World Steel Industry Development and Market Prospects 13 th International Market and Trade Conference

World Steel Industry Development and Market Prospects 13 th International Market and Trade Conference

Global Steel Industry in the post-crisis Period

Global economic recovery continues to disappoint The global economy grows on a single engine With strong fundamentals, the US remains the bright spot The Eurozone recovery is firming, but still lacking strength China decelerating, other emerging economies struggling Geopolitical tensions continue to undermine growth in some regions Sources: IMF, Haver Analytics 3

Uneven recovery in steel demand Post-crisis recovery led by the emerging economies Steel Demand Recovery Apparent Steel Use, finished steel (SRO April 2015) 2007=100 180 160 140 120 100 80 World Developed Economies Emerging & Developing Economies excl. China China 2014 as % of 2007 World 125.9 United States 98.7 European Union (28) 73.2 Germany 91.7 Japan 83.2 China 169.9 India 146.3 Brazil 111.7 ASEAN (5) 152.1 60 2007 2008 2009 2010 2011 2012 2013 2014 MENA 128.5 4

15 10 5 0-5 -10-15 -20-25 -30-35 -40-45 -50 2 500 2 000 1 500 1 000 500 0 Steel demand shifts to low gear with China deceleration Steel Demand Evolution (Apparent Steel Use, finished steel) China, Mt Developed, Mt Developing ex China, Mt World, y-o-y % growth China Developing ex China Developed 6.8 13.7 6.2 y-o-y % growth 30 0.4-6.1 7.9 2.0 0.6 20 10 0 418 447 551 588 641 660 735 711-10 329 332 348 374 391 406 415 299 474 447 300 373 397 389 388 412 2007 2008 2009 2010 2011 2012 2013 2014-20 -30-40 2007 2008 2009 2010 2011 2012 2013 2014 5

How are other industries doing? Sources: different, OICA, worldsteel, IAI, USGS 6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Overcapacity to stay During 00~ 14, global crude steel capacity increased by1300 Mt to reach 2351 Mt vs. crude steel production up by 815 MT to 1665 Mt Chinese capacity increased by 990 Mt to 1140 Mt, production up by 694 Mt to 823 Mt Global Capacity vs Demand (2000=100) 220 2000=100 200 Apparent steel use, crude steel equivalent Capacity Utilization Ratio 180 160 140 120 100 7

Steel industry stuck in low performance Steel companies profitability converges at a low level due to overcapacity and high raw material prices Sources: different, companies reports, Thomson Reuters 8

Steel Market Prospects

Factors shaping future steel market development Deleveraging in the developed economies Deceleration of investment-led growth in China Structural reforms in the developing and emerging economies Geopolitical stability and transformation of MENA countries Lower oil prices (at least in the medium term) GDP Growth Forecasts, % Fixed investments growth, % Source: IHS Global Insight 10

Impact of low oil prices Negative Investment in the energy sector will slow Infrastructure projects in oil revenue dependent countries to be scaled down Positive Lower energy cost to boost manufacturing and consumer spending Lower inflationary pressure provides more space for supportive monetary policy in high inflation countries and energy price reform Saudi Arabia United Arab Emirates Venezuela Nigeria Russia Ghana Vietnam Mexico Canada Malaysia Egypt Argentina Brazil United Kingdom Indonesia Turkey France United States Germany Italy China Japan Spain Poland South Korea Thailand Oil net exports as % of GDP in 2013 Fiscal breakeven oil price (USD/bbl) Iran 131 Nigeria 123 Venezuela 118 Russia 105 Saudi Arabia 104 United Arab Emirates 81-10 0 10 20 30 40% Source: - worldsteel calculations based on GI nominal GDP (USD) and UN Comtrade trade (USD, HS 2709), 2013 (2011 for UAE, 2010 for Turkey), selected countries - fiscal breakeven oil price, USD per barrel, Deutsche Bank and IMF 11

Deleveraging in the developed economies Deleveraging in the developed economies is progressing only at a slow speed, differentiated Public sector debt has increased as a result of anti-crisis measures and slow growth Deflationary pressure to aggravate debt burden Source: Haver Analytics 12

Diverging growth prospects of the developing economies Structural reform will define growth potential Brazil and Russia trapped in structural problems Mexico has brighter prospects thanks to the strong reform agenda ASEAN countries with reform agenda will outperform others MENA outlook clouded by low oil prices and geopolitical instability India getting ready for a take off with renewed reform initiatives 13

Unleashing potential of emerging markets Structural reform agenda is a prerequisite for unleashing potentials in the developing countries Low oil prices to facilitate reform environment GDP/capita, USD Urbanization, % Population,(mln) Steel use per capita, kg 2014 2030 2015 2030 2014 2030 2014 India 1636 9489 33 40 1267 1476 59 Indonesia 3401 12312 54 63 253 294 54 Vietnam 2012 8096 34 43 93 102 138 Thailand 5561 14391 50 64 67 68 258 Egypt 3376 9109 43 47 83 103 122 Sources: UN, Global Insight 14

Conclusion Steel industry will face new normal of low growth and low profit With China deceleration, lacking a strong growth engine Unleashing other emerging economies potential requires time Capacity build ups in newly emerging economies cause concern Steel industry s sustainability under great stress Current profitability inadequate to meet huge R&D bill to meet the challenges of climate change Inter-material competition and more efficient use of steel reduces steel market expansion potential Focus on value creation rather than expansion 15

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