ABM-63rd Annual Conference

Challenges for Steel Industry

Pierre Gugliermina,Chief Technology Officer, ArcelorMittal

28th

July – Santos, Brasil

2

The steel world is moving ….

• For about 25 years, steel industry suffered from chronic overcapacity and real steel prices declined by about 3%/year

• Since 2000, the huge demand from China and to a lesser extent from other emerging markets reduces global overcapacity causing prices to surge across the major steel markets.

Vicious cycle BoomingGrowth phase

0

200

400

600

800

1000

1200

1400

1600

1800

2000

1950 1960 1970 1980 1990 2000 2010

Global steel production Mt

5.9%/year

0.7%/year8%/year

4.5%/year

Source : IISI, ArcelorMittal Marketing

3

Source IISI

World steel apparent demand from 1950 to 2007 – millions of tonnes

A new demand growth dynamic due to emerging countries expansion…

Chinese new dynamic and growth in other emerging economies have led to an average 7% growth of the steel market in the last 7 years

0

200

400

600

800

1000

1200

1400

1600

19501960

19701980

19902000

+5%/y

+1%/y

+7%/y

China steel apparent demand from 1984 to 2007 – millions of tonnes

50

100

150

200

250

300

350

400

450

500

7% per year

18% per year

4

*Developed world includes US, Canada, EU15, Japan and KoreaSources: IISI and ArcelorMittal estimates

…has been answered by capacity expansion and increase in utilisation rate

The steel industry is operating globally at a high level of utilisation rate

Demand and production increase between 2000 and 2007

World steel industry operational capacity utilisation rate estimates

Developed

world*

Emerging

world

China

Increase in

capacity utilisation

and de-

bottlenecking in

the rest of the

worldChina

capacity

increase

An increase in steel demand of approximately 500mt over 7 years

294

362

135

175

28

Demand grow th (mt) Production grow th (mt)

Growth in China

Growth ex

China

80%

85%

90%

95%

100%

World capacity utilisation (%)

The "30 years" of overcapacity

Capacity

constraint

5

BRICs countries will represent almost 70 % of the steel consumption growth (2006-2015)

USAEU15 Japan

Total world about + 550 MtSteel Consumption Growth 2006-2015

150171

105124 132

9979 83

15 19 30

117

4777

1742

85 77

370

153

1990 2006 2015 1990 2006 2015 1990 2006 2015 1990 2006 2015 1990 2006 2015 1990 2006 2015 1990 2006 2015

650

ChinaRussia/CISBrazil India

1: Mature Economies steel demand not expected to drop

of which BRIC about + 372 Mt, 68% of the total

2: While Emerging countries remain a major driver of steel demand

6

Opening new ChallengesOpening new Challenges

• Growth, if continued at current conditions, will put further strain on: – Energy

– CO2 and on our environmental footprint in general

– Raw material resources

7

High expected increase of energy demand

• Energy demand will increase with about 60 % between 2002 and 2030! More than 66% of the increase in world energy demand between 2002 and 2030 will come from developing countries, especially in Asia. China counts for over 20% of the total increase.

Source: OECD Factbook 2005 (Organisation for Economic Co-operation and Development)

8

…Enhancing CO2 Challenge

ArcelorMittal reduced CO2 emissions by over 20% since 1990, through technological developments and investments. This result exceeds the European Kyoto target by about two and a half times.

But there is still much further progress to realize as steel making in countries like the CIS or China has a much higher CO2 emission rate, up to 2 times the levels allowed in Western Europe, Japan or North America.

• ULCOS (Ultra Low CO2 Steelmaking) Project:

– Consortium of 48 European partners

– Ambitious project, which aims to reduce steel production emissions by 30% to 70%.

– This 5 – year program, begun in 2005, will select from a vast number of potential technologies a few solutions for a pilot program.

9

Raw materials…huge price evolution

Nickel

10

There is no risk of scarcity, but many factors will lead to much more lower quality materials

• Steel companies securing their long-term supplies through vertical integration

• Asia becoming the major producer of crude steel (and thus the major importer of raw materials)

0 50 100 150 200 250 300 350 400 450

Zinc Ores

Manganese Ores

Metallurgical Coals

Iron Ores

0 % growth

3 % growth

Lifetime of "Economic" Reserves (as inventoried to-day)

0 10 20 30 40 50 60 70 80 90 100

Europe

Asia

2004 actual data

2015 forecasts (*)

Weight of Asia and Europe in the global crude steel production

(*) Based on Hatch Beddows Report, 2005

• Concentrated in a small number of countries

• Unevenly distributed in quality• Suppliers: Big-3 oligarchy has no

reasons to be reversed

11

leaders

challengers

NAFTA3,8 / 7,9

SOUTH AMERICA15,8 / 11,4

EU15+32,5 / 3,0

CIS25,8 / 22,7

China6,9 / 3,2

AFRICA6,3 / 3,6

OCEANIA11,3 / 9,6

Rest of ASIA6,3 / 4,8

TOTAL79 / 66 Bt Iron

Iron Ores – Mapping of main Reserves (Volume expressed in Ton Billions Iron)

Sources : USGS–’05 / US Bureau of Mines-’85 – ALMOST CONSISTENT

12

Reserves Average iron Content Reserves Reserves

(Bt) (%) (Bt Fe) (Bt Fe)

South America with 18,7 61,0 11,4 17,2% 15,8 20,1%

- Brazil 15,8 62,0 9,8 - Venezuela 2,0 55,0 1,1 - Other 0,9 55,6 0,5Oceania with 15,9 60,4 9,6 14,5% 11,30 14,4%

- Australia 15,4 60,4 9,3 - Others 0,5 60,0 0,3China 9,1 35,2 3,2 4,8% 6,90 8,8%

Other Asia with 8,1 59,2 4,8 7,2% 6,30 8,0%

- India 7,2 61,1 4,4 - Iran, .. 0,9 44,4 0,4North America with 29,4 26,9 7,9 11,9% 3,80 4,8%

- USA 16,6 20,7 3,4 - Canada 12,4 34,7 4,3 - Mexico 0,4 50,0 0,2CI S 60,0 37,8 22,7 34,3% 25,80 32,8%

Western Europe with 7,2 41,7 3,0 4,5% 2,50 3,2%

- Sweden 3,1 48,4 1,5 - Others 4,1 36,6 1,5Africa with 6,0 60,0 3,6 5,4% 6,30 8,0%

- Mauritania 4,1 63,4 2,6 - Others 1,9 52,6 1,0TOTAL 154,4 42,9 66,2 100% 78,7 100,0%

Share of Total

Reserve

Share of Total

Reserve

Table 1.II + Fig. 1.3 - "Les Minerais de Fer, Ressources mondiales et préparations" - Déc-2002 (Source : US Bureau of Mines (1985))

Slide 15 - "Assessing Fe opportunities …" - April-05 (Source : USGS (2005 ?))

Iron Ores – Quality of main Reserves

13

Demand / Supply – 2004 towards 2015 and more

• In the medium-term primary raw materials supply should be eased by announced capacity expansions, BUT . . .

• Main suppliers will manage these programs to maintain a tight equilibrium• Based on a “medium” growth rate scenario (3 %), various situations

RequiredAnnounced new capacities

Major/ Influent players

2004 Exporters Importers

Iron Ores(seaborne)

1185(600)

1640(> 830)

End ’12: + 615 (+ 300)

AustraliaBrazil

China

Coking Coals(seaborne)

420(120)

580(> 170)

End ’10: global ? (+ 60)

Australia India (?)

Pellets(exports)

300(120)

415(170)

Few visibilityEnd ’07: ~ (+ 20)

Brazil BF / DRI plants

Coke(trade)

350(30)

484 Exist / captive coke 50% ChinaPoland

( Expressed in Mt)

?

?

2015

14

Continuous decrease for commodity material unlikely to be recovered

Landing at [Price ’04 + 25 % of the Gap (’05 – ’04)] considered as the most optimist

High prices on a permanent basis should be possible when considering: unprecedented China boom, what about India ? big suppliers power to keep prices under control need to shift towards poorer, less accessible, logistically constrained, …, raw materials

Prices – Long-term trends

The downtrend is broken, and prices will probably “swing” around a higher trend line even if very difficult to make valuable forecasts over 15 years

In all cases, transition between a RM pricing system dominated by Japan and Europe to one that will be dominated by China

0

10

20

30

40

50

60

70

80

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020U

Sc/

mtu

FO

B

Iron Ore Fines

real prices

nominal prices

1

2

3

1

2

3

15

From Blast Furnaces to new routes

• Raw material scarcity at higher cost • increasing amount of fine ores (from sinter feed to pellet feed)

• Quality issues of ores: high P ores , high Alumina ores, high Zn ores; Fe content; Fe++ content

• Lack of coking coal and of coke

• Quality issues of scraps

• Lack, high cost of ferro alloys

• Requiring process adaptation• To use fine ores and non coking coal with wide range of properties • Offering flexibility towards iron sources and coals• Being an energy efficient process• Environmental friendly: Low emissions: NOx, SOx, dioxines,

particulate materials, HAP, …

16

Corex

A technologically proven alternate to BF route

Largest unit : Baosteel @ 1.2 – 1.5 Mtpy

17

COREX flow sheet

AM experience at Saldanha

18

Finex

3 or 4 fluidized bed reactors

Compacting of DRI

Briquetting of coal

Evolution of COREX tech. developed by to use fine ores

19

MIDREX or HYL-III = shaft furnace

TOPGAS – CO CO2 H2 H2O

NATURAL GAS – CH4

REFORMED GAS – CO H2

FUEL GAS(to Reformer)

DIRECT REDUCEDIRON

REFORMER

WASTE GAS STACK

20

ArcelorMittal 2007 key figures

25%

17%

16%13%

7%

16%6%

EU15

Rest EU (EU27)

Other EuropeanCoutriesNorth America

South America

East Asia

Africa

An integrated leader of the Metals and Mining sector

Sales of US$105.216 billion

EBITDA of US$19.4 billion

Operating income of US$14.83 billion

Net income of US$10.368 billion

Shipment of 109.7 mt

116 mt of steel produced

Net debt of US$22.5 billion

310,000 employees in more than

60 different countries

21

ArcelorMittal not only leading the steel industry but the Metals & Mining sector

* Metal Bulletin** Result from the merger between Ansteel and Bensteel.

118

34 32 3123

0

20

40

60

80

100

120

140

Arcelo

rMitta

l

Nippo

n Stee

lJF

E

POSCO

Anben

89

32 32

22 21

0

20

40

60

80

100

Arcelo

rMitta

l

Alcoa

BHP Billi

ton

Rio T

into

CVRD

Crude Steel production in 2006 (Mt)* Turnover in 2006 (USD billion)

More than 3 times larger than next competitor

**

22

ArcelorMittal Growth Plan 2012Brownfield expansion projects

23

8 Greenfield projects focused in growing regions

ArcelorMittal Greenfield projects overview

Projects ideally positioned to capture market growth expected in India, Middle-East, CIS and Africa

600,000t long products mill in Russia

50/50 JV of 4.8mt hot strip mill in Turkey

300,000t pipe mill in Nigeria

400,000t bar mill in Mozambique

1.4mt DRI/Billet plant in Egypt

600,000t seamless tube mill in Saudi Arabia

12mt integrated plant in Orissa, India

12mt integrated plant in Jharkhand, India

Thanks for yourattention