Transcript Steel Industry Overview Régulo Salinas Cancún, México October 2007 Global Steel Industry Resumed its Growth After Decades of Stagnation and Low Profitability World Crude Steel.

Steel Industry Overview
Régulo Salinas
Cancún, México
October 2007
Global Steel Industry Resumed its Growth After
Decades of Stagnation and Low Profitability
World Crude Steel Production
Production Volume
Compound Annual Growth Rate
Production per Capita
(Million tons)
(Average % for 5 year periods)
(Kg / Capita)
12
1400
200
1,244
191
1200
10
180
1000
8
160
800
6
140
600
4
120
400
2
100
200
0
80
0
-2
60
50 55 60 65 70 75 80 85 90 95 00 05 06
50 55 60 65 70 75 80 85 90 95 00 05 06*
50 55 60 65 70 75 80 85 90 95 00 05 06
* 2006/2005
Sources: IISI, World Steel in Figures 2007; Geographic Information Systems
2
China has Been the Main Driver Behind Growth,
Changing the Industry Structure
World Crude Steel Production
1975
2006
Other
Central &
South
America
3%
North
America
North
America
Other
Central &
South
America
11%
19%
13%
11%
CIS
4%
10%
Western
Europe
23%
EU 25
22%
USSR
India
1% 5%
16%
9%
16%
Japan
3%
34%
India
China
China
Japan
644 Million Tonnes
1,244 Million Tonnes
Source: IISI, World Steel in Figures 1976, 2007
3
The Other Driver Behind Growth & Profitability
has been Industry Consolidation
Number of Steel Industry M & A’s
Amount
(US$ Billions)
71
73
68
53
24
2004
2005
2006
2004
28
2005
2006
Source: Bloomberg, Completed Deals
4
Global Steel Price Cycle Shows Two Eras
Supply Driven
Privatization
Cost Based
US$ / ton
Demand Driven
Consolidation
Price Based
900
900
China +
Global GDP
700
800
Sep ’07 = 573 (USA)
700
Asian Crisis
600
600
Steel Crisis
500
500
400
400
370
300
200
Russian Crisis
US$ / ton
800
384
** 300
200
208
100
100
0
89
90
91
92
93
94
95
China HRC Estimated Costs
(w/o General Expenses)
Source: CRU / WSD
96
97
98
99
00
HRC US*
01
02
03
04
05
HRC Europe*
06
07
0
HRC CIS*
* Constant dollars (July 2007)
** 2006 cost plus iron-ore price increase (9.5% abril 07)
5
Growing Regional Steel Concentration
Top 5 producer’s share in 2006 production
46%
77%
Total CIS
64%
113
Total Japan
59%
Total US / Canada
112
110 *
Total Europe
24%
166
63%
74%
Total Latin America
Source: IISI
63
Total Others Asia
105
Total China
349
* Million tonnes per year
6
Global Concentration Lagging Behind Other
Metals, Suppliers and Key Customers
Industry Concentration, Top 5 Producers
(%)
81%
72%
66%
Top 7
49%
40%
38%
28%
20%
Iron Ore
Sources:
Nickel
Alumina
Aluminum
Morgan Stanley Research, 16 Feb 2007
Copper
Zinc
IISI, World Steel in Figures 2006
Steel
Automotive
JD Power
7
Impact Of Industry Consolidation will Become
More Apparent in Coming Years
 Scale economies and synergies
Tactical
Level
 Better balanced steel inventories
 Optimization of Cost / Production / Logistics
 Global production / Local customer service
 Optimal plant location
 Optimal use of resources — capital, physical, labor
 Faster response to market volatility and trends
Strategic
Level
 Better balance with suppliers and customers
 Increased competition among large, efficient
producers
8
Mexico’s Steel Demand
Mexico’s Apparent Steel Consumtion
(MM tons)
22
20
Imports
Imports
/ ASC
23%
18
16
14
Apparent Steel Consumption
12
10
8
CAGR*: ’96-’07e: 6.4%
6
4
Production
2
0
85
86
87
88
89
90
91
92
93
* Compound Average Growth Rate
94
95
96 97
98
99 00
01
02
03
04
05
06 07e**
** 2007: Jan-July annualized
Source: Canacero
9
Mexican Steel Imports
Steel Products Imports
(Million tons)
6.0
5.0
Total
4.0
Long Products
3.0
2.0
1.0
Flat Products
0.0
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07*
* 2007: Jan-July annualized
Source: Canacero
10
Mexican Market Structure
Steel Products Demand in Mexico 2007*
(%)
Other **
13%
50%
Long Products
Flat Products
37%
* Seamless pipe, structural shapes, rails, Etc.
** January – July annualized
11
Raw Steel Production in Mexico
2006 Raw Steel Production
Ternium Hylsa
Other
24%
20%
6%
Sicartsa
(Mittal)
Tamsa
5%
21%
24%
Ahmsa
Mittal Steel
Lazaro Cardenas
16.3 million tons
Source: Canacero
12
Mexican Commercial Market Structure
Steel Mills
Industrial
Consumers
Service
Centers
•
•
•
•
•
•
•
Imports
Traders /
Retailers
Automotive
Domestic appliances
Motors
Containers
Metallic furniture
Machinery & equipment
Other
Construction
Agriculture
and others
13
Efficient, low cost operations
WSD 2006 World Cost Curve
(Hot Rolled Band Operating Costs before overhead)
Source: World Steel Dynamics
14
U.S. Forecasted Price Upturn to be Reflected in
Mexico
900
US$ / ton
US HRC Price
Forecast
800
700
GFMS
600
CRU
500
400
300
200
E A
03
J O E A J O E A J
04
05
Actual: CRU September 07
O E A
06
J O E A J O E A J
07
08
Projections: CRU Quarterly Oct 07
GFMS September 07
15
Positive Domestic Economic Perspectives
(%)
2007
2008
Mexico’s GDP
3.2
3.8
Manufacturing GDP
1.0
3.2
Construction
2.0
4.1
Basic metals industry
1.0
1.2
Metallic products, machinery &
equipment
1.2
3.8
Inflation (Dec-Dec)
3.5
3.6
Interest Rate (28 days)
7.1
7.5
11.00
11.30
Exchange Rate (Dec, $/dollar)
Source: Harbor Intelligence, August 2007
16