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TopicsPrice Drivers Raw Material Supply/Demand Trade Inventory
USA MarketA Look Ahead Sequester
Impact $85B Production Cuts Price Changes
Presented by:
Patrick A. McCormickManaging Partner – WORLD STEEL DYNAMICSPresident – WORLD STEEL EXCHANGE MARKETING
Steel Conference - March 1, 2013
Steel UpdateThe Rolling Tides of Global Steel
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WSD Steel Stratagems Consulting Service Offering Creative business solutions to Clients
Raw Materials Mill Service
Center OEM’s
Automotive GlobalManufacturing
WarehouseStorage Systems
HACComponents
Appliance Fabrication
AgricultureDistribution
& Processing
Raw Materials Mill Service
Center OEM’s
Automotive GlobalManufacturing
WarehouseStorage Systems
HACComponents
Appliance Fabrication
AgricultureDistribution
& Processing
Value proposition Experienced “hands-on”
consulting to improve client’s buying/selling performance Steel Industry Analysis Performance Benchmarking Strategy Development Tools & Tactic Support
Non-competing clients. If two clients buy or sell to each other we work as a facilitator
Total Supply Chain coverage
Managing price volatility is a common concern
among clients
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655676
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Dol
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USA, China, Western Europe and World Export(WSD's PriceTrack data, Jan. 2000 - March 2006; SteelBenchmarker data begins April 2006)
USAFOB mill
World ExportFOB port of
Chinaex-works
Western Europeex-works
February 25, 2013
608
Steel prices have remained on a “rollercoaster” with many “ups and downs”but recent peaks have not eclipsed the 2008 pre-crisis peaks
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Hot-Rolled Band Spot Priceswww.steelbenchmarker.com
Assess GlobalEconomic
GrowthFAI – Key driver
Assess Global Steel Production
Forecast and Demand on Raw
Materials
Calculate Raw Material Prices
and Steel Product Price
Spreads
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WSD’s Stratagems Price Forecast Process Methodology
Using global fundamentals to forecast steel price trends
WSD’s 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
*Powered by Martson
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0.00
0.20
0.40
0.60
0.80
1.00
1.20
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800
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Obsolete Scrap Usage Ratio (RHS)
Obsolete Scrap Requirement (LHS)
New Scrap Usage (LHS)
Home Scrap Usage (LHS)
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Scrap is Considered the Marginal MetallicPrice Spikes are Required to Drive Up the Recovery Rate
of Obsolete Scrap
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
obsolete scrap reservoir that is on average 10-40 years old.
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Scrap Prices Significantly Declined in 2012
Rising prime scrap volumes from manufacturing and black swan events
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Steel ScrapUSA Scrap Price Versus Global Scrap Demand for SteelMaking
Steel Scrap Global Demand (Million MT)
USA Busheling Price -Chicago ($GT)USA Heavy Melt Price -Chicago ($/GT)
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Scrap Price Volatility has Declined as Global Growth Rates have Slowed
During periods of high steel production growth scrap prices spike during demand increases and supply constraints during winter months
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
Mon
th O
ver
Mon
th %
Cha
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for
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crap
Dem
and
and
US
A Pr
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Steel Scrap Month Over Month % ChangeUSA Scrap Price Versus Global Scrap Demand for SteelMaking
Steel Scrap Global Demand Monthly (% Change)
USA Busheling Price -Chicago Monthly (% Change)
USA Heavy Melt Price -Chicago Monthly (% change)
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Black Swan Events - Japan Tsunami Scrap and European Recession
Added Scrap Exports to the Global Market in 2012
Japan scrap exports increased 2 million tonnes in 2012. Europe exports spiked in 1Q12
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Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012e
mill
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tonn
es
Japanese Net Scrap Exports vs. Eurozone Net Scrap Exports
Eurozone Net Exports (1,000,000)
Japan Net Exports (1,000,000)
Source: WSD estimates
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Global Iron Ore Demand has Increased 703 Million Tonnes since 2000
China Accounted for 669 Million Tonnes (95%)
Domestic production has increased 7.7% CAGR since 2000, while imports have grown 22% CAGR and account for 61% of the total requirement.
70 92 111 148 208275 326 383
444
628 619687 735
149 142 161193
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284323
368 305
264 306
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Imports Production
Mill
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Slowing Chinese Steel Production Growth,Credit Constraints and the European Recession
Slowed Global Iron Ore Demand Growth
The current rise in iron prices has been driven by Chinese restocking, short term supply issues and political export constraints in India
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CFR
Chi
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($/M
T)
Iron OreIron Ore Price Versus Global Iron Ore Demand
Iron Ore Global Demand (Million MT)
Iron Ore Price ($/MT)
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Iron Ore Price Volatility has Declined as Global Growth Rates have Slowed
Swings in China’s massive steel production activity,~700 M tonnes, drives iron ore spot price volatility
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
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40.00%
Mon
th O
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onth
% C
hang
e fo
r G
loba
l Iro
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eman
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an
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hina
CFR
Iron
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Iron Ore Month Over Month Percent ChangeChina CFR Iron Ore Price Versus Global Iron Ore Demand for SteelMaking
Iron Ore Global Demand monthly (% Change)
Iron Ore Price Monthly (% Change)
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World Cost Curve Region/Country RankingA current snapshot
Region Project Status Gross Capacity Region Project Status Gross Capacity
CIS 3.5 Europe 9.5Construction 3.5 Closed, reopen/plans 2
Europe 7.5 Closed, reopen/plans 7.5Closed, reopen/plans 5.0 Oceania 112.8
Feasibility 2.5 Conceptual 15North America 32.0 Feasibility 80.8
Construction 7.0 Operating, exp/constr 14Feasibility 3.0 Operating, exp/plans 3
Operating, exp/constr 8.0 South America 61.3Operating, exp/plans 14.0 Operating, exp/plans 10
Oceania 137.8 Feasibility 24Conceptual 15.0 Operating, exp/constr 27.3Construction 63.0
Feasibility 15.0 Under Construction/Operating 41.3Operating, exp/constr 1.8 Conceptual/Prefeasibility/Feasibility 119.8Operating, exp/feasib 43.0 Operating Expansion-Planning Stage 13.0
South America 147.5 Closed-Reopen Plans 9.5Conceptual 10.0 Grand Total 183.6Construction 19.5
Feasibility 19.5 Source: UNCTAD & WSD estimates
Operating, exp/constr 42.0Operating, exp/plans 4.1
Prefeasibility 50.0Operating 2.4
Under Construction/Operating 147.2Conceptual/Prefeasibility/Feasibility 158.0Operating Expansion-Planning Stag 18.1Closed-Reopen Plans 5.0Grand Total 328.3
Source: UNCTAD & WSD estimates
2013 Upcoming Iron Ore Projects 2014 Upcoming Iron Ore Projects(million tonnes) (million tonnes)
Iron OreCapacityAdditionsExpected To Push
Down PricesIn 2H13
and2014
USA Service Center Steel InventoriesRemain Well Below Pre-Crisis Levels
Credit constraints and uncertainty has many living hand-to-mouth (buying only what they need)
14
China is Driving the Global Steel Production BusUSA is less than 6% (5.8%) of global production
47%
6%
24%
23%
% Share of 2012 ForecastedGlobal Steel Production
ChinaUSARest of advancedDeveloping (non China)
15<
USA Spot Pricing Comparison (2009 – 2013YTD)Declining Raw Material Prices are Flowing into Steel Prices
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$0
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$1,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
$ pe
r Sho
rt to
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2009 2010 2011 2012 2013
2011 ‐ March Peak
2012 ‐ January Peak
2013 ‐ ???
2010 ‐ May Peak
2009 ‐ September Peak
USA EAF Mill Price Spreads Between hot-rolled and #1 Busheling in 2H12
were the Highest in Four Years
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USA Price Spread ‐ Hot‐Rolled Band Price Minus #1 Busheling Price
2009 2010 2011 2012 2013
2012 had highest spread in 2H of year
$0
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$ pe
r Metric
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HRB Price Spread Between USA Domestic Price and World Export Price
2009 2010 2011 2012 2013
2011 ‐ April Peak2012 ‐ January Peak
2013 ‐ ???2010 ‐ June Peak
2009 ‐ March Peak
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The Price Spread Between the USA Domestic Price and the World Export Prices has
Significantly Declined During February 2013
India exporters are becoming more aggressive due to domestic credit issues
USA ImportsIncreased 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 2013Expect current mill price increases to take hold in MarchScrap prices up $10 - $30/GT in MarchReduced import competition Watch for mill production cutsImport price spread fell in 1Q and is expected to increase in the 2nd
quarterWatch mill lead times closelyMost mills are still chasing orders as demand is impacted by uncertaintyWatch consumer spending for any lull due to higher taxes, reduced government spending and economic uncertainty
2H 2013Expect mill price increases to
reverse in the summerScrap prices are likely to be
impacted by falling pig iron prices and a slowing global economyWatch for mill production cuts
Import price spreads increase as raw material prices fall enabling a more competitive world cost curve
Watch mill lead times closelyWatch for the sustainability of domestic mill production cutsWatch consumer spending for
impacts from higher taxes, reduced government spending and
economic uncertainty 20
Steel futures can provide the opportunity to hedge steel values during long transit times21
Steel Futures Forward Price Curves Tend to be Too Flat Offering Buyers and Sellers Trading Opportunities
Integrated/BF Route EAF Route
22
Pat McCormickManaging Partner
World Steel DynamicsPresident
World Steel Exchange MarketingWork: (201) 503-0920Cell: (314) 378-4858
Thank you for your kind attention
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, international currency movements, technological developments, governmental actions 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 one or more of the companies mentioned in this report.
Copyright 2012 by World Steel Dynamics Inc. all rights reserved.
A Look Behind Steel Scrap PricingHigher scrap demand is expected to move
closer to the obsolete reservoir driving up prices
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Forecast
Scra
p R
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apac
ityScrap Price ($/t)
Obsolete Scrap Requirement
Average Annual
Reservoir
Shredded Scrap Price (RHS)
#1HM Scrap Price (RHS)
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Steelmakers’ Metallics
