U.S. Steel Market Outlook Amy Ebben ArcelorMittal USA November 30, 2018
Agenda ArcelorMittal introduction U.S. steel industry performance and trade Global steel industry Review of steel markets 1
About ArcelorMittal World's leading steel and mining company with about 199,000 employees in 60 countries Recognized leader in all major global steel markets, including automotive, construction, household appliances and packaging, with leading R&D and technology, as well as sizeable captive supplies of raw materials and outstanding distribution networks An industrial presence in 19 countries exposes the company to all major markets, from emerging to mature Values geographical breadth, product diversity and raw material security 2017 Crude Steel Production ACIS 16% 25% NAFTA Europe 47% 12% Brazil 2
ArcelorMittal in the United States ArcelorMittal has facilities, offices and joint venture partnerships in 14 states and the District of Columbia
Steel demand in the U.S. continues to improve but remains below pre-recession levels 140 130 M tons U.S. Apparent Steel Consumption: 1998-2018 Steel Consumption 1998-2007 Avg 120-11% 110 100 90 80 70 60 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18E Source: AISI, AMUSA Marketing; 18E based on YTD September annualized 4
Varying levels of demand performance among the major steel products has led to prolonged recovery Flat Roll Products Long Products Pipe & Tube All Charts in M tons 85 80 75 70 65 60 55 50 45 40 Flat 2003-2007 Avg -6% 40 38 36 34 32 30 28 26 24 22 20 Long 2003-2007 Avg -18% 13 12 11 10 9 8 7 6 P&T 2003-2007 Avg +11% 35 03 06 09 12 15 18E 18 03 06 09 12 15 18E 5 03 06 09 12 15 18E 63% 26% 11% 5 Source: AISI, Images from WorldSteel, AMUSA Marketing, 2018E based on YTD Sep annualized; % represents percentage of 2017 US steel consumption
Section 232 steel tariffs April 19, 2017: Commerce initiates 232 investigation Jan 11, 2018: Report given to President affirming that steel is important to national security and hurt by imports March 8, 2018: Presidential Proclamation of 25% tariff on all imports effective March 23 Canada, Mexico, EU to be exempt temporarily while negotiations continue Country-level exemptions: Korea, Argentina and Brazil agree to quotas in place of tariffs; Australia given full exemption with no quota Product exemptions: process put in place for U.S. manufacturers to apply for one year waiver June 1, 2018: 25% tariff put in place for Canada, Mexico, and EU Retaliatory tariffs announced on domestic steel exports and other goods August 10, 2018: President announces Turkey s tariff rate will be doubled to 50% Sources: Dept of Commerce, Customs & Border Protection, AMUSA Marketing 6
The Why Behind Section 232 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% 45% 40% U.S. Monthly Raw Steel Capacity Utilization Jan 2005-Mar 2017 35% 05 06 07 08 09 10 11 12 13 14 15 16 17 Source: AISI, AMUSA Marketing M tons 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 U.S. Quarterly Flat Roll Imports & Market Share Jan 2011-Mar 2017 Import Share (RHS) Imports 11 12 13 14 15 16 17 26% 25% 24% 23% 22% 21% 20% 19% 18% 17% 16% 15% 14% 13% 12% 11% 10% 9% 8% 7
Section 232 Scope 2017 Carbon Flat Roll Imports (M tons) Section 232 Current Status Canada 3.2 25% Tariff Mexico EU Turkey South Korea 0.9 1.3 0.8 1.1 25% Tariff 25% Tariff 50% Tariff Absolute Quota: 70% of 2015-2017 Avg Australia Brazil Argentina 0.0 0.3 0.4 Full Exemption Absolute Quota: Avg 2015-2017 imports of 70% for finished and 100% for semi s Absolute Quota: 135% of 2015-2017 Avg Others 3.5 25% Tariff Source: CBP, AISI, AMUSA Marketing
Industry utilization approaches 80%; Flat Roll mills at higher utilization 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% 45% 40% U.S. Monthly Raw Steel Capacity Utilization Jan 2005-Sep 2018 35% 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: AISI 9
Imports have been volatile since S232 investigation was announced M tons U.S. Quarterly Flat Roll Imports & Market Share Jan 2011-Sep 2018 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 Import Share (RHS) Imports 11 12 13 14 15 16 17 18 26% 25% 24% 23% 22% 21% 20% 19% 18% 17% 16% 15% 14% 13% 12% 11% 10% 9% 8% Source: AISI, AMUSA Marketing 10
Exports are cooling on high domestic prices and retaliatory tariffs Other Impacts: Steel prices increased significantly post-232 but have weakened since Summer. Carbon Flat Roll Exports Jan 2013-Sep 2018 0.50 M tons Mexico Others 7% 45% 2018 48% Canada Idled domestic capacity has been restarted. Domestic mills have announced new investments to increase future capacity. Source: AISI, AMUSA Marketing 0.45 0.40 0.35 0.30 0.25 0.20 13 14 15 16 17 18 11
The Global Steel Industry is Performing Well in 2018 2018 Crude Steel Production by Month: Y/Y % Change 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% World U.S. China EU -2% Jan Feb Mar Apr May Jun Jul Aug Sep YTD All major steel producing regions have increased production YTD 2018. Global steel production is up 5% y/y. Source: World Steel Association 12
What does 5% growth look like? M metric tons 90 80 70 60 50 40 30 20 10 Annual 5% Change in Raw Steel Production Just 5% growth in China is equivalent to adding ½ of the entire U.S. industry 90 80 70 60 50 40 30 20 10 0 USA China 0 USA 2018E Source: World Steel Association, AMUSA Marketing 13
The impact of China on the global industry M metric tons Crude Steel Production: 2000-2017 900 800 China 700 600 500 400 300 200 100 USA 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: World Steel Association 14
US industry s position among world s top steel-producing countries has declined 2000 Crude Steel Production 2017 Crude Steel Production All Others 35% 3% Brazil 2% Turkey 5% 5% Germany South Korea China 15% 13% Japan 3% India 12% USA 7% Russia All Others 18% Brazil Turkey 2% 2% Germany 3% South Korea 4% 4% Russia 5% USA 6% India 6% Japan 49% China Source: World Steel Association 15
Global steel demand accelerated in 2017-2018 following slowdown in 2014-2016 2000-2019 Apparent Steel Consumption (Finished Steel) Y/Y % Chg 14% ASC y/y change 14% ASC (M mt) 1,700 12% 1,600 10% 8% 6% 4% 2% 0% 8% 2% 7% 8% 10% 7% 9% 7% 0% 8% 2% 7% 0% 1% 5% 4% 1% 1,500 1,400 1,300 1,200 1,100 1,000-2% 900-4% -3% 800-6% -8% 00 01 02 03 04 05 06 07-6% 08 09 10 11 12 13 14 15 16 17 18F 19F 700 600 Source: World Steel Association, Oct 2018 Short Range Outlook 16
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Review of steel markets 18
Steel Consuming Markets Estimated 2017 Steel Consumption by End-use Market Containers All Other Defense Appliance 3% 3% 5% 2% Energy 7% Machinery 10% 43% Construction Automotive 27% Construction and Automotive industries are the top consumers of steel in the US. About 35% of purchase flow through distribution before reaching final customer. Source: AISI Profile 2018, AMUSA Marketing 19
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Construction likely near peak; Infrastructure spending could help future steel demand Construction Spending Billion $, SAAR Dodge index points to drop by end 2019 Nonresidential Residential $800 $700 $600 Pre-Recession Peak - Nonres. Pre-Recession Peak - Res. +7% -18% $500 $400 $300 $110 $100 $90 $80 Highway & Street Spending Billion $, SAAR $200 $70 14 15 16 17 18 Source: FRED, Dodge, AMUSA Marketing 20
Auto demand remains at strong levels U.S. Motor Vehicle- Industrial Production Index Jan 2004-Oct 2018 150 140 130 120 Things to Watch USMCA changes to domestic content requirements 232 report due in February Fuel economy standards 110 100 90 80 70 60 50 40 30 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Source: FRED, AMUSA Marketing 21
Recovery in machinery demand has boosted Plate and Hot Roll shipments 115 110 105 100 95 90 85 80 75 70 65 60 55 50 45 40 35 US Machinery - Industrial Production Index Jan 2014- Oct 2018 Agricultural Construction Mining & Oil/Gas 14 15 16 17 18 Y/Y % Change in Apparent Steel Consumption -10% -15% -2% 15 16 Hot Roll Plate -19% 1% 0% 1% 17 13% 18 YTD Source: FRED, AISI, AMUSA Marketing 22
Energy pipe & tube demand grows with pipeline investment; US pipe mills looking to gain share U.S. Oil & Gas Rig Count and Oil Price Forecast Jan 2014-Dec 2019 WTI price ($/bbl) 110 100 90 80 70 60 50 WTI Crude Oil & Gas Rig Count Series Rig Count 2,000 1,800 1,600 1,400 1,200 1,000 800 Reduction in import share would have big impact for domestic pipe & tube producers 4.0 U.S. Energy Pipe & Tube Imports (Millions of Tons) 2.5 2.3 2.2 39% of imports from S. Korea in 2014 vs 25% in 2018 LP 1.4 1.1 OCTG 2.2 3.4 2.1 3.1 40 30 14 15 16 17 18 19 20 600 400 14 15 16 17 18E* Source: Baker Hughes, EIA Short Term Outlook (Nov 18), AISI, AMUSA Marketing *18E = Jan-Sep annualized 23
Positive manufacturing sentiment providing healthy backdrop for distribution demand IP Index Steel Service Center Shipments vs. IP Durable Manufacturing Jan 2014- Oct 2018 109 108 107 106 105 104 103 102 101 IP Durable Manuf Service Center Flat Roll Ship (SA) Service Center shipments up 5% YTD 2018 2.40 2.35 2.30 2.25 2.20 2.15 2.10 2.05 Service Center, M tons Annual Change in Service Center Flat Roll Inventories (Millions of Tons) 1.21-0.77-0.82 0.39 0.10 2014 2015 2016 2017 2018 YTD 100 14 15 16 17 18 2.00 Source: FRED, MSCI, AMUSA Marketing 24
2019 Outlook U.S. steel demand anticipated to post growth of 1-2% in 2018 and 2019. Underpinning growth in steel consumption is the healthy US economy which should continue to expand in 2019. Trade tensions, inflation and rising interest rates top downside risks for the year given potential impact on manufacturing output and consumer demand U.S. Apparent Steel Consumption: 1998-2019F M tons Steel Consumption 140 1998-2007 Avg 120 100 Most major steel markets are projecting flat or higher growth in 2019. Construction, the biggest market for steel, is likely nearing its cyclical peak 80 60 98 01 04 07 10 13 16 19F Although not approved by Congress, USMCA brings more certainty to North America economies, particularly as related to automotive production. Steel tariffs imposed by Section 232 remain in effect for Canada and Mexico but could be eliminated or replaced by quotas in the short term. Steel imports have trended lower following Section 232 tariffs but remain above historical market share levels. Imports will evolve based on trade remedies and global pricing dynamics. Global steel demand is expected to increase in 2019. Supply by US steel mills is increasing with restart of idled capacity and new investments. Source: AISI, World Steel Association, AMUSA Marketing 25
Thank you 26
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