Transcript Slide 1

Global Outlook for Pipes
from a Steel Maker’s Perspective
National Association of Steel Pipe Distributors
New York
September 15, 2006
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Introduction
More than 20 yrs in the industry, in several countries
Sanjiv Goel
General Manager Pipes & Tubes
Mittal Steel Holdings B.V.
Hofplein 20
3032 AC Rotterdam
The Netherlands
T: + 31 10 217 96 37
E: [email protected]
www.mittalsteel.com
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I am based in Holland
How you can reach me
Agenda
• Arcelor Mittal
• Mittal Steel Pipes & Tubes
• Global outlook for Pipes &
Tubes
• Challenges ahead for steel
makers
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Arcelor Mittal
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Mittal Steel and Arcelor together have created the
global leader in steel
#1 steel producer
Over 20 acquisitions
during the past 5 years
#2 steel producer
Numerous acquisitions
over the past 5 years
Creating a sustainable future for the steel industry
through consolidation
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The merger creates the undisputed leader…
Combined entity EBIT vs. competitors
(2004 pro forma - $B)
Combined
Entity EBIT vs. Competitors
13
Competitors
(2004 pro forma – mt)
106
10
Arcelor
100
75
8
5
Mittal Steel
50
25
31
31
31
21
21
3
4.7
3.4
2.8
2.5
1.5
ed
bi
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Co
m
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SC
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bi
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on
Ni
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on
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10.9
(2004
pro forma – US$bn)
Arcelor
Combined
Entity Production vs.
125
Mittal Steel
Combined entity production vs. competitors
(2004 pro forma - Mt)
The merger creates a powerful combination…
• Leadership position in high-end segments in North America, with strong
R&D capabilities
• Operations in high-growth economies with low-cost, profitable assets and
local operating expertise in numerous emerging markets
• Access to raw materials and upstream integration
• Entrepreneurial culture
• Leadership position in high-end segments in Western Europe, with strong
R&D capabilities
• Low-cost slab manufacturing in Brazil which can be expanded for export to
Europe and North America
• Successful distribution business in Europe
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Forces driving consolidation in the steel industry
Globalisation &
Increasing Concentration
Consolidation of Customers
Among Suppliers
• Service global customer
base increasingly seeking
global procurement
• Critical mass in R&D
• New product development
Steel Industry
• Disproportionate negotiating
power due to raw materials
supplier consolidation
Consolidation
Capture Growth
Increasing need for
Opportunities in New
Sustainability
Markets
• Reduce earnings volatility
• Better capacity management
• Improved returns on capital
Economies of Scale
• Plant specialisation, manufacturing
excellence, and greater ability to
sustain R&D investments
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• Slow growth in mature
markets
• Growth driven by emerging
markets
Consolidation process is moving to the next phase
2002-2004
Regional Consolidation
2004-2005
2006-
Increasing CrossBorder
Consolidation
Formation of
Global Steel
Companies
• Industry remains fragmented and largely regional
– Medium-scale producers
• Large transformational combinations will be faster, more capital efficient and carry less
risk than a series of acquisitions
– Good quality assets becoming increasingly scarce
– Fierce competitive bidding
– Continuous need for integration
• First mover advantage will be critical in global steel industry consolidation
• Industry leaders of the future will be global producers with annual capacity of 150-200m
tonnes
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Mittal Steel Pipes & Tubes
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Our profile…
• Over 2,000,000 MT/yr of production capacity
• 50/50 seamless-welded (excl. Valin JV in China)
• On four continents
• And growing ….
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Our production capacity…
Aktau (Greenfield Project)
2500
???
Krakow
Iasi
Roman
Vereeniging
2000
MT 1500
(000)
1000
Contrecoeur
Ostrava
Karvina
Annaba
Galati
500
Temirtau
0
20
20
20
20
07
06
05
04
03
02
01
Seamless
20
20
20
00
99
98
97
96
95
94
12
20
19
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Welded
Our recent history…
• Early 2005 Mittal’s tube plants were still a conglomerate of
independent units.
• Late last year a comprehensive Pipe & Tube strategy
became operational.
• Today Mittal Steel owns a highly profitable tube producing
“division” – ranking # 6 in the world.
• Focus on sales & marketing: new offices in Houston and
Dubai
September 2006 : Formation of a separate strategic division
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Our sales offices and production units…
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Our segmentation…
Mittal Steel’s Pipe & Tube activities are approaching
customers by application-segment:
• Energy
• Construction
• Engineering & Automotive
Thus combining seamless and welded products, services
and projects as required by our customers
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Global Outlook for Pipes & Tubes
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Market environment: consumption of 85
million tons, dominated by China
3.2
Apparent consumption
2005, mln tons
1.0
1.8
84.9
4,2
4,2
8,2
10,3
Welded
57,0
Seamless
27.9
11,0
17,2
23.8
China
Europe
North
America
Developed
CIS
Asia
Emerging
Asia
Latin
America
Middle East Africa
Australia
Total
28%
20%
13%
12%
10%
5%
5%
4%
2%
1%
Percentage of
total
146%
12%
3%
-6%
31%
30%
17%
49%
21%
69%
Absolute growth
2000-2005
48%
12%
10%
-4%
21%
25%
11%
27%
17%
9%
Absolute growth ’05’10 (projected)
Source:
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IISI; ISSB; JFK; McKinsey 2006
Market environment: expected growth of 4.1% per
annum to 104 million tons
Total 2005
China
Projection 2010
Welded
Seamless
North America
Developed Asia
35.2
11.0
3.2
2.3%
2.3%
2.0%
3.0%
9.9
-0.7%
2.4%
9.8
3.8%
5.5%
4.5%
5.6%
12.1
10.3
1.1
8.2
3.4
Emerging Asia
0.6
4.2
5.3
Latin America
1.6
4.2
4.7
Middle East
1.3
Africa
0.5 1.8
Australia
0.1 1.0
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7.7%
19.3
CIS
Total
8.2%
17.2
4.9
3.2
2.2%
4.1
2.1
1.1
84.9
Real
GDP
CAGR
Total 2005
23.8
11.2
Europe
CAGR
’05-’10
103.6
Source:
3.9%
4.9%
4.8%
3.2%
5.3%
1.7%
2.6%
4.1%
Global Insight; McKinsey analysis
Market environment: capacity concentrated in
seamless, fragmented in welded
Seamless capacity, 2005
100% = 39 mln tons
–
Global players*
•
•
21%
58%
Other
Large share of capacity controlled by
few players
21%
–
Global players: Tenaris (10%),
Vallourec (7%), and Sumitomo (5%)
Local champions: TMK (9%),
Interpipe (5%), Tianjin (4%), Bao
Steel (3%)
Very fragmented market
•
Over 1,000 companies
Characteristics differs by products
• Small diameter pipes (<6.3’’)
– 67% of welded market
Welded capacity, 2005
– Highly fragmented
100% = 109 mln tons
local/regional market driven
Global players*
by efficiency
Local
• Medium pipes (6.3’’< D < 16’’)
champions**
– 16% of welded market
4% 9%
– Regional/global market
driven by efficiency
• Large diameter pipes (>16’)
– 17% of welded market
– Global market driven by
•
89%
* Tenaris, Vallourec Mannesmann,
investments and know-how
Local
champions**
Sumitomo
** TMK, OMK, Interpipe, Tianjin,
Bao Steel
Other
Source:
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JFK; China steel yearbook; Company publications; Analyst
reports; company websites; McKinsey
Seamless capacity
concentrated to small set
of:
– Global players
– Local champions in CIS
and China
– In the next 5 years time
we expect new capacity
of 2.5 mi tons
•Welded capacity is very
fragmented
– Small and medium
diameter dominated by
local players
– Large diameters is a
global market driven by
investment and knowhow
– In the next 5 years time
we expect new capacity
of nearly 1.5 mi tons
•Still further options for
consolidation out
Market environment: summary of global
perspective
• The overall tube market shows attractive growth from 85 million tons in 2005
to104 million tons in 2010
– Some selected segments are of major interest due to high share of growth,
financial attractivity, or stable (less cyclical) demand, e.g. OCTG, line
transportation, automotive or specific parts of industrial.
– Regions to focus upon include:
» China,
» OCTG in North America,
» line transportation in CIS and Middle East.
•
In the tube market polarization is occurring around “solutions in specialties” and
“standard products” with different success factors for customer value creation and
supplier value capture, with the specialty market being more protected against
competition.
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Challenges Ahead for Steel Makers
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World energy demand.. ever growing …
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Oil prices continue going up…
2007 -2010
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Landscape…
• High oil prices are there to stay: > US$ 70 per barrel and
expected to rise further during the next 10 years
• Allowing for economic exploration for deep reservoir both
land and marine under difficult climatologically conditions
and for energy source of lower quality (for example high
sulfur)
Lead to following challenges…
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Challenges…
• More higher steel grades required => X70 – X120;
Q125; specialty grades and beyond
• Gas discoveries lead to large diameter pipes => plates
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Challenges…
• Sour service requirements everywhere
• Drilling in difficult areas leads to the need for alloyed /
high strength material
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What producers need to do
to face the challenges...
• Embrace growth geographies – these are a major driver of
the future
• Market better – to open up latent demand
• Manage better – for value, rather than volume
• Price better – microeconomics based; minimize volatility
• Continue consolidation trend
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Will lead to an
attractive and
sustainable industry
in the 21st century
Which trends will influence the pipes industry?
• The upstream steel industry is consolidating
• The pipe & tube industry will also consolidate
- Has already partially taken place in seamless
- Mittal Steel will grow its participation in tubes:
• Direct producer of pipes & tubes
• Key supplier of inputs for pipe & tube-making
• Access to inputs and raw materials will be paramount
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Some less obvious medium term trends …
• Within 5 years the growth rate for natural gas will be
twice as high as for crude oil (fueling demand for large
diameter pipes…)
• Within 7 years premium connections will have some sort
of universal standard rather than the multiple proprietary
types (is API strong enough to drive this process?)
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Summary…
• Further consolidation in Pipe Industry as already seen in
Steel. Recent mergers Tenaris/Maverik & Ipsco/NS
group.
• Pipe industry shall need dedicated steel sources.
• Steel and Pipe Industry to work together in R&D efforts
to meet new challenges.
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THANK YOU!
Any questions?
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