Steel Update The Rolling Tides of Global Steel

Topics
Price Drivers Raw Material
Supply/Demand Trade Inventory

USA Market A Look Ahead Sequester

Impact $85B Production Cuts Price Changes Presented by:

Patrick A. McCormick
Managing Partner WORLD STEEL DYNAMICS President WORLD STEEL EXCHANGE MARKETING 1 Steel Conference - March 1, 2013

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Raw Materials Mill Service Center OEMs

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Managing price volatility is a common concern among clients

Hot-Rolled Band Spot Prices www.steelbenchmarker.com

USA, China, Western Europe and World Export
(WSD's PriceTrack data, Jan. 2000 - March 2006; SteelBenchmarker data begins April 2006)
February 25, 2013

1200 1100 1000 900 USA FOB mill Western Europe ex-works
676 655 608 553

Dollars per metric tonne

800 700 600 500 400 300 200 100

World Export FOB port of

China ex-works

Steel prices have remained on a rollercoaster with many ups and downs but recent peaks have not eclipsed the 2008 pre-crisis peaks

WSDs Stratagems Price Forecast Process Methodology

Using global fundamentals to forecast steel price trends

Assess Global Economic Growth FAI Key driver

Assess Global Steel Production Forecast and Demand on Raw Materials

Calculate Raw Material Prices and Steel Product Price Spreads

WSDs Global Steel Information System (GSIS) Internet accessible global steel statistics
World Cost Curves:
Steel Sheet Steel Billet/Rebar/Wire Rod Steel Plate Coking Coal* Iron Ore Pig Iron/DRI/HBI

Global Metallics Balance

Forecast to 2035 All major metallics:
Iron Ore Steel Scrap Steel Scrap Substitutes Coking Coal & Coke

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*Powered by Martson

Scrap is Considered the Marginal Metallic

Price Spikes are Required to Drive Up the Recovery Rate of Obsolete Scrap
800 1.20

700

Obsolete Scrap Usage Ratio (RHS)

600

1.00

0.80 500

Obsolete Scrap Requirement (LHS)

400 0.60

300

New Scrap Usage (LHS)

200

0.40

0.20 100

Home Scrap Usage (LHS)

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

0.00

Obsolete steel scrap demand was 358 million tonnes in 2011 and the recovery rate was the highest on record. In 2012, the obsolete scrap requirement was flat implying a 0.94 recovery rate from the 6 obsolete scrap reservoir that is on average 10-40 years old.

Scrap Prices Significantly Declined in 2012

Steel Scrap
USA Scrap Price Versus Global Scrap Demand for SteelMaking
600

Million Metric Tonnes per Quarter & USA Scrap Price ($/GT)

500 Steel Scrap Global Demand (Million MT) USA Busheling Price Chicago ($GT) USA Heavy Melt Price Chicago ($/GT)

400

300

200

100

Rising prime scrap volumes from manufacturing and black swan events

Scrap Price Volatility has Declined as Global Growth Rates have Slowed
Steel Scrap Month Over Month % Change
70.00%
Month Over Month % Change for Global Scrap Demand and USA Price

USA Scrap Price Versus Global Scrap Demand for SteelMaking

60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% USA Heavy Melt Price Chicago Monthly (% change) Steel Scrap Global Demand Monthly (% Change)

USA Busheling Price Chicago Monthly (% Change)

-10.00% -20.00%

During periods of high steel production growth scrap prices spike during demand increases and supply constraints during winter months

Black Swan Events - Japan Tsunami Scrap and European Recession Added Scrap Exports to the Global Market in 2012

Japanese Net Scrap Exports vs. Eurozone Net Scrap Exports

6 5
million tonnes

4 3 2 1 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2011 2011 2011 2011 2012 2012 2012 2012e

Source: WSD estimates

Eurozone Net Exports (1,000,000) Japan Net Exports (1,000,000)

Japan scrap exports increased 2 million tonnes in 2012. Europe exports spiked in 1Q12

Global Iron Ore Demand has Increased 703 Million Tonnes since 2000 China Accounted for 669 Million Tonnes (95%)
1200

1000 361 323 800

Million Metric Tonnes

264

306

600 323 400 209 193 200 149 0 70 142 92 161 111 148 208 275 326 284

368

305

628 383 444

619

687

735

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Imports Production

10 Domestic production has increased 7.7% CAGR since 2000, while imports have grown 22% CAGR and account for 61% of the total requirement.

Slowing Chinese Steel Production Growth, Credit Constraints and the European Recession Slowed Global Iron Ore Demand Growth
Iron Ore
Iron Ore Price Versus Global Iron Ore Demand
Million Metric Tonnes per Quarter & ) Iron Ore CFR China ($/MT)

500 450 400 350 300 250 200 150 100 50 0 Iron Ore Price ($/MT) Iron Ore Global Demand (Million MT)

11 The current rise in iron prices has been driven by Chinese restocking, short term supply issues and political export constraints in India

Iron Ore Price Volatility has Declined as Global Growth Rates have Slowed
Iron Ore Month Over Month Percent Change
40.00% China CFR Iron Ore Price Versus Global Iron Ore Demand for SteelMaking

Month Over Month % Change for Global Iron Ore Demand and China CFR Iron Ore Price

30.00%

20.00%

10.00%

Iron Ore Global Demand monthly (% Change)

0.00%

-10.00%

Iron Ore Price Monthly (% Change)

-20.00%

-30.00%

Swings in Chinas massive steel production activity,~700 M tonnes, drives iron ore spot price volatility

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2013 Upcoming Iron Ore Projects (million tonnes) Region CIS Europe Closed, reopen/plans Feasibility North America Construction Feasibility Operating, exp/constr Operating, exp/plans Oceania Conceptual Construction Feasibility Operating, exp/constr Operating, exp/feasib South America Conceptual Construction Feasibility Operating, exp/constr Operating, exp/plans Prefeasibility Operating Under Construction/Operating Conceptual/Prefeasibility/Feasibility Operating Expansion-Planning Stag Closed-Reopen Plans Grand Total
Source: UNCTAD & WSD estimates

2014 Upcoming Iron Ore Projects (million tonnes)

World Status Gross CapacityRegion/Country Ranking Capacity Project Cost Curve Region Project Status Gross A current snapshot 3.5 Europe 9.5
Construction 3.5 7.5 5.0 2.5 32.0 7.0 3.0 8.0 14.0 137.8 15.0 63.0 15.0 1.8 43.0 147.5 10.0 19.5 19.5 42.0 4.1 50.0 2.4 147.2 158.0 18.1 5.0 328.3 Closed, reopen/plans Closed, reopen/plans Oceania Conceptual Feasibility Operating, exp/constr Operating, exp/plans South America Operating, exp/plans Feasibility Operating, exp/constr Under Construction/Operating Conceptual/Prefeasibility/Feasibility Operating Expansion-Planning Stage Closed-Reopen Plans Grand Total
Source: UNCTAD & WSD estimates

2 7.5 112.8 15 80.8 14 3 61.3 10 24 27.3 41.3 119.8 13.0 9.5 183.6

Iron Ore Capacity Additions Expected To Push Down Prices In 2H13 and 2014
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USA Service Center Steel Inventories Remain Well Below Pre-Crisis Levels
Credit constraints and uncertainty has many living hand-to-mouth (buying only what they need)

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China is Driving the Global Steel Production Bus USA is less than 6% (5.8%) of global production

% Share of 2012 Forecasted Global Steel Production

23% 47% 24%

China USA Rest of advanced Developing (non China)

< 6%

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USA Spot Pricing Comparison (2009 2013YTD) Declining Raw Material Prices are Flowing into Steel Prices
$1,000 2011 MarchPeak $900 2010 MayPeak $800 $700 2012 JanuaryPeak

2013 ???
$perShortton
$600 $500 2009 SeptemberPeak $400 $300 $200 $100 $0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

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2009 2010 2011 2012 2013

USA EAF Mill Price Spreads Between hot-rolled and #1 Busheling in 2H12 were the Highest in Four Years
USAPriceSpread HotRolledBandPriceMinus#1BushelingPrice
$450 $400 $350 2012hadhighestspreadin2Hofyear $300

$perShortton

$250 $200 $150 $100 $50 $0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

17
2009 2010 2011 2012 2013

The Price Spread Between the USA Domestic Price and the World Export Prices has Significantly Declined During February 2013
$250

HRBPriceSpreadBetweenUSADomesticPriceandWorldExportPrice
2012 JanuaryPeak 2011 AprilPeak

$200

$perMetricTonne

$150

2009 MarchPeak 2010 JunePeak

2013 ???
$100

$50

$0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2009

2010

2011

2012

2013

India exporters are becoming more aggressive due to domestic credit issues

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USA Imports Increased Significantly in 2012 One Reason There is Excess Supply in the USA

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USA 2013 Steel Price Outlook Key Items to watch

1H 2013
Expect current mill price increases to take hold in March Scrap prices up $10 - $30/GT in March Reduced import competition Watch for mill production cuts Import price spread fell in 1Q and is expected to increase in the 2nd quarter Watch mill lead times closely Most mills are still chasing orders as demand is impacted by uncertainty Watch consumer spending for any lull due to higher taxes, reduced government spending and economic uncertainty

2H 2013
Expect mill price increases to reverse in the summer Scrap prices are likely to be impacted by falling pig iron prices and a slowing global economy Watch for mill production cuts Import price spreads increase as raw material prices fall enabling a more competitive world cost curve Watch mill lead times closely Watch for the sustainability of domestic mill production cuts Watch consumer spending for impacts from higher taxes, reduced government spending and economic uncertainty
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Steel Futures Forward Price Curves Tend to be Too Flat Offering Buyers and Sellers Trading Opportunities

Integrated/BF Route

EAF Route 21

Steel futures can provide the opportunity to hedge steel values during long transit times

Thank you for your kind attention

Pat McCormick Managing Partner World Steel Dynamics President World Steel Exchange Marketing Work: (201) 503-0920 Cell: (314) 378-4858
pmccormick@worldsteeldynamics.com

Thisreportincludesforwardlookingstatementsthatarebasedoncurrentexpectationsaboutfuture eventsandaresubjecttouncertaintiesandfactorsrelatingtooperationsandthebusinessenvironment, allofwhicharedifficulttopredict.Althoughwebelievethattheexpectationsreflectedinourforward lookingstatementsarereasonable,theycanbeaffectedbyinaccurateassumptionswemightmakeor byknownorunknownrisksanduncertainties,includingamongotherthings,changesinprices,shiftsin demand,variationsinsupply,internationalcurrencymovements,technologicaldevelopments, governmentalactionsand/orotherfactors. Theinformationcontainedinthisreportisbaseduponorderivedfromsourcesthatarebelievedtobe reliable;however,norepresentationismadethatsuchinformationisaccurateorcompleteinall materialrespects,andrelianceuponsuchinformationasthebasisfortakinganyactionisneither authorizednorwarranted.WSDdoesnotsolicit,andavoidsreceiving,nonpublicmaterialinformation fromitsclientsandcontactsinthecourseofitsbusiness.Theinformationthatwepublishinour reportsandcommunicatetoourclientsisnotbasedonmaterialnonpublicinformation. Theofficers,directors,employeesorstockholdersofWorldSteelDynamicsInc.donotdirectlyor indirectlyholdsecuritiesof,orthatarerelatedto,oneormoreofthecompaniesthatarereferredto herein.WorldSteelDynamicsInc.mayactasaconsultanttooneormoreofthecompaniesmentioned inthisreport. Copyright 2012byWorldSteelDynamicsInc.allrightsreserved.

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A Look Behind Steel Scrap Pricing Higher scrap demand is expected to move closer to the obsolete reservoir driving up prices
600
Forecast

$600

550

$525

500

$450

Shredded Scrap Price (RHS)

Scrap Requirement/Capacity
450 $375

#1HM Scrap Price (RHS)

Scrap Price ($/t)
400 $300

Average Annual Reservoir

350 $225

300

$150

250

Obsolete Scrap Requirement

$75

200

$0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

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Steelmakers Metallics

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