Global view on steel market dynamics Platt s Steel Markets Europe Conference Barcelona, June 30-July 1 June 30, 2016
Agenda China: the bull in the porcelain shop. Global growth divergence and impact on trade Europe: a stable recovery Mega Trends Main economic drivers Sectors Highly Restricted 2
High speed rebound 2015 crash & 2016 rally - what happened exactly? Confidence real economy shaken China domestic demand freezes Shanghai stock market slump Mid-June High steel production continues China exports surge Price correction back to normalized levels China production ramps up again?? Prices crash worldwide China producers' shake out for 8 months with very heavy financial losses Production reduction Early Q1 16 Low inventories Demand pick up at Chinese New Year Early february 3
High production in March was the first positive y-o-y growth since Feb-15 Production, net export and ASC of crude steel (LHS million tonnes, RHS y-o-y%) 1000 950 900 850 800 750 700 650 600 550 500 450 ASC of crude steel Net export of crude steel ASC of crude y-o-y Production y-o-y 20% 15% 10% 5% 0% -5% 400-10% Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Sources: Mysteel, ArcelorMittal Corporate Strategy team analysis Highly Restricted 4
28 23 Classical steel intensity curve driven by demographics, industrialisation and urbanisation Crude steel consumption, kg/capita 18 13 8 3 Growing populations with growing steel intensity due to urbanisation and industrialisation supporting infrastructure development Drop in steel consumption as country s infrastructure building slows with slowing population growth and slowing of urbanisation and industrialisation Steel consumption stabilises; steel use led by private consumption and infrastructure replacement Underdeveloped Development phase Mature phase -2 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 phase Steel intensive rate of growth depends upon a country s economic model Level of steel consumption in the mature phase depends upon the developmental path of different sectors of the economy e.g., steel intensity of the economy may be reduced by migration of manufacturing off-shore, legislation, structural shift towards smaller cars, intermaterial competition, reduced public expenditure on infrastructure etc. Time, GDP/capita Source: ArcelorMittal Corporate Strategy AMU Explore 2014-Strategy 5
The worst is behind us? -Real demand fundamentals for domestic China improve China construction indicators, % change year-on-year, 3 month moving average 100% 80% 60% 40% 20% 0% -20% Residential floor space sold (6 month lag) Residential floor space started 562 Forecast Urban population (million) and urbanization ratio (%) 108 670 101 771 867 949 2005 2010 2015 2020 2025 43% 50% 56% 62% 67% 95 83-40% 2008 2009 2010 2011 2012 2013 2014 2015 2016 The easing of real-estate policy in 2015 has pushed real-estate sales growth, incentivising rising new starts at the beginning of 2016 Urbanisation will continue but at a slower pace than the previous decade Sources: NBS, NDRC Highly Restricted 6
2015 crash & 2016 rally - what happened exactly? USA > + 200 TURKEY > + 200 CHINA > + 150 EU + 125 Europe price increase lagged international references on speed and did not reach the same magnitude. 7
Agenda China: the bull in the porcelain shop. Global growth divergence and impact on trade Europe: a stable recovery Mega Trends Main economic drivers Sectors Highly Restricted 8
ArcelorMittal PMI continues to indicate slow growth Global manufacturing output continues at a slightly improved pace; ArcelorMittal PMI 51.1 in Mar 16* US: Underlying demand continues to grow mainly driven by construction. Manufacturing outside energy related sectors improved. But, PMI manufacturing at 50.7 in May, pointed to loss of momentum. Global apparent steel consumption 2016 v 2015** US*** +3 to +4% Europe: Gradual demand recovery continues. Low oil prices and employment growth supporting consumers and rising auto demand. May manufacturing PMI in Eurozone at 51.5 remains stable. EU28 +0% to +1% Brazil: Deep recession 2016 as a crisis in confidence continues, dampening consumer spending and investment, negatively impacting manufacturing. PMI at 41.6 in May indicated that manufacturing recession worsened. China: The manufacturing PMI continued to decline in May. The government still needs to make full use of proactive fiscal policy measures. Strength of house sales and infrastructure investment support demand while automotive sales & production remain growing at 5% to 6%. China Brazil CIS -10% to -12% -5% to -6% 0% to -1.0% CIS: Ongoing recession in Russia. Russia manufacturing May PMI still signalled a contraction in manufacturing sector at 49.6. Global 0% to +0.5% Emergent economies continue weak, while USA and EU are relatively stable Source: *ArcelorMittal PMIs (weighted by ArcelorMittal steel deliveries) ** ArcelorMittal estimates *** Excludes tubular demand 9
Global Flat Market and Trade China s flat exports targeting the Asian neighbourhood markets as well as foreign major steel regions including the EU, Latin America, Africa and Middle-East. Chinese Flat steel exports by region of destination (million tonnes) Chinese Customs 10
Global trends on trade defense - AD & CVD per group of products Broad steel product categories targeted in antidumping/cvd initiations 45 Alloy/stainless steel (excl. pipes) Pipes & tubes Long products Cold & other flats Hot rolled flats Semi finished 40 35 30 25 20 15 10 5 0 source: OECD # of Flat cases considerably increased during Q4 2015, and Q1 2016 in EU, USA, Latam, India, etc 11
Agenda China: the bull in the porcelain shop. Global growth divergence and impact on trade Europe: a stable recovery Mega Trends Main economic drivers Sectors Highly Restricted 12
Resource efficiency - Circular economy; Steel recycling & re-use - Life Cycle Approach i.e. > reduced Zn consumption with use of Magnelis > weight reduction with Amstrong Ultra -Longevity; >Up to 35 years guarantee and High UV resistance with Granite >High resistance in harsh environments i.e. Magnelis Drivers of steel usage in the future Energy Efficiency - Building thermal insulation > Insulation panels - Increase use of renewable energy > Solar structures / Wind mills -Solar roof & Reflective roof i.e. > PHOSTER >Granite HDX reflective Health, Safety & Comfort -Impact of climate change -Increased seismic resistance of buildings -Indoors air quality, i.e. Estetic Bio Air -Safe Product: Cr 6-free & low V.O.C (Volatile Organic Compound) Technological changes - Building Information Modelling (BIM) - Innovative Materials & processes > 3D printing / Automation / Modular Construction Urbanization & Demographic growth / aging 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 2016 Steel End-using sectors outlook - Private consumption recovery Low oil price No inflation Household purchasing power rise Unemployment drop Low interest rates Historical high Sources: Eurostat, ACEA Acceleration of private consumption: > Auto sales > Retail sales (appliance) 2016 still positive as suggested by positive economic indicators (confidence,...) 110 Eurozone Building permits, index 2010=100 100 Residential & non-residential construction improving: permits up 10% & 9% respectively in 2015 2016 expected to be robust 90 80 70 60 Residential Non residential Jan-2016 14
15 Construction market recovery in Europe European perspective This growth will be driven by different factors: Until 2018, European construction market will enjoy a growth of volumes 2016: + 3,0 % y-o-y 2017: + 2,7 % y-o-y 2018: + 2,0 % y-o-y 1. Residential: housing needs of asylum seekers (new & renovation) coming on top of existing backlogs. All construction segments (Residential, Non-residential, Infrastructure) will follow similar trend, in major EU countries. 2. Non Residential: GDP growth, low oil prices, weaker rate 3. Infrastructure: ECB economic stimulus
2015-2016 : European investors still shy Over 600 billions difference EA19 (Eurozone) with USA 16
Market risks & opportunities Watch out for China volatility, not only downside Recovery of industrial investment in Europe ArcelorMittal answers to mega-trends and changing customer needs Global strategy for high added value products and innovative steel solutions Changing profile of import sources into EU following trade cases 17