1. Overcapacity in Europe and NaftaWhere is it ? Laplace Conseil 20121

2. For the last 40 years, the minimill steel industryhas been on the offensive Steel is made either from virgin iron ore and coking coal in large integratedplants or from recycled scrap in smaller minimills. The minimills have won the competition due to : Better social relationships in human sized mills, small community bound, non union workers Higher flexibility to adapt to market fluctuations Much lower capital cost Usually lower operating cost especially in time of low demand Most importantly, the minimills have pioneered new technologies, inmetallurgy, in continuous casting and in precision rolling, which has allowedtheir penetration in increasingly sophisticated product segments. Having captured nearly all long and tubular products, minimills are nowattacking the flat product segment and will accelerate their success in the USthanks to low price shale gas. With a few notable exceptions, integrated mills have been unable to switch tothe new processes and have retreated ever since, with recurrentcontroversies and government interventions, leading to a poor industryperception, especially in the media (except of course the good ones)2 3. For many decades, the share of EAF steelhas grown steadily in Europe and NAFTAEAF share in crude steel production, by region (%)3Source : WorldSteel, Laplace Conseil analysis70%60%50%40%30%20%10%0%NAFTAEU-27, TK, Nw, Sw1961 1971 1981 1991 2001 201160%50% 4. The share of EAF steel is very different by countryShare of EAF steel by country in 2011 (%)4Source : Worldsteel Laplace Conseil analysis 5. The environmental advantages of scrap recyclingover traditional BF/BOF smelting are importantEnvironmental comparison of minimills and integrated mills in OECD countries*GJ/t CO2 t/t Virgin material/t21- 258 - 11Electricity sources : 25% nuclear, 50 % thermal, 25% hydro and/or renewable5 Source : Industry data, Laplace Conseil estimates2.1 - 2.5ScrapMinimill2.8 - 3.00.4 - 0.70.2 -0.3ConventionalIntegrated millScrapMinimillConventionalIntegrated millScrapMinimillConventionalIntegrated mill 6. In EU and US, production costs of BOF are usuallyabove EAF, particularly when steel demand is lowCost comparison BOF and EAF crude steel in Europe and USA (/t)60050040030020010066005004003001000BOFEAF200Scrap prices are moving in sync with iron ore and coal priceSo as to also capture the benefits of global steel growthSource : SBB, Eurostat, EIA, Steel on the net, Laplace Conseil analysisBOFEAF02004 2006 2008 2010 2004 2006 2008 2010 7. US and EU are large net exporter of scrap,primarily to Turkey; OECD is a small net importerBreakdown of OECD scrap net imports/exports, Mt7Source : WorldSteel, Laplace Conseil analyses1050-5-10-15EU JKAN NAFTANet OECDTurkey 8. The EU and US scrap mines each havea proven and probable reserve of 3 billion tonnesSize of the scrap mine, proven, probable and inferred, Mt** Computed as the difference between steel consumption (including indirect imports)and scrap collection. An estimate is made for unrecoverable scrap due to current userust or uneconomic recovery8Source : Worldsteel, Laplace Conseil analysis & estimates3 5003 0002 5002 0001 5001 0005000EU 27US1950 1960 1970 1980 1990 2000 2010 9. Shale gas is redefining the US energylandscape: prices are at the lowest since 2002Evolution of natural gas prices accross OECD countries (US$/MBTU)9181614121086420Japan LNG CifGermanyaverageimport priceUK HerenNBP IndexUSHenry Hub1996 1998 2000 2002 2004 2006 2008 2010 2012Source : EIA, BP, Laplace Conseil Analysis 10. US mills are located over huge shale gas plays* Pittsburg-Cleveland area: 7 BF/BOF plants + 22 EAF plants (cap. 21Mtpy)** Chicago area: 4 BF/BOF plants + 4 EAF plants (cap. 24Mtpy)*** Ontario Area: 3 BF/BOF plants + 4 EAF plants (cap. 10Mtpy)Areas further detailed (see regional maps)10**Source: EIA, AISI, USGS, Laplace Conseil analysisMain shale gas reservesIron Ore depositsEAF plants flatsEAF plants othersBOF plantsCanadaLocation of US steel mills and shale gas plays 11. In 2012, natural gas prices provide a competitiveadvantage to DRI compared to scrap, over $100/tMaintenance 289Oxygen ElectricityNatural GasTransportSource: SBB, EIA, Steelonthenet, UBS, Nucor, Laplace Conseil analysis115004003002001000DRI US HM#1 Scrap Solid Pig Iron(Brazil imports)PelletsLabour406484Cost comparison, DRI, Scrap, Pig Iron and Hot MetalAverage cost Q2 2012, United States, $/tNote: Yield, carbon value and copper penalty are not included476Liquid pig iron(average US integrated 12. Minimill technology drawing on DRI, EAF and TSCcosts one fourth of the same integrated millComparison between Integrated and minimill philosophies for investment (Billion US$)Hot strip millCold rolling MillGalv linesSource : SBB, USGS, Steel on the net, EIA,WSJ, Laplace Conseil analysis126,811,80,753,050,251,01,0121086420TK CSA Br5 MtTK Alabama US4,2 MtTotalintegratedDRI2,5 MtScrap2,5 MtEAF/TSC5 MtCold & Coat4 MtTotalMinimillPort and infrastructureCoke oven HRSintering plantPower plant2 Blast furnacesBOFSlab casterTransport to USComparison of Scrap/DRI/EAF vs iron ore/coal/BF/BOFIron ore and scrap : 200 -250% of integrated routeTotal Energycost (coal vs nat gas) : 50% of integratedCO2 emissions : 30% of integrated route (CH4)Dust and other emissions : 20 - 40% of integrated routeLabor cost : 35 to 40% of integrated routeMaintenance cost : 25% of integrated routeTotal transports to client cost : 30 - 50% of integrated routeFinancial cost : 20% of integrated routeTotal cost comparison : minimill is 20 30% lower cost 13. Nucor, already technology leader is the first tocapitalize on the game changing shale/DRI strategy Nucor is the world leader in EAF/TSC (thin slab caster) technology forhot rolled coils production with 6 minimills in operation in the US and acombined capacity of 12 Mt of hot rolled coils (not including plates). Nucor is building a DRI plant in Alabama (2 modules for 5 Mt) inaddition to its 2 Mt plant in Trinidad and has signed a 20 yearscontract for shale gas with Encana Oil and Gas Inc. to drill at costplus carried interest all the gas needed for Nucor operations. Nucor flat product expertise coupled with its DRI experience will beused to enter the automotive sheet market and other high grade steel. Nucor has an unbroken record of 156 quarterly dividends, has the bestreturn of capital employed of the industry and has never lay-off ateammate throughout the steel cycles.13 14. In Europe, shale gas are apparently abundantbut exploration/exploration is still very prudent14Europe non conventional gas resourcesSource: Kuuskraa et al 15. MANE, THECEL, PHARES !(ArcelorMittal, ThyssenKrupp, Ilva,)15 16. Despite the decade long trend toward scraprecycling, integrated mills have not switched Lakshmi Mittal has bought the largest collection of obsolete integrated millsin Europe, Nafta and ROW (along with a few jewels), but ArcelorMittal hasnot yet converted a single plant to modern recycling. The Group isembroiled in growing controversies with Governments over plant closures. Thyssen Krupp has just inaugurated a 5 Mt slab plant in Brazil and anequally large rolling complex in Alabama at a cost in excess of $12 billions,only to start selling the business, presumably at a significant loss. Ilva has so much underinvested in the maintenance and environmentprotection of its Taranto work, Europe largest, that a judge decided to throwthe owner and the management in jail until the mill comply with regulations. The common element to these sad mistakes is simple : in a mature marketwith plentiful scrap, it is simply too costly to build or even to maintainintegrated plants, while minimills enjoy substantially lower cost.16 17. Integrated mills have generally have resistedswitching to EAF for multiple reasons Quality: Old scrap contains copper that prevent producing deepdrawing steel; Yes but, only tin plate is really in that category and dueto cheaper aluminum competition, that small niche is shrinking fast. Not enough scrap in the market : Yes but, EU and US are large netexporter of scrap, primarily toward Turkey. This could be used athome. Losses of jobs : Unions have usually rejected attempts to replaceblast furnaces with EAF, due to job losses and resistance to change ;Yes but, the alternative is generally total plant closure. Not competitive : Yes but, most minimills owners (Brescianis )usually can change their Ferrari every other year.17 18. Those who doubt the capability of minimills suchas Nucor to produce exposed auto sheet "have notbeen alive or awake" over the past 30-some yearsDan DiMico, CEO Nucor,commenting Q3 2012 results before announcingthe 156th consecutive quarterly dividend.18 19. Based on 2012 production level, integrated millsrepresent 85% of OECD overcapacityShare of Capacity and excess capacity by process and region (Mt)192012e Capacity in OECDTotal = 520 MtEurope BOF105NAFTA BOF48Asia BOF133NAFTA EAF75Asia EAF54Europe EAF105Source Worldsteel, Laplace Conseil analysis2012e estimated overcapacity in OECDTotal = 51 MtAsia EAF 1Europe BOF28Asia BOFNAFTA BOF87 20. Most of the current OECD overcapacity isconcentrated in integrated mills in Europe and USARate of overcapacity by process and region (% of installed capacity)20Source Worldsteel, Laplace Conseil analysis20%10%0%Europe BOF NAFTA BOF Asia BOF Europe EAF NAFTA EAF Asia EAF 21. In NAFTA, DRI/EAF production will grow from9 to 39 Mt, replacing imports and half the BF/BOFNAFTA market supply by origin (Mt crude steel)2011, 100% = 130 Mt Forecast 2020, 100% = 139 MtBOF / BF36%21Steel net importsEAF DRI7%EAF Scrap47%10%25 / 39#BF in use / availableSource: WorldSteel, AISI, Midrex, Laplace Conseil analysisBOF / BF19%EAF Scrap53%EAF DRI28%15 / 21#BF in use / available 22. With the advent of DRI, nearly half of the NAFTAintegrated mills will be threatened by closureNAFTA Integrated mills utilization forecast by 2020NAFTA 100% = 63 Mt crude steelRG Steel likely closure226 MtTop 2 Cos integratedpossible closures18 MtOther integratedpossible closures5 MtOperatingBOF34 MtSource: Worldsteel, Laplace Conseil analysis 23. In Europe, integrated plants will probably shift tomore EAF production, some DRI could be importedEU-27 +TK, SWI, NW production , by origin (Mt crude steel)2011, 100% = 213 Mmt Forecast 2020, 100% = 236 MmtBOF / BF51%23EAF ScrapSource: WorldSteel, AISI, Midrex, Laplace Conseil analysis48%EAF DRI 1%55 / 79#BF in use / availableBOF / BF44%EAF Scrap50%EAF DRI 6%41 / 49#BF in use / available 24. By 2020, the European integrated capacitycould be reduced by one third24Source: Kuuskraa et al, Laplace Conseil analysisOperatingBOF103 MtTop 3 Cos integratedpossible closures29 MtOther integratedpossible closures10 MtEU27 + TK 100% = 150 Mt crude steelLige + Florange + Carsid closure8 Mt 25. Thank you for your attentionMetal and mining Consultantwww.laplaceconseil.com25