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American Gear Manufacturers Association Steel Consumption Update. Cengiz Kurkcu President - Industrial Engineered Steel Solutions The Timken Company March 9, 2011. Agenda. The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development - PowerPoint PPT Presentation
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American Gear Manufacturers AssociationSteel Consumption Update
Cengiz Kurkcu
President - Industrial Engineered Steel Solutions
The Timken Company
March 9, 2011
Agenda
The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development Raw Material Trends Green Trends & Steelmaking U.S. Manufacturing
2
The Timken Company
Founded in St. Louis in 1899 by Henry Timken after receiving patents for a tapered roller bearing
Relocated to Canton, Ohio, in 1901
Began steel production in 1917 $1 billion in revenue – 1978 $2.2 billion in revenue – 1995
3
Our History
Excludes intersegment sales
2010 Total Sales: $4.1 Billion
Steel$1.3 Billion
Bearings& Power
Transmission$2.8 Billion
The Timken Company
4
Alloy Steel & Value-added
Solutions
Oil & GasMobile On-Highway
Industrial
SteelGroup
Bearings andPower Transmission Group
Mobile Industries
Light VehicleOff Highway
RailAuto Aftermarket
Heavy Truck
Aerospace & Defense
DefenseCommercial
General AviationPositioning Control
Health
ProcessIndustries
Heavy IndustriesIndustrial Processes
Gear DrivesEnergy
Industrial Distribution
Our Business Structure
Steel Group
5
Oil & GasHeavyweight Drill PipeDrill BitsDrill CollarsMud MotorsTool JointsSupply Chain ManagementValue-Added Machining
Mobile On-HighwayPassenger CarLight TruckMedium/Heavy Truck
IndustrialAgriculture, BearingConstruction EquipmentDistributionIndustrial MachineryMining, RailPower TransmissionWind Energy
Steel Group 2010 Net Sales
6
Market SelectionRail
IndustrialMachinery
PassengerCar
Light Truck
Heavy Truck
Vehicle BearingSteels
DrillingEquipment
ProductionEquipment
Industrial BearingSteels
Wind & PowerGeneration
Off-Highway & Transportation
Aerospace & Defense
Farm & Mining Equipment
Mobile On-Highway35%
Oil & Gas17%
Industrial48%
Steel Group
450 grades of carbon and alloy steels Special bar quality steel Seamless mechanical steel tubing Well-boring and finishing products Precision steel components
7
Our Products
Steel Group
Applications
BearingsBearing RacesFuel InjectorsGun BarrelsCrankshaftsOil Field ToolingCV JointsTransmission Gears
FastenersHand ToolsLeaf SpringsShopping CartsTable LegsReinforcing Bar C
om
mo
dit
ies
High
Per
form
ance
Low
Applications
BearingsBearing RacesFuel InjectorsGun BarrelsCrankshaftsOil Field ToolingCV JointsTransmission Gears
FastenersHand ToolsLeaf SpringsShopping CartsTable LegsReinforcing Bar C
om
mo
dit
ies
High
Per
form
ance
Low
Agenda
The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development Raw Material Trends Green Trends & Steelmaking U.S. Manufacturing
8
80
90
100
110
120
130
140
150
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
60
70
80
90
100
110
2006-0
1
2006-0
4
2006-0
7
2006-1
0
2007-0
1
2007-0
4
2007-0
7
2007-1
0
2008-0
1
2008-0
4
2008-0
7
2008-1
0
2009-0
1
2009-0
4
2009-0
7
2009-1
0
2010-0
1
2010-0
4
2010-0
7
2010-1
0
20
30
40
50
60
70
2006-01
2006-04
2006-07
2006-10
2007-01
2007-04
2007-07
2007-10
2008-01
2008-04
2008-07
2008-10
2009-01
2009-04
2009-07
2009-10
2010-01
2010-04
2010-07
2010-10
2011-01
Key Economic Indicators
9
Industrial Production Index (IPI)• PMI up 0.6 points from February and the highest since May 2004
• WLI up from January
• Industrial production highest since August 2008
Purchasing Manager’s Index (PMI) Weekly Leading Index (WLI)
U.S. Vehicle Sales Rates - SAAR
1010101010101010101010101010
13.2
10.4
11.512.2 12.2 12.5 12.5 12.6 13.0
14.9
16.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
(Mill
ion
s)
2008 2009 2010 OCT 10 NOV 10 DEC 10 JAN 11 2011 2012 2013
Source: Ward’s Automotive Weekly & IHS (forecast)
Sustained recovery with slow growth into 2011
Mid
-Mo
nth
Fo
rec
as
t
N.A. Medium & Heavy Truck Production
11
Estimate over 500,000 tons of future SBQ demand
334364 363
492
593
642
421
353
217255
350
433
526561
526496
521
576610 610
0
75
150
225
300
375
450
525
600
675
750
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Th
ou
san
ds
Of
Tru
cks
37%
24%
21%
7%
Key Industrial Indicators
Industrial Machinery Durable Goods Railroad Equipment Mining (excluding Oil & Gas) Construction Machinery Agricultural Machinery Utilities
12
2011 vs. 2010
18%
9%
-4%
3%
4%
4%
1%
Global Drilling vs. Timken Steel Supply
13
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
1/4
/2008
3/4
/2008
5/4
/2008
7/4
/2008
9/4
/2008
11/4
/2008
1/4
/2009
3/4
/2009
5/4
/2009
7/4
/2009
9/4
/2009
11/4
/2009
1/4
/2010
3/4
/2010
5/4
/2010
7/4
/2010
9/4
/2010
11/4
/2010
1/4
/2011
3/4
/2011
Key Oil & Gas Indicators
14
US Rigs Drilling for Oil Approaching
50%
Natural Gas Storage Level
Natural Gas: Henry Hub Crude Oil: WTI Cushing
Market Segment Outlook - 2011
15
Oil & GasOil & Gas IndustrialIndustrialMobile On- Mobile On-
HighwayHighway
• Sustained market recovery for light vehicle market
• 2011 production forecast at 12.9 million vehicles, 9% above 2010
• Initial stage recovery for medium and heavy truck market
• Strong demand expected through 2011
• Customer inventory replenishment continues
• Healthy orders in most end-markets & products
• Higher oil prices drive 11% world rig count growth
• Exploration & Production budgets increase 11% in 2011
• Horizontal Drilling continues to grow
Agenda
The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development Raw Material Trends Green Trends & Steelmaking U.S. Manufacturing
16
World Apparent Steel Use
17
New record(2010)
GrowthslowingP
erce
nt
Cha
nge
NAFTA Apparent Steel Use
18
2011
U.S. SBQ Apparent Consumption
19
Source: AISI & Timken Data
Bar & Tube Lead-times
Hot Roll Bar Hot Roll Tube
Month Timken Domestic Timken Domestic
Jan-10 8 8 9 7
Mar-10 14 12 14 7
Apr-10 19 15 15 7
Jul-10 30 26 22 7
Mar-11 Allocation(1) 40 29 7(2)
20
Weeks
(1) July 2011(2) If billets available
Agenda
The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development Raw Material Trends Green Trends & Steelmaking U.S. Manufacturing
21
Steel Group
22
Strategic Focus
• Small bar mill
• Custom heat treat
• Large bar UT inspection
• New high carbonfurnace
• Forge press
• New products / customers
• Value selling
• Market plan / market selection
• Global oil & gas supply chain
• International warehouses / supply chain
• Tube finishing line
• Lean6Sigma / continuous improvement
• Operational improvements
• Lay down yard
• Timken Boring Specialties
• Daido Steel Collaboration
• City Scrap & Salvage
Strategic Plan
Global diversity & leadership Differentiated solutions Attractive, long-term risk-adjusted
returns Effective business cycle management
23
In-line Forge PressTube Finishing Line
Small Bar Mill
Large Bar UT
Agenda
The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development Raw Material Trends Green Trends & Steelmaking U.S. Manufacturing
24
Inquiry Turnaround
25
74%
41%
72% 70%
17%
12%
18%16%
7%
38%
5%
10%
2%
9%
5%4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Industrial Mobile On-Highway Oil & Gas Total
0-2 Days % 2-10 Days % 10-20 Days % Over 20 Days %
January 2011
New Business Sales Ratio
26
0%
5%
10%
15%
20%
25%
30%
35%2
01
0
Ja
n-1
1
Fe
b-1
1
Ma
r-1
1
Ap
r-1
1
Ma
y-1
1
Ju
n-1
1
Ju
l-1
1
Au
g-1
1
Se
p-1
1
Oc
t-1
1
No
v-1
1
De
c-1
1
20
11
Fc
st
YT
D
Actual Plan
Advanced Program Management
27
Stage-Gate Process
Strategic Alignment
Strategic Evaluation
Feasibility Analysis
Business Case
Commercial Development
Implement Strategy
Product Life Cycle
IdeaStage 1
Discovery
Stage 2
Evaluation
Stage 3
Concept
Stage 5
Validation
Stage 6
LaunchG1 G2 G3 G4 G5Stage 7
ControlG6
Stage 4
Development
Define Implement RealizeIdentify
Decision Agenda Execution Agenda
PRODUCT DEVELOPMENT COMMERCIAL DEVELOPMENT
New Equipment Capability– Radial Flow Forming
Grade Development– Iron Aluminum Platform
– API-6A Specification
Processing– Non-Ferrous Piercing
– Raise Bore Drill Rods
New Equipment Capability– In-Line Forge Press (<16”)– Internal Green Machining
Grade Development– FSP Premium High Carbon– Gear Steels
Processing– Large Sound Center
Bar (<16”)
Gear Steels
Clean steel– Longer bearing and gear life
– Power density
Timken offers over 400 different grades– Common gear grades 43xx (18CrNiMo7-6) and 41xx
(42CrMo4)
Demanding gear applications– Rail (locomotive), mining, wind, off-highway vehicles
28
Developing Local Presence
29
Value Add SupplierFacilities
Plants
Sales Office
Warehouse
Role of agents and forwarders Local sales and service teams Local operating partners
– Ventures and agreements
New Asia collaboration model – high performance regional supply chain
Sales Agents
Need for operating presence
– Commitment of customers and suppliers
– Investment in plant and warehouse
Agenda
The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development Raw Material Trends Green Trends & Steelmaking U.S. Manufacturing
30
World Crude Steel Production
31
Source: worldsteel
1,413.6 Million Metric Tons (2010)
Europe22%
North America8%
South America 3%Africa 1%
Middle East 2%Australia / New Zealand 1%
Other Asia19%
China44%
Supply Tensions Will Remain
32
China’s Iron Ore Purchases
Source: JB Were, First River
1997-2010 (July) Annual / Monthly ($/ton)
33
China Iron Ore Drives US Scrap Price
Monthly
Source: Vale, AMM, First River analysis
Key Approaches– Regional scrap management
– Industrial accounts
– Scrap consulting & brokerage
– Supply agreements
Timken Metal Recycling Strategy
34
Auto Wreckers Ind. Accts. Other Scrap Yards
Raw Material Feedstock
Shredder
ObjectivesReliable supply of iron units at a competitive cost
Capture the return flow of scrap from the customers / suppliers
Agenda
The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development Raw Material Trends Green Trends & Steelmaking U.S. Manufacturing
35
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Alloy Steel - USKWH per Shipped Ton
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Alloy Steel - USMCF per Shipped Ton
36
Continuous Improvement
Natural Gas ConsumptionMCF per Ship Ton
Electricity ConsumptionKWH per Ship Ton
Green Trends & Steelmaking
Green Trends & Steelmaking
Regenerative burner technology
Waste heat recapture systems
Automated scrap cutting
37
Agenda
The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development Raw Material Trends Green Trends & Steelmaking U.S. Manufacturing
38
U.S. Manufacturing
American manufacturers start with a non-production cost disadvantage of 18% versus our major trading partners
– U.S. steel producers spend 18% more on taxes, energy, benefits, torts, and regulatory compliance than our foreign competitors
39
U.S. Manufacturing
Tax Structure– Second highest among all OECD countries
– Double-taxing global revenues
– R&D tax credits
Regulatory Discipline– EPA regulations
– OSHA policies
– NLRB directives
Energy Policy– Investment in energy infrastructures
– Energy efficiency and conservation
– Diverse portfolio of fuel sources
40
Restoring Balance
Collaboration – Vital to Future Success
41