Boot Scootin Boogie: A Look at Current Trends in the USA Steel Market and Economy Presentation to the: AWMI TN Chapter Nashville, TN by: Becky E. Hites, President May 15, 2014
USA Shipments and Consumption Sideways in 2013; Well Off 2004 Peak Levels USA Steel Shipments, Imports, Exports & Consumption (million tons) Shipments Imports Exports ASC 2000 109.6 38.7 6.6 141.7 5.6% 2001 98.6 30.2 6.1 122.6-13.5% 2002 99.0 32.7 6.0 125.6 2.5% 2003 104.6 23.0 8.2 119.4-5.0% 2004 111.0 35.8 7.9 138.9 16.3% 2005 103.2 32.1 9.5 125.8-9.4% 2006 108.6 45.3 9.7 144.2 14.6% 2007 106.1 33.2 11.1 128.3-11.0% 2008 98.4 32.4 13.4 117.4-8.5% 2009 60.3 16.2 9.3 67.3-42.7% 2010 83.4 23.9 12.0 95.3 41.6% 2011 91.9 28.5 13.5 106.9 12.2% 2012 95.9 33.5 13.7 115.7 8.2% 2013 95.4 32.2 12.7 114.9-0.7% Source: AISI 2
3 USA Producing at the Mid-1990s Level
Imports of Semis now 7.5% of Shipments Due in Part to the Calvert, AL Plant USA Steel Consumption / Shipment Outlook (million short tons) 1995 2000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 First quarter 24.9 28.6 28.2 27.1 27.8 26.3 27.5 13.3 20.5 22.5 25.4 23.6 Second quarter 24.4 28.5 29.0 25.6 28.8 26.5 27.7 13.5 21.7 22.3 24.7 23.8 Third quarter 24.0 27.3 27.4 25.7 26.8 27.1 26.2 16.8 20.8 23.7 23.5 24.5 Fourth quarter 24.2 24.7 26.8 26.6 26.1 26.5 17.1 18.6 20.4 23.4 22.3 23.5 Shipments 97.5 109.1 111.4 105.0 109.5 106.4 98.5 62.2 83.4 91.9 95.9 95.4 Plus: Imports 24.4 38.0 35.8 32.1 45.3 33.2 31.9 16.2 23.9 28.5 33.5 32.2 Less: Imported semis converted to finished 5.0 8.6 7.4 6.9 9.3 6.6 5.9 2.0 5.0 6.6 7.6 7.3 products by AISI-reporting companies Less: Exports 7.1 6.5 7.9 9.4 9.7 11.1 13.5 11.9 13.5 13.5 13.7 12.7 Subtotal: Apparent steel demand 109.8 131.9 131.9 120.8 135.8 121.9 111.0 64.5 88.9 100.3 108.1 107.6 Less: Est. user/buyer inventory build -2.0-2.0 8.1-6.4 6.6-2.5-4.0-10.0 4.0 1.5 1.0 0.5 Equals: Actual steel consumption 111.8 133.9 123.8 127.2 129.2 124.4 115.0 74.5 84.9 98.8 107.1 107.1 % change 2.0% 3.1% 7.1% 2.8% 1.6% -3.7% -7.6% -35.2% 14.0% 16.5% 8.3% 0.0% Source: AISI & WSD estimates 4
5 Domestic Shipments at 1.84 Million Tons Per Week, or a 86.3 Million Finished Ton Annualized Rate
6 Utilization at 76.9% TTM thru Apr 2014 versus 75.0% TTM thru Apr 2013
Utilization About Where It s Been for Four Years USA Raw Steel Production Utilization Rate 1986 62 1996 90 2006 85 1987 76 1997 90 2007 86 1988 89 1998 86 2008 82 1989 84 1999 81 2009 51 1990 84 2000 86 2010 70 1991 73 2001 75 2011 75 1992 80 2002 89 2012 76 1993 87 2003 81 2013 77 1994 91 2004 90 2014E 76 1995 90 2005 87 Source: AISI 7
Total Imports Through Dec Were 32.2 Million Tons Compared to Exports of 12.7 Million Tons 8
9 Imports Run About A Third of USA Consumption
10 USA Apparent Steel Consumption at 115 Million Ton Rate in 2013, About Flat with 2012
11 EAF-Based Steelmaking Dominates Now, But Not Taking More Share in the Last Few Years
12 EAF Steelmaking Represents 58-60% of the USA Market
USA Finished Product Shipments Increased 4.2%; Sheet Still Dominates at 54% 13
Carbon Sheet Market is 44% Hot-Rolled Band With Imports at 12% of Consumption Carbon Shipment Configuration 2013 Shipments Imports Exports ASC % Hot-Rolled Band 21.6 2.7 1.0 23.3 44% Cold Rolled Sheet 11.5 0.9 0.6 11.8 22% Hot-Dip Galvanized (HDG) 14.7 1.8 1.0 15.5 29% Electro-Galvanized (EG) 1.5 0.1 0.3 1.3 2% Other Metallic Coated 1.6 0.7 0.3 2.0 4% HR & CR strip 0.7 0.2 0.4 0.4 Total 51.6 6.4 3.6 54.4 Percent of ASC 95% 12% 7% Source: AISI 14
15 Service Center Tonnage Dropped to 26 Million Tons in 2012
USA Service Center Shipments Bottomed In June 2013 On A Twelve Month Moving Average Basis and Have Been Slowly Improving 16
USA Service Center Inventories Have Been Down on a Year-Over- Year Basis and a Trailing Twelve Month Average Basis for 13 Months 17
18 North American Auto Sales Expected to Top 16.4 Million Units in 2014
19 Auto Purchases Volatile From Year to Year
20 Trucks Represent 50% of the Market Since 1997; Hit 60% in 2004-05; Were 57% in 2013
21 Consumer Confidence Improving Slowly
22 Confidence Still Well Below the Highs
23 University of Michigan Consumer Sentiment Index Breaking Out a Bit
24 Michigan s Consumer Sentiment Index Also Still Well Below the Peak
25 Housing Starts Running At a Million a Month
26 Interest Rates Remain at Low Levels
Non-Residential Construction Improving Moderately in Recent Months Now at $568 Billion 27
Architecture Billings Index Not Definitively Positive 28
29 Industrial Production Setting New Highs
30 Fabricated Metal Production Also Strong
31 Non-Defense Capital Goods Orders at High Levels
32 Non-Defense Capital Goods Orders But Leveling Off In Recent Months
33 ISM New Orders Index at 55.1 Above the 52 that Generally Indicates Growth
Chicago Purchasing Managers Index at 63 But Having Trouble Holding the Growth Trend Level of 60 34
35 Oil Prices Have Stayed Above the Critical $100 per Barrel Level
36 At 1.6 Billion Tonnes, Global Crude Steel Production Has Probably Leveled Off
37 Cyclical Growth Patterns Repeat
Developing World is Growing While the Developed World is Contracting WSA Crude Steel Production Year-Over-Year by Region (percentage change) EU 27 CIS Other Europe NAFTA China Other Asia South America Middle East Africa Oceania Global 2001-3.1% 1.1% 1.4% -11.4% 18.0% -0.6% -4.4% 8.4% 7.9% 0.0% 0.3% 2002 0.4% 1.6% 3.9% 2.6% 20.2% 5.2% 9.3% 6.9% 6.0% 5.9% 6.2% 2003 2.3% 5.2% 10.5% 2.6% 22.0% 4.0% 5.3% 7.6% 3.0% 1.3% 7.4% 2004 5.1% 6.5% 13.7% 6.2% 22.7% 4.4% 6.6% 6.0% 2.6% -1.2% 9.4% 2005-3.3% -0.1% 3.2% -4.8% 30.4% 5.5% -1.2% 7.0% 7.4% 4.2% 8.0% 2006 6.0% 5.9% 13.0% 3.3% 18.3% 4.4% -0.1% 0.8% 4.2% 0.5% 8.9% 2007 1.4% 3.6% 8.5% 0.6% 16.3% 5.7% 6.6% 7.0% -0.1% 1.1% 7.8% 2008-5.5% -7.9% 3.6% -6.1% 4.6% 1.1% -1.8% 1.2% -9.1% -4.1% -0.4% 2009-29.8% -14.6% -8.3% -33.7% 12.6% -13.8% -20.3% 6.7% -9.3% -28.6% -7.9% 2010 24.0% 10.8% 16.0% 35.1% 10.7% 19.1% 16.2% 12.6% 7.9% 35.5% 15.8% 2011 2.8% 4.1% 16.1% 6.4% 9.9% 4.9% 9.7% 15.2% -5.6% -11.1% 7.3% 2012-5.1% -1.5% 22.1% 2.5% 3.2% -1.9% -3.7% 7.2% -2.3% -19.9% 1.0% 2013-1.8% -2.0% 30.1% -1.9% 7.5% -2.4% -0.8% 4.9% 2.3% -20.0% 3.5% Source: World Steel Association 38
Colonial Model of Supply No Longer Holds True as Half of Global Crude Steel Production is in the Developing World Countries 39
40 The World Changes; The Only Way to Win Is To Anticipate and Adapt Critical Resources of the Past Can Become Irrelevant to the Future
World Export Price for Hot-Rolled Band Sideways for 3 Months at $552 Per Tonne 41
42 USA Hot-Rolled Price Spread to the World at $174 Per Tonne Will Attract Imports
43 Current Stock Market Valuation Producers Priced Higher on Revenues than Processors
44 Processor Multiple Higher than Producers on EBITDA
Steel-Insights, LLC Seeing What Others Don t In WWII, American submarine commanders endured despite being outclassed by superior equipment and outgunned (fully functioning torpedoes weren t available to them for the first 21 months of the Pacific War). In the fog of war, as often is the case in business, decisions with long impacting outcomes have to be made without the luxury of complete or definitive information. Steel-Insights was formed to assist executive management teams navigate the noise of battle by more effectively managing the abundant resources available today and harnessing those resources to explore thought provoking and penetrating issues in order to magnify the pivotal decisions required for the long-term success of their companies in arguably tough industries that must survive challenging cycles, i.e. training and empowering submarine commanders. www.steel-insights.com 45
46 Conclusion & Questions
Disclaimer & Copyright This document and all content hereof are intended for informational purposes only and none of the information contained herein or opinions expressed herein should be viewed as an offer or solicitation to buy, sell or otherwise trade futures, options-on-futures, commodities, options, securities or any other investments mentioned herein. All opinions and information contained herein constitute the judgments of Steel-Insights, LLC or its affiliates (collectively Steel-Insights ) as of the date of this document and are subject to change without notice. Steel-Insights and its directors, members, officers and employees may, directly or indirectly, effect or have effected a transaction for Steel-Insights own account in any investment referred to herein, either before or after the material is published, or may give advice to customers which may differ from or be inconsistent with the information and opinions contained herein or may from time to time hold long or short positions in, buy or sell (on a principal basis or otherwise), or act as market maker in, securities, derivatives, futures or other financial instruments or products related to matters discussed herein and may make trading decisions that are different from or contrary to any of those which may be discussed.. The information contained herein is based on data obtained from recognized statistical services and other sources believed to be reliable. However, such information has not necessarily been verified by Steel-Insights, and Steel- Insights does not make any representations as to its accuracy, currency, reliability, effectiveness or completeness. Steel-Insights may from time to time issue futures reports based on fundamentals, such as expected trends in supply and demand, as well as reports based on technical factors, such as price and volume movements. Since such reports rely upon different criteria, there may be instances when Steel-Insights conclusions in individual reports are not in concert. Additional information on futures and options-on-futures is available upon request. Trading in futures and options on futures is not appropriate for all persons, as the risk of loss is substantial. Therefore only risk capital should be used in futures trading. Information contained herein was prepared without regard to the specific investment objectives, financial situation or needs of any particular participant. Speak to your Financial Advisor to assess whether such trading is appropriate for you. Steel-Insights is not an adviser as to legal, taxation, accounting or regulatory matters in any jurisdiction, and is not providing any advice as to any such matter to the recipient. This material does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. The recipient of this material should take their own independent advice with respect to such matters. You should be aware of the risks of trading equities, fixed income, foreign exchange or derivative instruments or in non-liquid or emerging market investments. Derivatives generally involve leverage and are therefore more volatile than their underlying cash investments. Your capital may be at risk. Products and services mentioned herein may not have regard to your specific investment objectives, financial situation or particular needs. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS ASSOCIATED WITH FUTURES AND OPTIONS TRADING CAN BE SUBSTANTIAL. All information contained herein is intended solely for your own personal, informational use, and you are not permitted to reproduce, retransmit, disseminate, sell, license, distribute, republish, broadcast, post, circulate or commercially exploit the information in any manner or media without the express written consent of Steel-Insights, or to use the information for any unlawful purpose. This document and all information herein is comprised of information, data and other material owned by either Steel-Insights or its data providers, which is protected under copyright, trademark and other intellectual property laws. Steel-Insights and its data providers, as applicable, own all rights, title and interest, including without limitation, all copyrights, in and to all content of this document. All trademarks, service marks, and logos used in the document are the trademarks, service marks, or logos of Steel-Insights or its data providers, as applicable. You may not use such names or logos without the prior written consent of the relevant owner thereof. Other than the right to access the document and view the information contained therein under the terms and conditions set forth herein, you acquire no ownership, title, right or interest of any kind in or to any of the content of this document. THIS PUBLICATION AND ALL CONTENT HEREOF ARE PROVIDED SOLELY ON AN AS IS BASIS, WITHOUT ANY REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, AND STEEL-INSIGHTS HEREBY DISCLAIMS ALL SUCH REPRESENTATIONS AND WARRANTIES, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT. ANY USE OF OR RELIANCE UPON THIS PUBLICATION, IN WHOLE OR IN PART, IS SOLELY AT THE USER S OWN RISK. Steel-Insights, LLC.