European economic & steel demand outlook Metal Expert Conference, Stresa, Italy Terrence Busuttil, 8 - 9 April 2013

European economic & steel demand outlookMetal Expert Conference, Stresa, Italy

Terrence Busuttil, 8-9 April 2013

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Global macroeconomic outlook

Medium term steel demand drivers

Short term macro outlook

Steel using sectors

Steel demand outlook

3

Item 1

Moderate recovery expected in 2013

Advanced economies to remain weak with similar growth as 2012

Developing economies to grow 4.9% in 2013 from 4.7% in 2012

Source: Global Insight, March 2013

4

Global GDP developments (%, real 2005 USD billions)

2009 2011 2012 2013 2014

EU27 -4.3 1.6 -0.3 0.0 0.8Germany -5.1 3.1 0.9 1.0 1.4France -3.1 1.7 0.0 -0.2 0.5Italy -5.5 0.6 -2.4 -1.7 -0.4Spain -3.7 0.4 -1.4 -1.6 -0.6

Turkey -4.8 8.5 2.5 4.0 4.0MENA 1.7 2.6 3.6 2.6 3.8NAFTA -3.2 2.0 2.3 1.9 3.0

Global -1.9 3.0 2.6 2.6 3.5




Steel using sectors


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Item 2

Consumer deleveraging progressing in USA but only starting in Europe

Deleveraging in Germany & USA to support consumption in 2013 Disposable incomes under pressure in Italy, Portugal and Spain making

deleveraging difficult and contributing to falling consumption in 2013

Consumer debt (% of disposable income)

Note: Germany, USA & Japan peaked in 2007Source: Haver Analytics

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Italy Greece Portugal Spain France Germany USA Japan

2000 43 27 98 77 68 109 90 1322007 66 70 136 135 89 96 125 1352008 66 77 140 134 89 93 122 1332009 71 78 143 133 94 93 123 1312010 73 91 141 137 99 91 115 1302011 74 NA 142 136 100 88 109 129

Change in consumer debt ratio (% of disposable income)2000-2007 23 43 38 58 21 -13 35 32007-2011 8 NA 6 1 11 -8 -16 -6

Public sector deleveraging in S.Europe to continue

Contracting GDP in S.Europe implies greater expenditures cuts and/or increasing taxes

Fiscal balance (% of GDP) Change in fiscal balance to GDP (points)

Source: Global insight March 2013

Note: positive change in fiscal tightening signals improving fiscal balance

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2011 2012 2013 2014 2011 2012 2013 2014

Germany -0.8 0.2 -0.1 -0.3 3.4 0.9 -0.3 -0.2

France -5.2 -4.7 -3.9 -3.0 1.9 0.5 0.8 0.9

Italy -3.9 -3.0 -2.4 -1.8 0.7 0.9 0.6 0.6

Spain -9.4 -6.7 -6.1 -4.8 0.3 2.7 0.6 1.3

MENA 3.8 4.6 2.8 0.6 3.8 0.8 -1.9 -2.2

Turkey -1.4 -2.0 -2.3 -2.5 -1.4 -0.6 -0.3 -0.1

USA -9.0 -7.6 -5.9 -4.7 0.4 1.4 1.7 1.2

Contracting output makes deleveraging challenging in Europe

EU27 unemployment rate has risen by 3.9 points from the lowest point in 2008Q1 and average real GDP declined -0.35% per quarter

Eurozone: Annualized real GDP vs. unemployment rate (%, SA)

USA: Annualized real GDP vs. unemployment rate (%, SA)

Source: Haver Analytics

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-9%-8%-7%-6%-5%-4%-3%-2%-1%0%1%2%3%4%5%6%

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

Real GDP

Unemployment rate (RHS)

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

Real GDP

Unemployment (RHS)

But reforms supporting cost competitiveness in S.Europe

Cyclical fall in demand and structural reforms support falling unit labour costs in Greece, Portugal and Spain but weak reforms in Italy undermine productivity growth

Unit labour costs* (4-quarter average, SA, 2000 = 100)

Note: *Defined as nominal compensation of employees per unit of real GDP


9

Current account balance (4-qtr moving average, billions of euro)

2002-

Q420

03-Q2

2003-

Q420

04-Q2

2004-

Q420

05-Q2

2005-

Q420

06-Q2

2006-

Q420

07-Q2

2007-

Q420

08-Q2

2008-

Q420

09-Q2

2009-

Q420

10-Q2

2010-

Q420

11-Q2

2011-

Q420

12-Q2

-60

-50

-40

-30

-20

-10

0

10

20

30

40

50

S.Europe

N.Europe

Consumption

Sharp contraction in S.Europe retail sales volume but N.Europe sales generally elevated

Deleveraging underpins fall in S.Europe retail sales

Europe (3 month average, SA, 2005=100)

Note: N.Europe: Austria+Belgium+France+Germany; S.Europe: Portugal+Greece+Spain+Italy


USA (2007=100, SA)

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Investment

Falling capacity utilization in S.Europe postpones need for machinery & equipment investment; negative sentiment spills over into N.Europe

Europe (%, SA)


Note: European capacity utilization weighted by real GDP

Contracting domestic demand reduces the need for additional investment

USA (%, SA)

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Falling business credit in S.Europe reflects falling supply and demand but credit generally supportive in N.Europe

The European Central Bank has ensured the provision of liquidity to solvent banks but uncertainty curtails credit supply while contracting domestic output reduces loan demand

Europe: Corporate credit (billions of euro, NSA)


US: Commercial & industrial loans (%, y-o-y)

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Steel using sectors


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Item 3

Indicators point towards an easing of the recession

Eurozone PMI still contacting but rate of decline easing; German IFO averages 106.1 in Q1’2013 from 101.4 in Q4’2012

Manufacturing output (2005=100, SA, 3 month average)

Eurozone: manufacturing output vs. Purchasing Managers Index (>50=expansion)

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Steel using sectors


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Agenda item 4

Steel using sectors in Europe still contracting

Car sales (3 month average, SA, annualised)

Southern European auto sales down 2 mn units from 2006; modest fall in in Northern Europe. In 2012 sales were down 8.5%; further decline in 2013


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Construction output (2005=100, SA)




Steel using sectors


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Item 5

EU27 demand to remain below peak levels

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Apparent steel use (finished, 2007=100)

Source: worldsteel Short Range Outlook April 2013

*EU27 less Italy & Spain

And declining as a share of global apparent steel use

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Apparent steel use (finished, 2007=100)

Source: worldsteel Short Range Outlook April 2013

EU27 share of global ASU falls to under 10% from under 30% in 1975

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013 (f)

0.0

200000.0

400000.0

600000.0

800000.0

1000000.0

1200000.0

1400000.0

1600000.0

5%

10%

15%

20%

25%

30%

EU27 share of Global ASU (RHS) Global ASU

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Regional trade flows (net-exports, Mt)

Encouraging EU27 producers to seek export markets

Source: worldsteel; MENA includes intra-trade flows

EU27 remained a net-exporter of steel for the fourth straight year in 2012 EU27 steel exports increased to 26% of apparent steel use in 2012 from 15%

in 2007

2007 2008 2009 2010 2011 2012

EU27 -10.3 -0.5 11.8 9.5 3.0 10.8

MENA -35.9 -43.1 -44.5 -41.1 -42.3 -44.3

CIS 49.8 48.1 45.8 44.8 41.4 40.0

Turkey 1.9 5.3 7.2 5.5 6.7 7.2NAFTA -29.8 -25.8 -17.8 -25.1 -19.8 -24.9

With exports also supported by weaker euro

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Trade weighted value of the euro (2005=100)

Falling value of the euro also supports exports


And apparent steel use growth in emerging markets

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Apparent steel use (% year-on-year, finished)

North Africa sees increased share of EU27 steel exports

Continued emerging market growth will incentivize EU producers to search for

new markets in the presence of weak domestic demand.

Source: worldsteel

2007 2008 2009 2010 2011 2012 2013(f)

Average

(2007-13)% of 2007

EU27 5.4 -7.8 -34.9 21.0 6.8 -9.3 -0.5 -2.7 -29.9NAFTA -8.5 -7.9 -36.0 33.2 9.4 7.8 2.9 0.1 -4.7Turkey 12.0 -9.7 -16.0 30.7 14.3 5.7 7.5 6.4 28.7MENA 22.5 8.1 0.3 3.6 1.4 2.2 3.2 5.9 20.2ASIA 9.5 4.1 9.2 9.6 7.3 1.8 3.2 6.4 40.5

Conclusions

Global apparent steel use to reach a new record in 2013 as developing markets remain key growth drivers at the margin

Domestic demand in Europe to remain weak as deleveraging to weigh negatively on apparent steel use

European steel demand expected to continue contracting in 2013 against the backdrop of declining steel using sectors. Pickup expected in 2014

Against the backdrop of contacting domestic demand, European producers will continue seeking growing export markets

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European economic & steel demand outlook Metal Expert Conference, Stresa, Italy Terrence Busuttil, 8 - 9 April 2013