR products by TWD 2,500/mt ($83/mt) for August deliveries.
25 July 2014 Baosteel China Baosteel has cut its local domestic prices of 300-series stainless steel coil by Yuan 1,400/mt ($227/mt) for August. The review took the steelmaker’s selling prices for grade 304 3mm HRC and 2mm 2B CRC to Yuan 16,100/mt ($2,613/mt) and Yuan 17,600/mt respectively ex-works Shanghai.
24 July 2014 Aperam Luxembourg Aperam cut the monthly 316 surcharge to €2,066/metric ton ($2,785) from €2,111/mt in July.
Source: Steel Business Briefing and CRU
5 August 2014
Steel Price Tracker
Page 4 Deutsche Bank AG/London
Hot-rolled coil prices
Figure 3: Northern Europe Figure 4: QoQ performance
2
3
4
5
6
7
8
9
10
350
400
450
500
550
600
650
700
750
800
850
900
950
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
HRC price (USD/t) HRC price (EUR/t) Lead time (weeks)
-20 -27
20
-42-17
8
0-22 -13
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
QoQ absolute performance (EUR/t)
-4% -5%
4%
-8%-4%
2%
0%-5% -3%
QoQ relative performance
Source: The Steel Index
Source: The Steel Index
Figure 5: Southern Europe Figure 6: QoQ performance
1
2
3
4
5
6
7
8
300
350
400
450
500
550
600
650
700
750
800
850
900
950
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
HRC price (USD/t) HRC price (EUR/t) Lead time (weeks)
-26 -20
20
-37-14
2
-5 -21-3
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
QoQ absolute performance (EUR/t)
-5% -4%
4%
-8%-3%
0%
-1%-5%
-1%
QoQ relative performance
Source: The Steel Index
Source: The Steel Index
Figure 7: Turkey Figure 8: QoQ performance
0
1
2
3
4
5
6
7
8
300
350
400
450
500
550
600
650
700
750
800
850
900
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
HRC price (USD/t) HRC price (EUR/t) Lead time (weeks)
-23-49
27
-32
1
-13 -7
3 11
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
QoQ absolute performance (EUR/t)
-4%-10%
6%
-7%
0%
-3% -2%
1% 3%
QoQ relative performance
Source: The Steel Index
Source: The Steel Index
5 August 2014
Steel Price Tracker
Deutsche Bank AG/London Page 5
Figure 9: United States Figure 10: QoQ performance
2
3
4
5
6
7
8
350
450
550
650
750
850
950
1,050
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
HRC price (USD/t) Lead time (weeks)
-16 -18 -2 -27
57 27
-16
26
-3
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
QoQ absolute performance (USD/t)
-2% -3% 0% -4%
9%4%
-2%
4%
0%
QoQ relative performance
Source: The Steel Index
Source: The Steel Index
Figure 11: Chinese exports to Europe Figure 12: QoQ performance
0
5
10
15
20
25
250
300
350
400
450
500
550
600
650
700
750
800
850
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
HRC price (USD/t) HRC price (EUR/t) Lead time (weeks)
-55
-16
27
-44
-4 -140 -11
7
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
QoQ absolute performance (EUR/t)
-11%
-4%
6%
-10%
-1%-4%
0%-3%
2%
QoQ relative performance
Source: The Steel Index
Source: The Steel Index
5 August 2014
Steel Price Tracker
Page 6 Deutsche Bank AG/London
Plate prices
Figure 13: Northern Europe Figure 14: QoQ performance
0
1
2
3
4
5
6
7
8
9
10
11
400
500
600
700
800
900
1,000
1,100
1,200
1,300
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
Plate price (USD/t) Plate price (EUR/t) Lead time (weeks)
-35 -27
2
-31-5
7 2 3
-3
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
QoQ absolute performance (EUR/t)
-6% -5%
0%
-6%-1%
1% 0% 1%
-1%
QoQ relative performance
Source: The Steel Index
Source: The Steel Index
Figure 15: Southern Europe Figure 16: QoQ performance
2
3
4
5
6
7
8
9
10
11
12
350
450
550
650
750
850
950
1,050
1,150
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
Plate price (USD/t) Plate price (EUR/t) Lead time (weeks)
-49-25
22
-46
9 17
-4 -17 -7
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
QoQ absolute performance (EUR/t)
`
-9%-5%
4%
-9%
2% 3%
-1% -3% -1%
QoQ relative performance
Source: The Steel Index
Source: The Steel Index
Figure 17: United States Figure 18: QoQ performance
0
1
2
3
4
5
6
7
8
9
10
500
600
700
800
900
1,000
1,100
1,200
1,300
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
Plate price (USD/t) Lead time (weeks)
-97-58
-27 -4
8 1365
34 19
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
QoQ absolute performance (USD/t)
-10%-7%
-3% 0%
1% 2%8%
4% 2%
QoQ relative performance
Source: The Steel Index
Source: The Steel Index
5 August 2014
Steel Price Tracker
Deutsche Bank AG/London Page 7
Rebar prices
Figure 19: Northern Europe Figure 20: QoQ performance
0.0
1.0
2.0
3.0
4.0
5.0
6.0
200
300
400
500
600
700
800
900
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
Rebar price (USD/t) Rebar price (EUR/t) Lead time (weeks)
-9 -7 -9-32
0
6
-1-21
-7
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
QoQ absolute performance (EUR/t)
-2% -1% -2%-6%
0%
1%
0%-4% -2%
QoQ relative performance
Source: The Steel Index
Source: The Steel Index
Figure 21: Southern Europe Figure 22: QoQ performance
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
300
400
500
600
700
800
900
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
Rebar price (USD/t) Rebar price (EUR/t) Lead time (weeks)
-10 -12
0
-40
4 11
-7 -16 -15
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
QoQ absolute performance (EUR/t)
-2% -2%
0%
-8%
1% 2%
-1% -3% -3%
QoQ relative performance
Source: The Steel Index
Source: The Steel Index
Figure 23: United States Figure 24: QoQ performance
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
300
400
500
600
700
800
900
1,000
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
Rebar price (USD/t) Lead time (weeks)
-49
4 10
-17 -14 -4 -7
0
-1
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
QoQ absolute performance (USD/t)
-6%
0% 1%
-2% -2% 0% -1%
0%
0%
QoQ relative performance
Source: The Steel Index
Source: The Steel Index
5 August 2014
Steel Price Tracker
Page 8 Deutsche Bank AG/London
Iron ore prices
Figure 25: Fines 62% Fe, CFR Tianjin Port, China Figure 26: QoQ performance
40
60
80
100
120
140
160
180
200
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
Fines 62% Fe USD/t Fines 62% Fe EUR/t
-28
11
25
-22
7 3
-15 -18-6
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
QoQ absolute performance (USD/t)
-20%
10%
21%
-15%
5%2%
-11%-15%
-6%
QoQ relative performance
Source: The Steel Index
Source: The Steel Index
Figure 27: Fines 58% Fe, CFR Tianjin Port, China Figure 28: QoQ performance
30
50
70
90
110
130
150
170
190
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
Fines 58% Fe USD/t Fines 58% Fe EUR/t
-26
10
26
-22
60
-14-21
-7
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
QoQ absolute performance (USD/t)
-20%
10%
23%
-16%
5%0%
-11%
-19%
-8%
QoQ relative performance
Source: The Steel Index
Source: The Steel Index
5 August 2014
Steel Price Tracker
Deutsche Bank AG/London Page 9
Scrap prices
Figure 29: Europe Figure 30: QoQ performance
100
150
200
250
300
350
400
450
500
550
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
Shredded Scrap (EUR/t) Shredded Scrap (USD/t)
-32
4
12
-32
6
14
-17
4 6
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
QoQ absolute performance (USD/t)
-8%
1%
3%
-8%
2%
4%
-5%
1% 2%
QoQ relative performance
Source: Metal Bulletin
Source: Metal Bulletin
Figure 31: United States Figure 32: QoQ performance
0
100
200
300
400
500
600
700
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
Shredded scrap (USD/t)
-34
-1
10
-32
5
28 21
-20-8
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14
QoQ absolute performance (USD/t)
-8%
0%
3%
-8%
2%8% 5%
-5%-2%
QoQ relative performance
Source: Metal Bulletin
Source: Metal Bulletin
5 August 2014
Steel Price Tracker
Page 10 Deutsche Bank AG/London
Cash costs and spread
Figure 33: German HRC vs. BOF HRC cash costs Figure 34: German HRC vs. EAF HRC cash costs
-200
0
200
400
600
800
1,000
1,200
1,400
Jan-0
2
Jul-02
Jan-0
3
Jul-03
Jan-0
4
Jul-04
Jan-0
5
Jul-05
Jan-0
6
Jul-06
Jan-0
7
Jul-07
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
Jul-11
Jan-1
2
Jul-12
Jan-1
3
Jul-13
Jan-1
4
Jul-14
(USD) Spread (HRC-cash cost) German HRC
BOF cash cost Average spread
-200
0
200
400
600
800
1,000
1,200
1,400
Jan-0
2
Jul-02
Jan-0
3
Jul-03
Jan-0
4
Jul-04
Jan-0
5
Jul-05
Jan-0
6
Jul-06
Jan-0
7
Jul-07
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
Jul-11
Jan-1
2
Jul-12
Jan-1
3
Jul-13
Jan-1
4
Jul-14
(USD) Spread (HRC-cash cost) German HRC
EAF cash cost Average spread
Source: CRU
Source: CRU
Figure 35: German HRC vs. Chinese HRC Figure 36: German HRC vs. US HRC
-200
0
200
400
600
800
1,000
1,200
1,400
Jan-0
7
Apr-
07
Jul-07
Oct-
07
Jan-0
8
Apr-
08
Jul-08
Oct-
08
Jan-0
9
Apr-
09
Jul-09
Oct-
09
Jan-1
0
Apr-
10
Jul-10
Oct-
10
Jan-1
1
Apr-
11
Jul-11
Oct-
11
Jan-1
2
Apr-
12
Jul-12
Oct-
12
Jan-1
3
Apr-
13
Jul-13
Oct-
13
Jan-1
4
Apr-
14
Jul-14
(USD) Spread (German HRC- Chinese) German HRC
Chinese HRC Average spread
-200
0
200
400
600
800
1,000
1,200
1,400
Jan-0
2
Jul-02
Jan-0
3
Jul-03
Jan-0
4
Jul-04
Jan-0
5
Jul-05
Jan-0
6
Jul-06
Jan-0
7
Jul-07
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
Jul-11
Jan-1
2
Jul-12
Jan-1
3
Jul-13
Jan-1
4
Jul-14
(USD) Spread (German HRC- US) German HRC
US HRC Average spread
Source: CRU
Source: CRU
Figure 37: US HRC vs. Chinese HRC Figure 38: German HRC vs. Rotterdam 1# HMS scrap
-50
150
350
550
750
950
1,150
1,350
Jan-0
7
Apr-
07
Jul-07
Oct-
07
Jan-0
8
Apr-
08
Jul-08
Oct-
08
Jan-0
9
Apr-
09
Jul-09
Oct-
09
Jan-1
0
Apr-
10
Jul-10
Oct-
10
Jan-1
1
Apr-
11
Jul-11
Oct-
11
Jan-1
2
Apr-
12
Jul-12
Oct-
12
Jan-1
3
Apr-
13
Jul-13
Oct-
13
Jan-1
4
Apr-
14
Jul-14
(USD)Spread (US HRC- Chinese) US HRC
Chinese HRC Average spread
0
200
400
600
800
1,000
1,200
1,400
Jan-0
2
Jul-02
Jan-0
3
Jul-03
Jan-0
4
Jul-04
Jan-0
5
Jul-05
Jan-0
6
Jul-06
Jan-0
7
Jul-07
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
Jul-11
Jan-1
2
Jul-12
Jan-1
3
Jul-13
Jan-1
4
Jul-14
(USD) Spread (German HRC- Rotterdam scrap) German HRC
Rotterdam Scrap 1# HMS Average spread
Source: CRU
Source: CRU
5 August 2014
Steel Price Tracker
Deutsche Bank AG/London Page 11
Valuation and risks
Valuation and risks for ArcelorMittal (ISPA.AS, Buy, target price E16, current price E10.76)
We use an equal blend of forward EBITDA (7x 2014E) and DCF as our primary
valuation methodology; 7x EV/EBITDA represents the lower end of the current
sector valuation band (c.7-8x). Our DCF assumptions are a 9.6% WACC using
an industry beta of 1.1, a 7% market risk premium and a 3% risk-free rate, as
well as 2% terminal growth to reflect the limited growth prospects for the
industry. Key risks relate to macro, steel prices, raw material costs, project
development and FX rates. Should the improving leading indicators not
translate into a recovery in economic performance as expected by Deutsche
Bank, this would be a risk to demand for steel. Declining commodity prices
and a renewed price shock are risks to our margin assumptions. Lastly,
ArcelorMittal has a large growth appetite, and a stronger-than-expected ramp-
up of the capex budget or a failure to deliver on projects would present further
risks to the downside.
5 August 2014
Steel Price Tracker
Page 12 Deutsche Bank AG/London
Appendix 1
Important Disclosures
Additional information available upon request
Disclosure checklist
Company Ticker Recent price* Disclosure
ArcelorMittal ISPA.AS 10.76 (EUR) 4 Aug 14 7,8,14,17 *Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies
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Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes.
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Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Bastian Synagowitz
5 August 2014
Steel Price Tracker
Deutsche Bank AG/London Page 13
Historical recommendations and target price: ArcelorMittal (ISPA.AS) (as of 8/4/2014)
1
23
4 5
6 78
9
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
Aug 11 Nov 11 Feb 12 May 12 Aug 12 Nov 12 Feb 13 May 13 Aug 13 Nov 13 Feb 14 May 14
Secu
rity
Pri
ce
Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
1. 26/08/2011: Hold, Target Price Change EUR17.00 6. 21/10/2013: Upgrade to Buy, Target Price Change EUR14.50
2. 27/06/2012: Hold, Target Price Change EUR16.00 7. 17/12/2013: Buy, Target Price Change EUR15.00
3. 26/10/2012: Hold, Target Price Change EUR13.00 8. 07/02/2014: Buy, Target Price Change EUR17.00
4. 15/04/2013: Hold, Target Price Change EUR12.00 9. 04/07/2014: Buy, Target Price Change EUR16.00
5. 12/07/2013: Hold, Target Price Change EUR10.50
Equity rating key Equity rating dispersion and banking relationships
Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock. Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Notes:
1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were:
Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12-month period Sell: Expected total return (including dividends) of -10% or worse over a 12-month period
38 %
55 %
7 %
50 % 38 %
20 %0
50
100
150
200
250
300
350
400
Buy Hold Sell
European Universe
Companies Covered Cos. w/ Banking Relationship
5 August 2014
Steel Price Tracker
Page 14 Deutsche Bank AG/London
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