June 2015
Steel Global Outlook
2150520_Steel Global Overview Roland Berger.pptx
Introduction to Roland Berger Strategy Consultants
Source: Roland Berger
Founded in 1967 in Germany by Roland Berger
50 offices in 36 countries, with around 2,400 employees
About 220 RB Partners currentlyserving
~1,000 international clients
75% client retention,
30% of top 1,000 companies
Senior Partner, Paris office
Advisor to leading process industries
players worldwide :
> Steel, cast iron
> Aluminum
> Glass
> Paper
Emmanuel BonnaudRoland Berger
3150520_Steel Global Overview Roland Berger.pptx
This document shall be treated as confidential. It has been compiled for the exclusive, internal use by our client and is not complete without the underlying detail analyses and the oral presentation. It may
not be passed on and/or may not be made available to third parties without prior written consent from Roland Berger Strategy Consultants. RBSC does not assume any responsibility for the completeness
and accuracy of the statements made in this document.
© Roland Berger Strategy Consultants
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Steel industry is recovering but the situation remains fragile – Steel market
is increasingly going global – will anti-dumping recent moves affect it ?
China and Brazil are current matters of concern because of overcapacity–
Europe and India signals are more positive, NAFTA uncertain
New technologies and digital will impact steel market – supply chain
reactivity may increase significantly
Impact on Manganese: increasing Mn intensity of new materials leverages
moderate growth for steel
4150520_Steel Global Overview Roland Berger.pptx
822 mT
(50%)
205 mT
(12%)
121 mT
(7%)
313 mT
(19%)45 mT
(3%)
1,649 mT
Source: World steel association, Roland Berger
China
+7,3% +5,1%
Europe
+4,1% +4,7%
North America
+7,6% +8,5%
Asia (excl. China)
+6,0% +7,9%South America
+3,6% +7,5%
Production CAGR 09-14
DemandCAGR 09-13
World
+5,8% +6,0%
Latest trendSteel production
(% of world prod.)
GLOBAL TRENDS
5150520_Steel Global Overview Roland Berger.pptxSource: World steel association, Fastmarkets, Roland Berger
Steelmarket
Overcapacity
> World steel capacity utilization ratio of 71,6% in March 2015
Technology and digital
> Impact on client supply chain
Chinese slowdown
> Decrease in steel demand as banks won't lend to SMEs
Cost & competitiveness
> Obsolescence and cost reduction on the top of steel companies CEOs agendas
Economic recovery
> Moderate and / or fragile economic recovery notably in Europe
Steel price
> Weak demand and currencies in steel-producing countries have pushed export activity, lowering steel prices
> No more niches
GLOBAL TRENDS
6150520_Steel Global Overview Roland Berger.pptx
All major steel producers acknowledge a challenging context
Source: Company's annual report, Roland Berger
Several macroeconomic trends are definite
concerns, including softening market conditions
impacting our operations, geopolitical issues,
declining oil prices, and global overcapacity
and a strengthening dollar
U.S. Steel Corporation – Annual report 2014
A world that is still recovering from the
after-effects of a major economic crisis,
where demand for steel reduced
significantly in the developed nations
and has still in some countries not
reached pre-crisis levels
Lakshmi N Mittal (CEO of ArcelorMittal)
– Annual review 2014
I believe the global steel market (…) is
facing harsh conditions, as new
steelworks will successively come on
line in Asia by 2015 (…) we must
assign maximum emphases to
"technology", "cost" and "global"
CEO of Nippon Steel & Sumimoto
Metal, Annual report 2014
Looking ahead, we expect to see continued
pick-up in European manufacturing
activity to support our apparent steel
consumption growth forecast for Europe of
around 2 per cent this year (…)
Aditya Mittal (CEO ArcelorMittal Europe) –
Q1 2015
GLOBAL TRENDS
7150520_Steel Global Overview Roland Berger.pptx
Overcapacity in China is durable
Source: World Steel association, press releases, brokers reports, Roland Berger analysis
Production and utilization rate:situation and projections
Key drivers
Demand peaked in 2013
> 2014/2013: -3.3%
> Further decline confirmed in 2015 and foreseen by 2020
Construction> Bubble down:
10% reduction of buildingsales in the construction market
Automotive> Slower growth
Others> Slower growth of mechanical
engineering and white goods
800814823815731702639577512490
200920082007 2015 202020142013201220112010
Crude steel production [T m]
75%70%71%72%72%80%80%80%80%80%
2015 20202014201220112010200920082007 2013
Crude steel capacity utilisation
CHINA
8150520_Steel Global Overview Roland Berger.pptx
No immediate consolidation signal
Context and recent moves
Government target (2011):
> Bring 60% of steel sector (from 40%) under the control of the 10 biggest players
by 2015
Large players increasingly reluctant to take over unprofitable capacity
> 60% target pushed back to 2025
> Distribution suffers
Source: World Steel association, press releases, brokers reports, Roland Berger analysis
CHINA
New industry focus on
> Tightening of environmental legislation
> Competitiveness and exports
> Creating 3 to 5 globally competitive "super large" steelmakers by 2025
9150520_Steel Global Overview Roland Berger.pptxSource: World Steel association, press releases, brokers reports, Roland Berger analysis
5% p.a. demand increase from 80 mT in 2013 to 89 in 2015
Construction> Public investment in
infrastructure projects (freight network, building construction)
Automotive> Strong growth –
4% increase in 2014
Others> Recovery of industrial
production and GDP
140
8381777369645853
91
2020201520142013201220112010200920082007
Crude steel production [T m]
66%74%75%79%86%90%92%97%94%90%
2020200920082007 201520142013201220112010
Crude steel capacity utilisation
India shows positive signals on steel demand but capacity is increasing too much
INDIA
Production and utilization rate:situation and projections
Key drivers
10150520_Steel Global Overview Roland Berger.pptx
Government support to steelmakers:
> Favorable regulatory framework
> Loans, waivers, tax incentives for steelmakers
Government fixed production targets of 300 mT by 2025:
> Recent announcement of the first steel capacity addition (122 mt) – financing to be confirmed
> Consolidation of raw material providers to secure sourcing
In the meantime (2015), spectacular rise of imports from China (depreciation of the rupee increases steel manufacturing cost as the coking coal and coke is imported)
Source: World Steel association, press releases, brokers reports, Roland Berger analysis
India wishes to increase domestic capacity but Chinese imports also grow
INDIA
Context and recent moves
11150520_Steel Global Overview Roland Berger.pptxSource: World Steel association, press releases, brokers reports, Roland Berger analysis
Demand peak in 2014
> 2015/2014: -0,9%
> 1% increase p.y. by 2020
Construction
> 3% increase p.a.
Automotive
> Record high in 2015
Others
> Negative context in oil & gas sector
> Robust employment growth
12011412111912211911284
125133
2008 202020152014201320122011201020092007
Crude steel production [T m]
74%69%75%74%76%73%72%55%
85%91%
2011201020092008 202020152014201320122007
Crude steel capacity utilisation
NAFTA steel market is recovering pulled by automotive and construction
NAFTA
Production and utilization rate:situation and projections
Key drivers
12150520_Steel Global Overview Roland Berger.pptx
The Big 4 now control over 80% of NA market
Poor profitability since 2008 has resulted in low CAPEX and accelerated industry
consolidation: the Big 4 now control over 80% of NA market
Companies efforts to reduce operating costs combined with more favorable
market conditions and anti-dumping regulation changes boosted profitability in
2014
Situation in 2015 is mixed, with well-oriented demand but "imports have effectively
taken all of the growth upside for the industry" (Nomura) – new antidumping
measures to come as idled production capacity at U.S. mills has grown to 31%
Source: Roland Berger
NAFTA
Context and recent moves
13150520_Steel Global Overview Roland Berger.pptxSource: World Steel association, press releases, brokers reports, Roland Berger analysis
Strong demand decrease> -7% in 2014 and -8% in 2015> Expected recovery in 2016 (3%)
Construction> 10% CAGR by 2019
(Olympic games)
Automotive> Biggest decrease since
2002 (-7%)
Others> Exports hampered by strong
currency; Petrobras in standby
3634343435353327
3434
202020152012 2014201320112010200920082007
Crude steel production [T m]
65%69%69%71%71%71%69%63%81%87%
2009 20132010 20142007 20152011 202020122008
Crude steel capacity utilisation
Brazil suffers from high overcapacity
BRAZIL
Production and utilization rate:situation and projections
Key drivers
14150520_Steel Global Overview Roland Berger.pptx
All major steelmakers have developed a footprint in Brazil
Capacity development / takeover by major steel producers in the past:
> VSB – JV between Vallourec and NSSMC for the creation of a tube mill (2011)
> Wuhan Iron and Steel bought Brazilian MMX (2009)
> Acesita SA (stainless steel) by ArcelorMittal (2008)
Large steel producers recently increased their Brazilian footprint:
> ArcelorMittal acquired a company engaged in sales of steels for automotive (Aug. 14) and announced the creation of an R&D center in Brazil (Apr. 2015)
> JV between Brazilian CSN and Asian steel consortium (Dec. 14)
Brazil's economic context and issues at Petrobras will probably place new projects on hold
Source: Company information, World steel association, Brazil steel association, Roland Berger
BRAZIL
Context and recent moves
15150520_Steel Global Overview Roland Berger.pptxSource: World Steel association, press releases, brokers reports, Roland Berger analysis
3,6% increase in 2014, ~2,5% in both 2015 (188 Mt) and 2016 (193 Mt)
Automotive
> Recovery expected to continue in coming years
> Decreasing steel intensity
Construction
> Weakened activity but expected recovery in 2015S2 / 2016
200202206205208217207168
230241
2020201520142013201220112010200920082007
Crude steel production [T m]
69%69%70%70%72%75%74%57%
87%
2011 202020152014201320122010200920082007
Crude steel capacity utilisation
Demand in Europe is soft again, generating low capacity utilization
EUROPE
Production and utilization rate:situation and projections
Key drivers
16150520_Steel Global Overview Roland Berger.pptx
Pre-crisis consolidation move now over ?
Robust M&A activity pre-crisis
> Usinor / Arcelaria – Arcelor (2001)
> Thyssen-Krupp in (1999)
> Arcelor-Mittal in (2006)
> Tata-Corus in (2006)
Improvement of operational margins for steel makers in Europe, e.g. in Q1 2015:
> 15% increase of ArcelorMittal EBITDA in Europe
> 14% increase of APERAM EBITDA
Source: Roland Berger
EUROPE
Context and recent moves
Capacity reduction moves ongoing
> Vallourec announced capacity reduction (SSV)
> Ilva is highly distressed and may be taken over by ArcelorMittal or by an Italian consortium; systemic solution is looked after to include Lucchini and Terni
17150520_Steel Global Overview Roland Berger.pptxSource: Roland Berger analysis
> Digitalization and "industry 4.0" support industrial production and are then favorable to steel demand
> Digitalization is shortening market cycles and making demand more variable, more granular and diversified
– Requirement for higher flexibility, shorter lead times, higher customization (steel / alloys types), smaller lots size
– Need for steel producers to adapt to this new complexity
– more visibility on supply sources and prices
> Supply-chain reactivity increasingly seen as a way to protect from imports
> Competing materials, potentially combined with 3D printing might be able to adapt more rapidly to evolutions in demand (e.g., plastics, concrete) and possibly lead to steel/mill substitution
IMPACT OF DIGITAL
18150520_Steel Global Overview Roland Berger.pptx
Commercial models will need to evolve: distribution and mills will need to move closer to end customers
Key aspects of
Industry 4.0
Average score
Virtual conception
1 – Low maturity 4 – High maturity
Non auto sectors will bridge the gap and push steel makers to adapt their customer relationships as they have done in Automotive – Aluminum good benchmark
Source: Interviews, Roland Berger
1 2 3 4
3.3
Automotive Construction
1 2 3 4Big data management
Additive manufacturing
Mass customization
Mechanical engineering
1 2 3 4
2.0
Energy
1 2 3 4
2.3
Home appliances
1 2 3 4
1.8
Packaging
1 2 3 4
2.0 1.5
IMPACT OF DIGITAL
19150520_Steel Global Overview Roland Berger.pptx
> Significant research to develop steels with improved tensile strength (TWIP, AHSS)
– Steels with higher manganese content (~12% manganese in TWIPsteel)
– Main applications in automotive industry
> Recent scientific works on stainless steel to reduce costs and improve elongation for automotive and packaging
– Substitution of nickel by manganese to reduce costs1) (Series 200 stainless steel)
0
10
20
30
40
50
60
70
80
200 400 600 800 1000 1200 1400 1600
Growing interest for manganese applications in steel
Source: World steel association, World Auto Steel, Roland Berger
Tensile strength [MPa]
Elongation [%]
1) Series 200 production strongly correlated with Ni price
Stainlesssteel
MANGANESE IMPACT
20150520_Steel Global Overview Roland Berger.pptxSource: Roland Berger analysis
Overall
Automotive
Construction
Railway
Oil & Gas
Packaging
Mining
Market evolution
Manganese intensity
Steel intensity
Impact on manganese
consumption (Mid-term CAGR)
1 – 3 %
5 – 7 %
3 – 5 %
6 – 8 %
6 – 8 %
~ 0 %
3 – 4 %
MANGANESE IMPACT