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“The global steel industry and role of governments”

Roland Verstappen, Vice-President International Affairs

OECD Steel Committee Meeting

December 10,2009

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AGENDA

• Global outlook on steel industry

• Steel trends in the developed and developing world

• ArcelorMittal response in the developed and developing markets

• Strategic role for steel in societies

• Strategic Role of Governments

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Global Outlook on Steel Industry

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Industrial and commercial network focus on market sustainability and growth opportunities

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No 1 in

North America

No 1 in

South America

No 1 in

Western Europe

No 1 in Eastern

Europe and CIS

No 1 in Africa

Leading position in the most

attractive markets

Market position and market share estimates by region*

*Source ArcelorMittal estimates based on IISI crude steel production

23%

77%

24%

76%

26%

74%

47%53%

11%

89%

ArcelorMittal

Other

A global steel production of 103 million tonnes (2008)

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4

• Continued upward revision to global growth, 2010 forecasts have been revised up

over 1% over past 6 months.

• Developing economies decline not as severe as developed, and rebound is faster

and stronger.

• 2010 growth still restrained by cautious consumers in EU & USA - offset by a

pick-up in domestic demand in emerging markets.

2008 2009 2010

World 1.9 -2.0 2.8

Nafta 0.5 -2.8 2.3

EU27 0.7 -4.0 0.9

Japan -0.7 -5.3 1.4

Middle East 5.0 -0.2 3.8

Latin America 4.8 -0.5 3.0

Asia ex China & Japan 3.7 1.5 5.4

China 9.0 8.5 9.8

*Global Insight 16 November 2009

World Real GDP growth*

After 2008/9 crisis world economy picks up

from low levels

*Source: Global Insight 16 November 2009

5Source: Global Insight Nov 17th 2009

3.4

3.6

4.2

2.3

1.5

1.8

3.3

1.9

2.8 1.0

0.8

1.5

10.7

9.8

8.4

2.1

4.5

4.5

2.4

3.7

3.9-5.5

5.8

3.5

3.8

4.7

4.4

6.2

6.4

6.4

2.5

3.5

4.1

Total Asia

excl. Japan

1990-99 2.7%

2000-09 2.6%

2010-19 3.5%

Average real GDP Growth by decade (%)

Global medium term prospects centred on

growth in the developing regions

China

Emerging

Developed

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* Developed world: EU15. USA, Canada, South Korea & Japan,

** Rest of world

Source: World Steel Association, ArcelorMittal estimates

Apparent steel demand growth in developed

world is slow

Apparent finished steel demand in

developed world* (in Mt)

0

50

100

150

200

250

300

350

400

450

500

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

20

11

20

12

20

13

20

14

20

15

20

16

20

17

'99 - '08 Average 397mt

Apparent finished steel demand in

developing world** (in Mt)

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

1300

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

China Emerging

'99-'08 Average 554mt

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Post crisis medium term growth scenario…

2010 back to 2007 levels but continued shift towards developing world

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

1300

1400

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Developed China Emerging

30%

44%

26%

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Steel trends in developed and developing world

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Europe & NAFTA will not reach 2007 levels until after 2013

Auto assembly in western world to remain depressed…

Light Vehicle Assembly

EU27

4

8

12

16

20

M illions

2007

2008

2009

2010 2

011

NAFTA

2

4

6

8

10

12

14

16

M illions

2007

2008

2009

2010

2011

6

10

Real construction output (trillions USD)

Developed world construction to lag the recovery

Developed regions losing share of global construction

US & Canada

1.1

1.1

1.2

1.2

1.3

1.3

1.4

1.4

1.5

2006

2007

2008

2009

2010

2011

Western Europe

1.6

1.7

1.7

1.8

1.8

1.9

1.9

2.0

2006

2007

2008

2009

2010

2011

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Country Total stimulus

(bn $)

Construction

stimulus (bn $)

Breakdown (approx)

USA 800 135 67% infrastructure, 33% energy &

housing repair

Germany 81 32.4 55% road\rail, 20% education

construction, 13% energy

Canada 33 26.5 71% infrastructure, 29% housing

Australia 38 16.2 67% education construction, 29%

housing renovation

Spain 14.4 10.5 80% infrastructure, 15% housing

France 34.5 6.3 80% rail and energy infrastructure,

10% housing

Italy 114 5 100% infrastructure

UK 31 4.6 27% education construction, 26%

housing, 24% roads

75 - 80% of the benefit from stimulus packages to be seen after 2009Source: Global Insight construction outlook

Impact of infrastructure stimulus in Western world

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• Machinery & equipment: Increased proportion

directed to high-tech, low steel intensive sectors.

• Construction: Increasing proportion of less steel

intensive renovation in total construction over the next

few years.

• Automotive: Continued greater demand for smaller

more fuel efficient cars; increased use of alternative

materials; increased use of more high strength and

ultra high strength steels

• Shipbuilding: Dry-cargo and container carrying

vessels already mainly made in China & Korea; cruise

ships and ferries next?

• Trade: Rising imports of steel containing goods and

parts in developed regions

Falling steel intensity in developed regions

Trends in

major steel

consuming

sectors in

the

developed

world

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Emerging markets real demand underpinned by infrastructure & rising incomes

Auto assembly and construction in developing world to

increase

Light Vehicle Assembly, units

BRICS + Emerging

10

15

20

25

30

35

M illions

2007

2008

2009 2010

2011

BRICS + Emerging

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2006

2007 2008

2009

2010

2011

Real Construction, trn USD

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India steel demand driven by stimulus spending

Source WSA14

Since March, the Indian steel industry is again running at full capacity

Indian steel recent demand growth driven by

stimulus plan, private investment & automotive

• Indian government has approved $13.5 billion

infrastructure projects and additional financing for

$26 billion worth of existing projects

• Strong demand for affordable housing and

passenger vehicles

India finished steel demand (Mt)

Forecast

0

10

20

30

40

50

60

70

80

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

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ArcelorMittal response in the developing and

developed markets

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ArcelorMittal response coming out of the crisis

• Restart steel operations in line with demand and create flexibility of

blast furnaces.

• Focus on improving total cost base to improve competitiveness:

social conditions; energy efficiency; sourcing raw material; etc..

• Focus on R&D breakthrough technologies to face CO2 challenge -

ULCOS.

• ArcelorMittal will reinitiate its growth plan selectively to capture growth

in developing markets (Brazil; India; Middle East; etc…)

• ArcelorMittal will continue to focus on its vertical integration strategy.

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ArcelorMittal is committed to support its

investments in the developed world

• ArcelorMittal has over 70% of its production capacity in developed markets.

• Steel is an essential and strategic industry to any advanced economy - every G20 nation has a domestic steel industry.

• Steel industry is cornerstone of the economy with wealth creation, investments and employment.

• Developed markets will have demands for higher value steel such as lighter, high strength steel for autos, alternative energy applications and smart grid electrical applications.

• ArcelorMittal has significant investments in the developed markets to-date. These were made due to the natural cost, market, technology, political stability and other advantages in those regional markets.

• ArcelorMittal has and will continue to make significant "corporate responsibility" contributions in all the regions that it operates in.

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Strategic role for steel in societies

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How strategic is steel for societies?

• Steel is one the most recycled materials and is 100% recyclable:

– Almost 100% of steel in cars is recycled

– Ca. 64% of steel packaging is recycled

– Life cycle CO2 output for 1 ton of steel is 30% better than cement and 3 to 4 times better than aluminium and plastics

• Steel’s strength and versatility is essential to transportation

– Trains, ships, planes, bicycles

• Innovative steel products support renewable energy generation

– Solar, wind, tidal

• Steel is widely used in construction around the world

– 76000 tonnes of steel in the Sears Tower; 46000 tonnes of steel in the Thames Barrier; bridges

– Meeting low cost housing needs in developing countries

• Packaging, agribusinesses, auto, appliances…steel touches all our lives

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Strategic Role of Governments

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What investment government policies are needed?

• Governments need to adopt more robust pro-manufacturing strategies to support the steel industry in order to maintain and improve the health of the steel industry.

1. The health of any steel enterprise depends ultimately on the health of its customers;

2. 75% of all manufactured goods contain steel.

,

• Governments must adopt new incentives to increase the competitiveness of the steel industry.

1. New laws to support substantial public investments in infrastructure and logistics, i.e. transport, energy, communication, entrepreneurship.

2. Incentives for retraining/education programs focused on jobs for the future;

3. Incentives for robust programs to combat unfair trade practices;

4. Significant direct grant support to promote breakthrough technological innovations (e.g. ULCOS).

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What trade government policies are needed?

• Governments must adopt, implement and use pro-active and

consistent trade policies and measures to ensure that there is a

global trade environment where all compete under fair conditions.

1. Ensure application of WTO trade rules to secure fair trade practices

in access to raw materials.

2. More robust application of WTO trade rules to ensure a level playing

field in the global trade of steel and manufactured goods both from a

preventative and remedial standpoint.

3. Incentives for robust programs to combat unfair trade practices.

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What climate change government policies are

needed? Example:Impact of EU ETS

Strict benchmarks will increase shortage and put

financial constraint on operations

Reduced number of free CO2 allowances will impact

production and investment plans

Applying carbon constraint on EU only will affect

competitiveness of the industry : impact on investment

decisions going forward

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International Negotiations Copenhagen

• Economic crisis and increasing globalization confirm that

a predictable and stable legal environment are crucial

elements in the investment decision process.

• “Different targets with different responsibilities in different

regions” do not work for globally traded goods like steel.

• Carbon constraints in some regions but not in all create a

competition distortion.

• Carbon leakage risk is real: steel trade flows may adjust

according to the least cost opportunities and no global

CO2 reduction will in fact be achieved.

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Which global climate change policies do we need?

• An International Sector Agreement for steel on CO2 reduction with

comparable CO2 reduction targets for all regions could be an option.

• But only if the major steel producing regions/countries are involved: EU, USA,

Brazil, Russia, India, Japan, China, South-Korea.

• Steel industry needs comparable reduction targets for all regions.

• How can we do this? Cooperation is required on binding CO2 reductions with

timetables linked to technology exchanges and funding.

• In absence of such an international sector agreement as specified above: steel

companies operating in countries with cap and trade systems must have

sufficient free CO2 permits complemented by other appropriate compensatory

measures as they have a competitive disadvantage.

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Thank you