PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, III. INTERNATIONAL STEEL - PowerPoint PPT Presentation

STSG - EUROMETAL PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, III. INTERNATIONAL STEEL TRADE DAY RE-ROLLERS AND PROCESSORS Made in Steel, Milano - April 4, 2013 Antonio Marcegaglia CEO & Managing Director, Marcegaglia, Italy

KEY CHALLENGES FOR THE GLOBAL STEEL INDUSTRY STEEL DEMAND Steel demand YoY growth in global steel consumption (%) 20% is slowing down, Av. growth 1950-2011: 3.7% p.a. well below its 3.7% p.a. 14.1% 15% long term growth rate 10.1% 9.2% 10% (it was 1.8% in 2012, 8.2% 7.6% 7.0% 6.5% 6.3% 5.6% est. 2.7%* in 2013)... 5% 2.7% 1.8% 1.6% 0.0% 0% -5% -6.4% -10% ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13f (*WSA +3.3% • WSD +2.0%) Source: WSA. SteelConsult PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia 2

KEY CHALLENGES FOR THE GLOBAL STEEL INDUSTRY STEEL DEMAND …and will not be driven WSD CHINA MACRO-ECONOMIC STEEL INDEX (MOVING AVERAGE BASIS) VS APPARENT STEEL CONSUMPTION (ASC) by China and Asia 2000 100 as in the recent past Macro Index consists of fj xed asset investiment 1900 95 (12-month moving average), retail sales, M2 money Macro Index supply (6-month moving average) and value added of 1800 90 (+15.8% CAGR between (left axis) industry (6- month moving average). 1700 85 The weights are 0.35, 0.25, 0.20 and 0.20, respectively. 2000 and 2011, 1600 80 1500 75 +3.5% CAGR in the next Macro Index, Moving Average Basis 1400 70 1300 65 decade) because ASC, Million Metric Tonnes Steel Consumption 1200 60 (right axis) of the reduction 1100 55 1000 50 of fj xed asset investment 900 45 800 40 700 35 600 30 500 25 400 20 300 15 200 10 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Source: WSD estimates PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia 3

KEY CHALLENGES FOR THE GLOBAL STEEL INDUSTRY OVERCAPACITY With a slower demand, SHARE OF CAPACITY AND EXCESS CAPACITY BY PROCESS AND REGION (MT) overcapacity is an issue worldwide, 2012 e Capacity in OECD 2012 e estimated overcapacity in OECD Total = 520 Mt Total = 51 Mt but while in the emerging 2 1 countries it can be absorbed 5 54 Europe BOF 105 in the long term, NAFTA BOF 75 7 Asia BOF in the OECD countries 48 28 Europe EAF 105 it has become (again) NAFTA EAF 8 133 Asia EAF a structural problem , particularly in BOF in EU. Based on 2012 production level, integrated mills represent 85% of OECD overcapacity Source: Worldsteel, Laplace Conseil analysis PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia 4

KEY CHALLENGES FOR THE GLOBAL STEEL INDUSTRY COST OF RAW MATERIALS Costs of raw materials have grown immensely (and unreasonably), leading to price instability… EVOLUTION OF IRON FINE PRICES (LHS) COST CURVE FOR IRON ORE FINES AND COKING COAL (RHS) ($/T) (US$/T CIF CHINA EQUIVALENT BASIS) 200 400 200 Due to the steepness of the cost curve A small reduction in demand or a small increase in capacity Lead to a relatively large decline in prices 150 300 150 100 200 100 Coking Coal 50 100 50 Established low cost producers from Australia and Brazil VS New entrants and high cost producers Iron ore 0 0 0 Jan 00 Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12 Cumulative volume (million tonnes) Source: Steel Business Briefj ng,Bluescope, Laplace Conseil analysis Source: Macquarie Research March 2012, Laplace Conseil analysis PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia 5

KEY CHALLENGES FOR THE GLOBAL STEEL INDUSTRY COST OF RAW MATERIALS … and moving upstream all the profj t in the value chain, while squeezing the margins of the steel mills. ESTIMATED 2012 IRON ORE COST CURVE [US$/Y CFR CHINA] 200 US$/t 150 Marginal cost of production: ~US$125/t 100 50 RIO BHP Vale FMG China 0 0 100 200 300 400 500 600 700 800 900 1000 Mt iron ore PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia 6

ADDITIONAL CHALLENGES FOR THE EU STEEL INDUSTRY Within OECD countries, the European NET EXPORT POSITION OF THE THREE LARGEST TRADING REGIONS IN 2010 (MT) ones are the worst positioned , since… 60 Japan+S.Korea The bulk of Net exports to NAFTA NAFTA • has more natural resources NAFTA net 50 imports are from third countries (raw materials and energy) 40 The bulk of • is developing aggressively Japan+ S. Korea net exports are for EU27 net exports to NAFTA 30 third countries shale gas projects 20 • has a higher ratio Japan+S.Korea of EAF based steel 10 Net exports to EU 27 0 EU 27 + TK Japan + S.Korea NAFTA Net OECD ASEAN • have a stronger industrial base Source: Worldsteel, Laplace Conseil analysis OECD (Japan and Korea) • are large net exporters, mostly in the RoW PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia 7

ADDITIONAL CHALLENGES FOR THE EU STEEL INDUSTRY While Europe: • has witnessed a continued sharp reduction in steel demand ( 2012 real -5.1%, apparent -9.7%; 2013e real -1.8%, apparent -0.7%) • is lacking natural resources, while has the most challenging environmental constraints • is not a competitive region for steel, while it is the least protected market • is facing a potential fj nancial instability, while its currency (euro) is overevaluated • is lacking any monetary or fj scal policy, while the economy is suffering and the credit is constrained PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia 8

THE ITALIAN INDUSTRIAL SCENARIO Today, Italy is facing particularly challenging times: • weak domestic market • high cost of energy • stiff labor market, but with growing unemployment rate • high debt/GDP ratio • credit crunch and high cost of money • lack of political leadership • micro-entrepreneurial industrial base PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia 9

THE ITALIAN STEEL INDUSTRY Apparent consumption in 2012 APPARENT CONSUMPTION 2011 2012 var % 12/11 in Italy was 24.9 m ton, down -16.7% Total general 29 872 238 24 875 452 -16.7 from 2011 and far below the peak Total semiprocessed 3 192 765 2 271 337 -28.9 Total laminates 26 679 473 22 604 115 -15.3 of 2006 and 2007. of which: long products 11 477 730 9 400 661 -18.1 of which: fm at products 15 201 743 13 203 454 -13.1 Sections and railway track material 904 920 760 042 -16.0 Flats were down -13.1%, Sheet piles 21 259 25 960 22.1 Total merchant bars 3 588 861 3 023 706 -15.7 longs -18.1%, semis -28.9% of which: bars 2 553 844 2 191 125 -14.2 of which: profj les 512 866 362 335 -29.4 of which: fm ats 522 151 470 247 -9.9 var. % on previous apparent consumption 2 794 250 2 097 393 -24.9 Reinforcing bar 50 50% Wire rod 4 168 440 3 493 560 -16.2 Total HR sheets and fm ats 2 060 085 1 742 612 -15.4 40 25% HR strips <600 139 653 150 459 7.7 Coils 5 512 875 5 122 638 -7.1 M.t. 2 957 692 2 421 057 -18.1 Galvanized and coated sheet 30 0% Electrogalvanized sheet 189 817 161 209 -15.1 24.9 Synthetic coated sheet 657 483 513 590 -21.9 -16.7% 20 -25% Other products (*) 737 242 656 687 -10.9 Magnetic sheet 587 677 518 871 -11.7 10 -50% CR sheet and coil 2 359 218 1 916 330 -18.8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (*) Tin plate, black plate and tin free steel Source: Federacciai PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia 10

THE ITALIAN STEEL INDUSTRY Steel production was down WORLD STEEL PRODUCTION JAN-FEB 2013 “only” -5.2%, thanks to some growth Variation January - February 2013 2012 of export (+6.4%) and signifj cant M.t. % reduction of imports (-20.6%) European Union 27.0 28.3 -1.3 -4.5% Others Europe 5.8 6.2 -0.4 -7.1% C.S.I. 17.0 18.4 -1.5 -7.9% In the fj rst two months of 2013, North America 19.5 20.6 -1.2 -5.7% steel production was down -17.2%, South America 7.1 7.5 -0.4 -5.7% especially in fm ats, because Africa / Middle East 6.0 6.2 -0.2 -3.9% of the output constraints Asia 169.7 158.1 11.6 7.3% Oceania 1.0 0.9 0.1 5.6% in Riva’s Taranto plant. World Production 253.0 246.4 6.6 2.7% Italy 3.9 4.7 -0.8 -17.2% China 125.5 113.4 12.0 10.6% World excl. China 127.6 133.0 -5.4 -4.1% Source: elaborations on WSA data PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia 11