Alacero 58 Latin American Steel Conference Cancun, Mexico Steel s Technological Leap-Frog FROG: Jump On or Croak

Transcription

1 Alacero 58 Latin American Steel Conference Cancun, Mexico Steel s Technological Leap-Frog FROG: Jump On or Croak November 7, 2017 Peter F. Marcus

2 Jump on! 2

3 STEEL S in TIME WARP! Persistence of old equipment 3

4 First Continuous Hot Strip Mill 4

5 Today s Alacero Presentation Part I THE HOT-ROLLED BAND EXPORT PRICE ROLLERCOASTER Subtitle: Forewarned is Forearmed

6 Today s Alacero Presentation Part II STEEL s CHALLENGING NEW INDUSTRIAL STRUCTURE Subtitle: The Age of Management

7 Today s Alacero Presentation Part III OPPORTNITIES FOR LATIN AMERICAN STEEL Subtitle: Time to re-take the baton from the Chinese?

8 PART I: HRB PRICE ROLLERCOASTER 8

9 HRB Export Price Rollercoaster Next six weeks: HRB down $35/tonne to $525/tonne.

10 HRB Export Price Rollercoaster Early 2018: Spike to $ /tonne. VOLCANO!

11 Volcanoes and Death Spirals 11

12 HRB Export Price Rollercoaster Summer of 2018 The party s over! HRB down to $525/tonne. Death spiral risk

13 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 USD per metric tonne CHINESE STEEL MILLS ACHILLE S HEEL $700 Chinese Ex-Works HRB Export Price versus Domestic Ex-Works Price $650 $600 Domestic ex-works price (average) $550 $500 Ex-works price for exported boron-containing HRB is equal to Chinese FOB export price less $20 per tonne freight expense to port of export, and less payment of 8% VAT (after 9% VAT credit) $450 $400 $350 $300 $250 $200 Source: WSD's WCC for Flat Rolled Sheet and SteelBenchmarker 13

14 Challenging New Steel Industrial Structure STEEL INDUSTRY DRIVING FORCES Rating Chinese policymakers driving the steel industry bus 8 Shifting global steel trade Chinese exporting armada defeated 10 Major advances steel s technological revolution 4 Extreme price volatility 3 THE FUTURE: Liquid steel futures curves outside of China 9 No change in global steel production by Extreme M&A activity 9 Massive Chinese steel scrap recovery 4 Tightening of third-party steel slab market 7 Steel s new Age of Protectionism 9 Global steel production is crashing into the ECO-Capacity wall 9 14 AVERAGE 6.8

15 NEW Steel Industry Industrial Structure #1 Chinese policymakers driving the industry bus. Rating = 8

16 Chinese iron ladies no more? 16

17 Asian Infrastructure Investment Bank Chinese Financial Colonial Empire 17

18 NEW Steel Industry Industrial Structure #2 Shifting steel trade flows Chinese STEEL EXPORTING ARMADA defeated Rating = 10

19 Chinese steel encountering avalanche of trade suits 19

20 NEW Steel Industry Industrial Structure #3 Major advances in the steel and global technological revolution Rating = 4

21 Machines replace men 21

22 NEW Steel Industry Industrial Structure #4 Extreme price volatility for steel products and steelmakers raw materials Rating = 3

23 Jan-70 Jan-71 Jan-72 Jan-73 Jan-74 Jan-75 Jan-76 Jan-77 Jan-78 Jan-79 Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 $ per Tonne Psychological Warfare Steel Buyer/Seller #4Cardiac Arrest World Export Price for Hot-Rolled Band, FOB port of export Extreme price (Month-to-Month Price Change) volatility: Steel products and steelmakers raw materials -200 Rating = 3 Source: PriceTrack and SteelBenchmarker TM

24 NEW Steel Industry Industrial Structure #5 THE FUTURE = Liquid steel futures curves outside of China Rating = 9

25 No need for a fortune teller if there s a futures curve 25

26 NEW Steel Industry Industrial Structure #6 Huge Negative! Global steel production unchanged in 2025 Rating = 1

27 Global Steel Stagnation MILLION TONNES China Advanced Countries Latin America Rest of World Total 1,689 1,679

28 e 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e 2031e 2032e 2033e 2034e 2035e China s FAI steel intensity is declining rapidly Steel Consumption Intensity of FAI million tonnes per billion RMB USA Steel Intensity of FAI 28

29 NEW Steel Industry Industrial Structure #7 Extreme M&A activity Rating = 9

30 M&A Prowess 30

31 NEW Steel Industry Industrial Structure #8 Huge surge in China s steel scrap recovery Rating = 4

32 CHINESE SCRAP GROWS ON TREES 32

33 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 $ per tonne Scrap battling iron ore and coking coal for a share of BOF metallics $700 Turkey scrap HM 80/20 versus Weighted Iron Ore/Coking Coal Price Index $150 $600 $100 $500 $50 $400 $300 $0 -$50 $ per tonne $200 -$100 $100 -$150 $0 -$200 Spread v. Turkey Scrap (RHS) Iron Ore/Coal Index Turkey Scrap Del'd Source: WSD Estimates, Platts, Steelbenchmarker 33

34 Integrated mills scrap threat. Must pay less for iron ore 34

35 NEW Steel Industry Industrial Structure #9 Tightening of third-party steel slab market Rating = 7

36 Steel slab demand heating up 36

37 NEW Steel Industry Industrial Structure #10 Steel s new Age of Protectionism Rating = 9

38 Steel s new Age of Protectionism 38

39 NEW Steel Industry Industrial Structure Averate Score = 6.8 More than sufficient for well-positioned and well-managed companies to be winners

40 SUBMARINE COMMANDER and WOLFPACK 40

41 LATIN AMERICAN STEEL Opportunity Beckons KEY POSITIVES o Low costs o Concentrated markets o Protected markets o Good demand growth prospect o Solid profitability o Capable management

42 USD per Metric Tonne WCC -- Operating cost Latin American Plants World Cost Curve for Hot-rolled Band ($ per metric tonne, operating cost) October 2017 $600 $550 $500 $450 $400 $350 $300 Latin American plants = $250 $ Cumulative Capacity (million metric tonnes)

43 USD per Metric Tonne WCC -- Marginal Cost Latin American Plants World Cost Curve for Hot-rolled Band ($ per metric tonne, marginal cost) October 2017 $600 $550 $500 $450 $400 $350 $300 Latin American plants = $250 $ Cumulative Capacity (million metric tonnes)

44 Jan-69 Aug-70 Mar-72 Oct-73 May-75 Dec-76 Jul-78 Feb-80 Sep-81 Apr-83 Nov-84 Jun-86 Jan-88 Aug-89 Mar-91 Oct-92 May-94 Dec-95 Jul-97 Feb-99 Sep-00 Apr-02 Nov-03 Jun-05 Jan-07 Aug-08 Mar-10 Oct-11 May-13 Dec-14 Jul-16 Latin America Crude Steel Production Latin American Crude Steel Production (million tonnes)

45 Jan-69 Aug-70 Mar-72 Oct-73 May-75 Dec-76 Jul-78 Feb-80 Sep-81 Apr-83 Nov-84 Jun-86 Jan-88 Aug-89 Mar-91 Oct-92 May-94 Dec-95 Jul-97 Feb-99 Sep-00 Apr-02 Nov-03 Jun-05 Jan-07 Aug-08 Mar-10 Oct-11 May-13 Dec-14 Jul-16 Latin America Crude Steel Production; percent of World Latin American Crude Steel Production as percent of World 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 45

46 Latin America: Steel Consumption Latin America: Steel Consumption (in thousand tonnes) 35, , , , ,000.0 Semifinished Long Products Flat Products 10, ,

47 Latin America Steel Imports Latin America: Steel Imports (in thousand tonnes) 16, , , , ,000.0 Semifinished Long Products Flat Products 6, , ,

48 Latin America: Steel exports Latin America: Steel Exports (in thousand tonnes) 12, , , ,000.0 Semifinished Long Products Flat Products 4, ,

49 Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 US$ per metric tonne EBITDA Latin American Plants $600 Latin American Mills EBITDA per Tonne Shipped $500 $400 $300 $200 $100 Far Eastern Mills $0 European Mills Japanese Mills -$100 49

50 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 tonnes Brazil: Wide Hot-Rolled Band Trade 280, , , , , , , , , ,000 80,000 60,000 40,000 20,000 0 Brazil Trade for Hot Rolled Wide Strip Exports Imports 50 Source: ISSB, WSD Estimates

51 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 tonnes Mexico Wide Hot Band Trade 320, , , , , , , , , , , ,000 80,000 60,000 40,000 20,000 0 Mexico Trade for Hot Rolled Wide Strip Imports Exports 51 Source: ISSB, WSD Estimates

52 LATIN AMERICAN STEEL Opportunity Beckons HUGE NEGATIVE High country risk. FORECAST Problem to solved by globilization! The INFO and TECHNO Revolutions know no boundaries

53 Make use of WSD. Improve your speed, your ideaphoria and the accuracy of your competitive response. Please call us: This report includes forward-looking statements that are based on current expectations about future events and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict. Although we believe that the expectations reflected in our forward-looking statements are reasonable, they can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including among other things, changes in prices, shifts in demand, variations in supply, movements in international currency, developments in technology, actions by governments and/or other factors. The information contained in this report is based upon or derived from sources that are believed to be reliable; however, no representation is made that such information is accurate or complete in all material respects, and reliance upon such information as the basis for taking any action is neither authorized nor warranted. WSD does not solicit, and avoids receiving, non-public material information from its clients and contacts in the course of its business. The information that we publish in our reports and communicate to our clients is not based on material non-public information. The officers, directors, employees or stockholders of World Steel Dynamics Inc. do not directly or indirectly hold securities of, or that are related to, one or more of the companies that are referred to herein. World Steel Dynamics Inc. may act as a consultant to, and/or sell its subscription services to, one or more of the companies mentioned in this report. Copyright 2017 by World Steel Dynamics Inc. all rights reserved 53

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