MBR s OCTG and Linepipe Market Overview MBR s US Steel and & Ferro-silicon Outlook Analysis/Outlook

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1 MBR s OCTG and Linepipe Market Overview MBR s US Steel and & Ferro-silicon Outlook Analysis/Outlook MB s 31st International Ferro-alloys Conference AMM Tube and Pipe Conference Prague - 9 November 20 Houston, TX March 3-4, 20 Amy Bennett Principal Consultant Kim Leppold Senior Metals Analyst Tube & Pipe Group

2 US Economic Indicators US Motor vehicle assemblies, m units SAAR Impressive growth in US auto output driving flat product demand growth Annual output poised to rise 7.5% in US Residential vs. non-residential construction spending (% change y-o-y) Non-res growth now keeping pace with residential Sustainable steel demand growth dependent on stronger non-residential construction 35% 25% % 5% 10-5% 9 -% Residential Non-residential 8 Sep 11 Jan May Sep Jan May Sep Jan May Sep Jan May Sep -25% Sep Jan May Sep Jan May Sep Jan May Sep Source: MBR s North American Steel Market Tracker 2

3 20 US steel shipments by industry Automotive 26% Energy 10% Machinery & Equipment 10% Container 4% Appliances 4% Construction 40% Defense 3% Other 3% Source: MBR s North American Steel Market Tracker 3

4 The energy tubular markets are undergoing a steep correction as a result of the swift decline in oil prices and drilling activity Source: Bloomberg, Baker Hughes, MBR rigs WTI, Nymex, $/bbl (RHS) 4

5 Crude oil vs. US domestic HR prices 160 Oil $/barrel (LHS) HR $/ton (RHS) Source: MBR s North American Steel Market Tracker 5

6 Raw material highlights Raw materials prices declining globally Metal Bulletin Research raw materials index vs. US domestic HR price Iron ore prices hovering around $50/tonne US obsolete scrap prices declined in ober, further weakness likely in November Raw material price declines will enable both domestic and foreign suppliers to reduce steel prices while preserving margins 2006= Apr Apr HR Price (RHS) Index (LHS) Apr Apr $/ton Source: MBR s North American Steel Market Tracker 6

7 Raw material highlights Margin Analysis Domestic steel mill margins narrowing as finished steel price declines outpace raw material cost declines HR vs. busheling scrap margins averaged $3/ton in 20 HR price declines have outpaced scrap price declines with margins narrowing to just $2/ton in 20 This analysis is focused on scrapbased minimill HR production Recent declines in iron ore prices will not benefit US integrated mills as much as mills in Europe and Asia as N.American iron ore prices are not linked to Chinese spot iron ore prices $/ton US HR vs. busheling scrap prices producer margins 1, Apr Apr HR Coil ober 20 margin $2/ton Apr Apr Apr Busheling Apr Source: MBR s North American Steel Market Tracker 7

8 US domestic steel supply highlights US domestic steel output rising Mills struggling to break out of low 70% operating rate range Slight improvement in HR prices in 20 encouraged higher operating rates, with average mill utilization rates at 73% Increased supply and overhanging inventories are overwhelming demand, and HR prices are declining in response, with mill utilization rates also now in retreat % US mill capacity utilization rates vs. domestic HR prices Feb Jun % utilisation rate [LHS] HR price ($/t) [RHS] Feb Jun Feb Jun $/ton Source: MBR s North American Steel Market Tracker 8

9 US flat-rolled product imports ( 000 tons) 1,400 1,200 HR CR HDG Plate 1, Source: MBR s North American Steel Market Tracker 9

10 US steel supply highlights US HR supply vs. prices Domestic prices weighed down by excess domestic and import supply US HR import market share peaked at 23% in January 20 before sliding back to % in September US service center flat-rolled steel shipments and inventories Stocks rising as incoming shipments exceed outgoing deliveries to end users inventories rose sharply 2,400 2,000 Shipments Imports Domestic Price Import Price Daily Shipments (LHS) Inventory (RHS) , '000 net tons 1, $/ton '000 tons '000 tons Feb Jun Feb Jun Feb Jun Sep Mar Sep Mar Sep Mar Sep 3000 Source: MBR s North American Steel Market Tracker 10

11 US steel industry consolidation US HR market share by producer 20 (based on production capacity) US HR market share by producer 20 (based on production capacity) Blue Steel scope Dynamics 4% 4% Thyssen Krupp 7% Severstal 7% Other 7% Arcelor Mittal 33% Steel Dynamics 8% AK Steel 11% Other 10% Arcelor Mittal 33% AK Steel 7% Nucor 10% US Steel 24% Nucor % US Steel 22% Top five US flat product steelmakers now represent approximately 90% of domestic HR production capacity. Source: MBR s North American Steel Market Tracker 11

12 US steel price forecasts ($/ton) 850 Forecast HR Coil CR Coil HDG 350 Dec Feb Apr Jun Aug Dec Feb Apr Jun Aug Dec Feb 16 Apr 16 Jun 16 Aug US sheet prices are declining in early November, but we believe they will bottom out before the end of the year Source: MBR s North American Steel Market Tracker

13 US consumption ferro-silicon 75% by end use Cast iron % Carbon & HSLA Steels 22% Unspecified steel 24% Alloy steel 6% Stainless 33% Source: MBR s Ferro-alloys Market Tracker

14 US crude steel production ( 000 tonnes) f Source: MBR s Ferro-alloys Market Tracker

15 Americas quarterly stainless steel production ( 000 tonnes) e f 16f 16f 16f 16f Source: MBR s Ferro-alloys Market Tracker

16 Total US casting production (m tonnes) f Source: MBR s Ferro-alloys Market Tracker 16

17 US domestic HR steel prices vs. ferro-silicon prices HR Coil ($/t) [LHS] FeSi ($/lb) [RHS] Source: MBR s North American Steel Market Tracker, MBR s Ferro-alloys Market Tracker 17

18 US steel mill capacity utilization rates vs. domestic FeSi prices % 80 $/lb % utilisation rate [LHS] FeSi [RHS] 60 Feb Jun Feb Jun Feb Jun 0.75 Source: MBR s Ferro-alloys Market Tracker 18

19 US silicon alloys & metal production vs. producer stocks (tonnes) 50,000 Production Stocks 45,000 40,000 35,000 30,000 25,000 Source: MBR s Ferro-alloys Market Tracker 19

20 Ferro-silicon supply highlights Brazil ferro-silicon exports ( 000 tonnes Si content) e Source: MBR s Ferro-alloys Market Tracker 20

21 Ferro-silicon supply highlights US ferro-silicon imports flat in 20 US ferro-silicon imports ( 000 tonnes) Imports are running level with last year s levels, but far in excess of the market s requirements given the 9% decline in US steel output this year Chinese shipments to the USA down versus last year, while Russian shipments have increased, and Venezuela has returned to the market Russia is the largest supplier to the USA, with 47% of import market share in the first eight months of Total China Russia Venezuela e Source: MBR s Ferro-alloys Market Tracker 21

22 Ferro-silicon prices and forecasts MBR s assessment of the relative pricing declines of ores, alloys, and finished steel products in the current pricing cycle does not bode well for FeSi prices While there are many factors contributing to ferro-alloy pricing, the relatively modest declines in bulk alloy prices this year relative to declines in both raw materials and finished steel product prices is concerning Moreover, while it appears that iron ore prices may have found a floor for now, it has taken the market 2 ½ years to reach this point In contrast, bulk alloy prices have only been in decline for the past - 18 months, as have carbon and stainless steel prices Ferro-alloy price decline comparison vs. current cycle peak 0% -10% -20% -30% -40% -50% -60% -70% -80% CR 304 FeCr FeSi HC FeMn Cr ore SiMn HR coil FeV Mn ore FeMo Iron ore MO3 Source: MBR s Ferro-alloys Market Tracker 22

23 Ferro-silicon prices & forecasts Ferro-silicon prices collapsed in 20 Downward pricing trend in place throughout 20, accelerating in the latter half of the year Price weakness reflecting excess supply together with reduced demand from carbon and stainless steelmakers US spot market prices have slipped from $0.94/lb in January 20 to as low as $0.72/lb in early November Ferro-silicon quarterly price comparison ($/tonne) 2,250 2,000 1,750 1,500 1,250 1, USA Europe China Source: MBR s Ferro-alloys Market Tracker 23

24 Ferro-silicon prices & forecasts Ferro-silicon prices have not yet found a floor US prices may see upward gains in early 2016 on reduced supply for seasonal reasons, as well as due to modest improvement demand from the steel industry Pricing gains will likely prove temporary, however, as excess supply reemerges as 2016 progresses Ferro-silicon quarterly price forecast ($/tonne) 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 USA Europe Forecast Source: MBR s Ferro-alloys Market Tracker 24

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26 MBR s Steel Trackers MBR's North American Steel Tracker provides analysis and forecasts for the US, Canadian and Mexican Steel industries from the raw materials sector through to markets for finished steel products. MBR's Steel Weekly Market Tracker features global steel market analysis, statistics and price forecasts for all steel products: slabs, billets, hot-rolled sheet/coil, coldrolled sheet/coil, plates, HDG, debars, wire rods and sections. 26

27 The latest trade statistics and analysis for both bulk and specialty alloys markets. A monthly report on the Ferro-alloys market which includes: Analysis of ferro-alloys market prices, developments and crude steel forecast. Global stainless steel and crude steel production data. Extensive price forecasts, supply-demand data by ferro-alloys and by region, downloadable into Excel. Market conditions for regional ferro-alloy markets. Analysis of the latest market indicators and trade trends for bulk and speciality alloys. Contact us on +44 (0) or marketing@metalbulletinresearch.com if you would like a free sample of this monthly market tracker. 'I regularly use MBR's Ferro-alloys Monthly's pricing data and analysis as a reference in our price negotiations and strategy. I highly recommend this report' - Jose Roberto Ferreira da Silva, MAHLE Metal Leve S.A., Corporate Purchasing

28 For information regarding this presentation contact Amy Bennett Principal Consultant at Metal Bulletin Research 28