Global economic outlook and steel demand trends

Eldar Askerov, 23-24 April 2012

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Contents
Long term steel market trends
Global demand for steel in 1950-2010

Post-crisis steel demand recovery

EU, US Emerging markets

Conclusions

Long term steel market trends

Steel is a cornerstone and key driver for the worlds economy.

Global growth in steel production is linked to human development

World crude steel production, 1950-2011
1600

Years 1970 1975

1200

Mt 595 644 717 719 770 752 849 1,144 1,414

1980 1985 1990 1995 2000 2005 2010

800

400

0 1950 1960 1970 1980 1990 2000 2010

2011
7

1,527

Source: worldsteel

Steel a key driver of the worlds economy

World crude steel production has increased from 851 megatonnes (Mt) in 2001 to 1,527 Mt in 2011. (28.3 Mt in 1900). The industry directly employs 2 million people worldwide, with a further 2 million contractors and 4 million in supporting industries. Considering steels position as the key product supplier to industries such as automotive, construction, transport, power and machine goods then using a multiplier of 25:1 the steel industry is at the source of employment for more than 50 million people. World average steel use per capita has steadily increased from 150 kg in 2001 to 220 kg in 2010. India, Brazil, Korea and Turkey have all entered the top 10 steel producers list in the last 40 years.

Regional steel demand breakdown in 1950-2010

Regional structure of steel demand has been changing continuously along with:
Regional economic growth trends Evolution of global manufacturing base through creation and relocation of industries
Apparent crude steel use in 1950-2010
Mt 1400 1200 1000 800 600 400 200 0 EU 15 Africa and Middle East South America Other Europe
Asia and Oceania excl China China

North America former USSR

Source: worldsteel, SSY

9

19 50 19 54 19 58 19 62 19 66 19 70 19 74 19 78 19 82 19 86 19 90 19 94 19 98 20 02 20 06 20 10

Regional share in world steel demand

Developed Economies
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Emerging & Developing Economies

58.4%

41.6%

41.7%

58.3%

28.7%

71.3%

Source: worldsteel, SRO

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Investments: steel demand driver in developing world

Urbanisation and development of manufacturing base boost steel demand
Fixed investments, % to GDP
2007 2010
50 %

Fixed investments in 1980-2015, % to GDP

Thailand China

45

40

Vietnam
35

30

% 50 45 40 35 30 25 20 15 10 5 0

25
Forecast

20

India Indonesia

15
84 86 96 06 08 80 82 92 94 02 04 12 20 88 90 98 00 19 19 19 19 19 19 19 20 20 20 10 20 20 20 19 19 19 20 14

Egypt

Singapore

Algeria

Argentina

Malaysia

Brazil

Italy

Source: Global Insight

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United Kingdom

United States

Turkey

India

Spain

Saudi Arabia

Philippines

South Korea

Indonesia

South Africa

Morocco

Germany

Russia

Canada

Vietnam

Thailand

Ukraine

Poland

EU 15

Japan

China

Iran

Developing world: strong fundamentals for growth

Strong upward population trend with high share of working age population Strong needs for infrastructure and industries development
Steel use per capita, kg 2010
133 140 320 37 202 141 52 427

Population, million 2011 Brazil Mexico Turkey Indonesia Thailand Vietnam India China
197 115 74 242 70 89 1,241 1,347

Urbanisation, % 2011 2020

GDP per capita, PPP$* 2011

9,961

2020
210 126 81 263 72 96 1,387 1,388

2020
14,015 16,911 16,675 6,106 10,884 4,803 5,895 14,306

76

77

13,224 12,390

53 34 30 30 51

61 39 35 34 61

4,094 7,648 2,981 3,195 7,503

Source: Global Insight, worldsteel

*real 2005 PPP$

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Post-crisis steel demand recovery

13

Global steel demand growth in 2001-2011

Steel demand landscape has been changed by global economic crisis Two-speed world: emerging & developing economies vs developed
Global steel demand, ASU finished steel
% 30 20
12.9 12.5 1.8 World, mmt Developed Economies, y-o-y % growth Emerging&Developing Economies, y-o-y % growth 14.6 17.8 12.6 9.3 -0.6 8.9 -5.0 8.9 12.0 3.7 0.1 -5.7 24.4 8.9 5.5 10.4 5.6

Mt 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 0

10 0 -10 -20 -30

-6.1

-32.9

-40 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: worldsteel
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Regional summary at a glance

Apparent steel use finished steel, Index (2007=100)
140 130 120 110 100 90 80 70 60 50 40 2007
Source: worldsteel, SRO
15

World CIS Africa EU-27 NAFTA Middle East Other Europe Central&South America Asia&Oceania

2008

2009

2010

2011

Global economic outlook

IMF GDP Forecast Revisions for Advanced Economies
2012
2.6 2.6 2.5 2.5 2.6 2.4 2.5 2.0

IMF GDP Forecast Revisions for Emerging and Developing Economies

2013
6.5 6.5

2012
6.6 6.5 6.4

2013

5.9 6.1

6.0

1.9

1.9

5.7
1.4 1.2
Oct-10 Jan-11 Apr-11 Jun-11 Sep-11 Jan-12 Apr-12

5.4

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Source: IMF
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In 2012 the world economy is projected to expand by 3.5% (IMF)

Downside risks for the forecast:
Sovereign debt crisis in euro zone Subdued growth as a result of austerity measures Significant slowdown in growth in emerging economies Chinas hard landing
Industrial production, y-o-y, %
Forecast
15 10
%

World GDP, y-o-y, %

10 8 6 4 2 0 World -2 -4 -6 -8
1Q 06 3Q 06 1Q 07 3Q 07 1Q 08 3Q 08 1Q 09 3Q 09 1Q 10 3Q 10 1Q 11 3Q 11 1Q 12 3Q 12 1Q 13 3Q 13 1Q 14 3Q 14
5 0 -5 -10 -15 -20
%

Forecast

World Advanced Economies Emerging Markets

Advanced Economies Emerging Markets

Source: Global Insight

17

1Q 06 3Q 06 1Q 07 3Q 07 1Q 08 3Q 08 1Q 09 3Q 09 1Q 10 3Q 10 1Q 11 3Q 11 1Q 12 3Q 12 1Q 13 3Q 13 1Q 14 3Q 14

EU steel market: thorny way to recovery

Two-speed euro zone: North and South Europe Germany: positive economic outlook, strong growth in construction, automotive Spain, Italy: the second wave of crisis EU: Strong rebound in automotive sector
EU countries: steel demand, Mt
50 45 40 35 30 25 20 mmt Germany Italy France Spain UK

EU 15: steel using sectors growth, %

25 20 15 10 5 0 -5 -10

15 10 5 0 2003 2004 2005 2006 2007 2008 2009 2010

-15 -20 -25 -30 2005 2006 2007 2008 2009 2010 2011

Automotive Metal Goods Electrical engineering Mechanical engineering Transportation (less automotive) 2012 2013 2014 2015

Source: worldsteel, Oxford Economics

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Is the US economy coming back on growth path?

Latest data gives some hope that the US is recovering steadily US construction: housing starts seems to rise but still has a long way to go Strong rebound in automotive industry

US: steel using sectors growth, %

40 30 20 10 0

US: Housing units started and houses sold, %

1600 1400 2 1200 1000 800 600 1 1.5 % % 2.5

-10 -20 -30 2005 2006 2007 2008 2009 2010 2011

Fabricated metal products Mechanical machinery Electrical and optical equipment Motor vehicles

400 0.5 200 0

Ja nJu 00 l Ja -00 nJu 01 l Ja -01 nJu 02 l Ja -02 nJu 03 l Ja -03 nJu 04 l Ja -04 nJu 05 l Ja -05 nJu 06 l Ja -06 nJu 07 l Ja -07 nJu 08 l Ja -08 nJu 09 l Ja -09 nJu 10 l Ja -10 nJu 11 l Ja -11 n12

2012

2013

2014

2015

New 1 Family Houses Sold: sa: Annual Rate

Private Housing Units Started: saar: Total

Source: CEIC, Oxford economics

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ASEAN: positive perspectives for steel demand

Indonesia: slight slowdown in 2012 after impressive growth in 2011 Thailand: after floods recovery Region has strong fundamentals for steel demand growth Infrastructure improvement ASEAN: Industrial production growth, %
20 % 15

Indonesia: steel using sectors growth, %

40 30 20 10 0 -10 -20 -30 1Q2008 3Q2008 1Q2009 3Q2009 1Q2010 3Q2010 1Q2011 3Q2011 1Q2012 3Q2012 Manufacturing Mechanical machinery Fabricated Metal Goods Motor vehicles %

Thailand: steel using sectors

2005=100
180 160 140

10

120 100 80

60 40 Industrial production 20 0
20 07 20 06 20 07 20 08 20 09 20 10 20 10 20 11 20 11 20 12 20 12 20 08 20 09 20 06

-5

Manufacturing

Motor vehicles

-10 2005 2006 Indonesia 2007 2008 Thailand 2009 2010 2011 2012 2013 2014 2015 Vietnam Malaisia ASEAN

1Q

3Q

3Q

3Q

1Q

1Q

1Q

1Q

3Q

3Q

3Q

1Q

Source: Global Insight, Oxford Economics

20

1Q

3Q

India
Current deceleration due to anti inflationary policy weak external demand Long term: economy needs modern infrastructure
India and China: Industrial production growth, %
20 18 16 14 12 10 8 6 4 2 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 India % China

India: Steel using sectors

2004-05=100
450 400 350 300 250 200 150 100 50 0
Ap rAu 05 gD 05 ec -0 Ap 5 r-0 Au 6 gD 06 ec -0 Ap 6 r-0 Au 7 gD 07 ec -0 Ap 7 r-0 Au 8 gD 08 ec -0 Ap 8 r-0 Au 9 gD 09 ec -0 Ap 9 r-1 Au 0 gD 10 ec -1 Ap 0 r-1 Au 1 gD 11 ec -1 1

IP: Manufacturing IP: Capital Goods IP: Consumer Goods: Durables

Source: CEIC, Global Insight

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China: deceleration of growth in 2012

Gradual slowdown because of anti inflationary policy and weaker external demand Cooling real estate sector

YTD Growth Of Auto & Machinery Sectors Production

100% 80% 60% 40% 20% 0% -20% -40% Apr Apr Apr Apr Oct Oct Oct Jan-08 Jan-09 Jan-10 Jan-11 Oct Jan-12 Jul Jul Jul Jul
9.8% -1.8% -5.7% 47.5% 47.7%

YTD Growth Of Construction Industry

50% 40%
33.5% 38.2% 35.5% 27.8% 26.6%

30% 20% 10% 0% -10% Jan-08 Mar May Jul Sept Nov Jan-09 Mar May Jul Sept Nov Jan-10 Mar May Jul Sept Nov Jan-11 Mar May Jul Sept Nov Jan-12
FAI in real est ate Floor space under construction

14.2%

Automobile Household ref rigerat or

Civil metal vessels Room air condioner

AC electromotor Household washing machine

Cement out put

Source: worldsteel

22

China: multi-speed growth in provinces

China: provincial GDP per capita
PPP$
Xinjiang Gansu Nei Mongol Heilongjiang

Jilin Liaoning Beijing Tianjin

Level of development according to GDP per capita

Less developed

25000
Qinghai

Hebei Ningxia Shanxi Shandong Shaanxi Henan Anhui Sichuan Hubei Jiangxi Hunan Fujian Guizhou Yunnan

Jiangsu Shanghai Zhejiang

20000

Xizang

15000

Taiwan Guangxi Guangdong

Developed

10000

Hainan

5000

National Total

Guangxi

Ningxia

0
Inner Mongolia Hebei Liaoning Shanghai Shandong Jiangsu Guangdong Beijing Zhejiang Fujian Jilin Heilongjiang Tianjin

Chongqing

Source: Global Insight

23

Guizhou

Shaanxi

Qinghai

Yunnan

Shanxi

Anhui

Jiangxi

Hubei

Hainan

Sichuan

Xinjiang

Gansu

Henan

Hunan

Tibet

Conclusions
Regional structure of global steel demand has been changing over time due to many different factors including competitiveness of the local manufacturing, construction activity, population trends. Despite the deceleration of growth in the post crisis period developing economies have strong fundamentals for steel demand growth. Global steel demand has maintained relatively stable recovery momentum so far despite uncertainties and volatilities in the global economy. Evolution of the euro zone crisis and healthy growth of the emerging economies, especially of China, are critical to current trends.

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Steel touches every aspect of our lives. No other material has the same unique combination of strength, formability and versatility.

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worldsteel.org

April 30, 2012

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