The Aerospace & Defense Forum 2/07/2013 Aerospace & Defense Forum “How to Avoid Being a Casualty of a Raw Material Shortage” Agenda � Castle Metals Overview � Aluminum Market Dynamics � Aluminum “Pinch Point” Analysis � Titanium Market Dynamics � Tit � Titanium “Pinch Point” Analysis i “Pi h P i t” A l i � Best Case/Worst Case Scenarios � Questions 1
The Aerospace & Defense Forum 2/07/2013 Legal Disclaimer: � Presentation is for Aerospace & Defense Forum Members Only. � It Is Not To Be Released, Distributed, Copied Or Disseminated To Outside Parties (News Media, Non Aerospace & Defense Forum , p Companies) Without The Prior Consent Of Castle Metals Aerospace. Castle Metals Overview: 2
The Aerospace & Defense Forum 2/07/2013 A.M. Castle & Co. � A. M. Castle & Co. (NYSE:CAS) is the Foremost Provider of Exotic Alloys and Specialty Products, Services, and Supply Chain Solutions. � We are recognized as a Leading Distributor � W i d L di Di t ib t of Alloy Steels, Stainless Steels, Nickel Alloys, Aluminum, Titanium, Cast Iron, Brass, Copper, and Plastic, as well as a Global Resource for Complex Supply Chain Solutions. A.M. Castle & Co. � Operating in Locations throughout North America, Europe and Asia, we work with International OEMs to better serve their Multi-Location Production Requirements and Delivery Needs. � We also focus on Metals Processing and other Value-Added Services to better meet the ‘Unique Requirements’ of Industries such as Aerospace, Defense, Oil and Gas, Power Generation and Heavy Equipment. 3
The Aerospace & Defense Forum 2/07/2013 A. M. Castle & Co. Companies and Subsidiaries � Castle Metals Aerospace � H-A Industries � A. M. Castle Metals UK Limited � A.M. Castle Metals China, Limited � A M Castle Metals China Limited � Oliver Steel Plate, Co. � Total Plastics, Inc. � Kreher Steel Wire Company, LLC. Aerospace Partners: Lockheed Martin AIRBUS (UK/FR/GR) LMI Alenia McCann Aerospace Agusta Mikuni Heavy Ind. BAE Systems Mitsubishi Heavy Ind. BF Goodrich Monitor-Stellex BOEING Bombardier Nordam Cessna Northrop Grumman EADS U.S.A. & Europe EADS U S A & Europe O Gara Hess O’Gara Hess Embraer PZL Fuji Heavy Ind. Robinson Helicopter GAMESA Sikorsky SONACA Gulfstream Thayer Israel Aircraft Ind. Triumph Group Kaman United Defense Kawasaki Heavy Ind. Versaform Korean Aerospace Vought Latecoere 4
The Aerospace & Defense Forum 2/07/2013 Airline and MRO Aero Mexico HAECO / TAECO Air Canada LAN Chile Air France Lufthansa Air India Mexicana Air New Zealand Quantas British Airways South African Airways Coopesa ST Aerospace EADS Sogerma TAP Air Portugal GAMECO Timco United Airlines Castle Metals Aerospace Applications: F-35 Fighter Visual Courtesy of ALCOA 5
The Aerospace & Defense Forum 2/07/2013 Castle Metals Aerospace Applications: Commercial Aircraft Visual Courtesy of Kaiser Aluminum Aluminum Market Dynamics 6
The Aerospace & Defense Forum 2/07/2013 Aerospace Aluminum Sheet & Plate “At a Glance” � Four North � Boeing & Airbus American Producers both have Multi- of Hard Alloy “A&D” Year Fixed/Firm Aluminum Plate Aluminum Plate Products Contracts with all Four Producers � Kaiser, Aleris, Alcoa & Constellium Aluminum Industry “Demand Drivers” What to Watch for: � Planned Production Outages / Production Capacity Constraints � Labor Issues (Expiration of Contracts) � Current and Future Price of Aluminum Ingot (Contango or Backwardation) (Contango or Backwardation) � Aerospace = 4% of Global Aluminum Production – Other ‘End Use’ Markets have a major impact on A&D Production 7
The Aerospace & Defense Forum 2/07/2013 Market Forces: Capacity Increase And Investment • Competing Industries / Companies For Mill Capacity In Hard Alloy Heat Treat Aluminum Sheet, Plate And Extrusions Include: • Airbus/EADS • BCA/BDS • Space And Satellite (United Launch Alliance, SpaceX) • Aircraft Cargo / Freight Container Converters • 5 th Generation Fighter Aircraft (JSF) • There Has Been Considerable Increase In Capacity For Heat Treat Sheet And Plate In The Last 6 Years. • Kaiser: $140 Million In 2007 • Aleris: $30 Million In 2011 • Alcoa: Capital Investment not Disclosed by Individual Location Potential “Pinch Points” in Aluminum Extrusion Supply Chain � The majority of A&D Aluminum Extrusions are produced by three Mills: Alcoa Pimalco, Kaiser Alexco, and UAC � Both Alexco and Pimalco have multiple ‘Presses’ within the same Container size. – Should one press go down, it would mean a maximum three week disruption until Tooling i th k di ti til T li could be produced for other press to run extrusions. – Therefore, not only is there duplicate presses of similar sizes within the current vendors; there are multiple sources for Aluminum Extrusions. 8
The Aerospace & Defense Forum 2/07/2013 Potential “Pinch Points” in Aluminum Extrusion Supply Chain � Alcoa has recently announced a cutback in Smelter Production because of the low price of Aluminum Ingot. � There are additional “Private” Ingot inventories, trading positions for EFT Ingot Funds. � There is “Low risk” of disruption to “A&D” customers based on Ingot availability. b d I il bili � 2013 is expected to see Global Demand for Aluminum Ingot increase - not to shortage levels, but expect 3%-5% increase in pricing. Potential “Pinch Points” in Aluminum Extrusion Supply Chain � There is low risk of supply interruption due to unplanned ‘Mill Outage’ at either Alcoa Pimalco or Kaiser Alexco. � There is Low Risk of Supply Interruption due to Constricted Supply of Aluminum Billet or pp y Ingot in Current Market or at Increased Commercial Build Rates into 2015 9
The Aerospace & Defense Forum 2/07/2013 “Pinch Points” in Aluminum Extrusion Supply Chain � Large ‘Press’ items currently are a “Pinch Point” in the Supply Chain. (Container Size greater than 8”) � Two Major Suppliers: Alcoa – Lafayette and UAC � Both ‘experiencing’ Extended Lead times at Current Run Rates. � Current Lead-times of 26 to 50 weeks depending on Extrusion Alloy & Size. “Pinch Points” in Aluminum Sheet & Plate Supply Chain: � Unique Alloys & Tempers � High Value Added Alloys: Example = 2219 & 2014 (Primary Space/Satellite Alloys) � Non Standard sizes (Std = 36”, 48”, 60” or 72” wide & 120” or 144-1/2” long) 72 wide & 120 or 144 1/2 long) � Additional Testing: Example = “USI Testing” � Over-size Product: Widths greater than 96” and Lengths greater than 288” 10
The Aerospace & Defense Forum 2/07/2013 “Pinch Points” in Aluminum & Titanium Tubing Supply Chain � Few Producers & Few Distributors make for concerns in this part of Supply Chain � Haynes International, Sandvik, & Fine Tubes are the major Aerospace Titanium Tubing Producers (Lead Time = 60 weeks +) ( ) � Kaiser Chandler, Alcoa Lafayette, & ALunna are the major Aerospace Aluminum Tubing Producers (Lead Time = 12 to 30 weeks) Titanium Market Dynamics 11
The Aerospace & Defense Forum 2/07/2013 Breakdown of Consumption: Major ‘End Use’ Market � Commercial Aerospace = 45% � General Industrial = 35% � Military and Defense = 10% � Medical and Commercial = 8% � Other = 2% Three Variables Driving Titanium Supply & Demand � Realization of the Capacity Expansion Plans by Titanium Suppliers, including American and Chinese Producers � The Boeing 787 Build Rate and Demand from other Titanium “Intensive” Aircraft � Continued Chinese Economic Growth and Chinese consumption of Steel, Titanium and other Metals that are related to World Titanium Demand and Supply Conditions 12
The Aerospace & Defense Forum 2/07/2013 Sponge Capacity Sponge 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Capacity Total 263 343 461 527 507 515 528 528 549 570 570 Global Titanium Industry Macro Model Total Western World Consumption 2010 2011 2012 2013 E 2014 E 2015 E Commercial Aerospace 60 71 102 105 108 112 General Industrial 67 82 93 98 98 97 Military & Defense y 26 30 31 31 31 33 Consumer and Global 15 25 30 35 50 40 (1) Project Finished Mill Demand 168 208 256 269 287 282 Consumption Growth 14% 24% 23% 5% 7% ‐ 2% Data courtesy of Cleveland Research 13
The Aerospace & Defense Forum 2/07/2013 Global Titanium Consumption Volumes By Sector 325 300 275 250 225 200 175 150 150 125 100 75 50 25 0 Commercial Aerospace General Industrial Source: ITA, Industry Sources, CRC est. Aerospace Titanium Consumption Aerospace Titanium Consumption Est 1991 to 2015E 115 110 105 mm of pounds 100 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 E E E E E E 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 1 2 3 4 5 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 0 0 0 0 0 0 2 2 2 2 2 2 Source: Industry Sources: ITA; CRC est 14
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