Steel Stockholding in Poland

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Steel Stockholding in Poland

October 2008


STEEL STOCKHOLDING IN POLANDAGENDA

• The steel industry– Polish market

• The SSC sector– Overview … industry structure & top players

– Growth– Foreign competition– SSC weaknesses– Some ideas …


STEEL STOCKHOLDING IN POLAND

THE STEEL INDUSTRY


THE INDUSTRYPOLISH STEEL MARKET - Overview

• The Polish steel market in 2006 amounted to ~10.3 mt finished steel products

• The Polish steel market is therefore just a little smaller than the steel market in the UK [2006 apparent demand ~12.9 mt†] although the Polish population is significantly smaller††

– Poland 38.1 million

– UK 60.5 million

• Recently, Polish steel demand is growing fast– 2006 demand was ~28% up on 2005

– 2007 demand [based on H1 2007 data] is estimated at ~12mt

– 2007 consumption will be ~17% up on 2006

†:Source: IISI††:Source: Population Reference Bureau, mid-2006 estimates


THE INDUSTRYPOLISH STEEL MARKET - Statistics†

†:Net production includes correction for double-counting of downstream use. Tube data includes closed hollow sections. For more detailed 2006 or later market appraisal, contact MCI [see page 14]

Consumption CAGR 1997-2006 amounted to ~6% per annum

000's tonnes 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Net production- Flat products 2,744 2,349 1,575 3,830 1,825 1,603 1,743 2,160 1,715 2,271- Long products 4,524 4,228 4,205 2,969 3,942 4,146 4,477 4,716 3,925 4,752- Tube 600 622 632 715 649 510 558 607 601 710- Subtotal 7,868 7,199 6,412 7,514 6,416 6,260 6,778 7,482 6,241 7,734

Imports- Flat products 755 1,051 1,417 1,554 2,021 1,920 2,290 2,608 3,048 3,843- Long products 168 242 344 382 562 544 441 471 776 1,038- Tube 282 420 243 259 289 344 362 415 442 516- Subtotal 1,204 1,713 2,004 2,195 2,872 2,808 3,093 3,495 4,266 5,396

Exports- Flat products 729 380 373 487 568 504 432 536 519 750- Long products 2,012 1,796 1,649 1,740 1,897 1,791 1,994 2,320 1,759 1,834- Tube 122 142 142 178 202 138 148 184 188 275- Subtotal 2,863 2,318 2,163 2,405 2,666 2,434 2,573 3,040 2,465 2,859

Consumption- Flat products 2,770 3,020 2,888 3,383 3,279 3,019 3,601 4,232 4,244 5,364- Long products 2,679 2,674 2,632 3,125 2,607 2,899 2,925 2,866 2,943 3,956- Tube 760 900 733 796 736 716 772 838 855 952- Total 6,208 6,594 6,252 7,304 6,622 6,634 7,298 7,936 8,042 10,271


THE INDUSTRYPOLISH STEEL MARKET – Geography of demand

• Analysis based on Customs

& Excise purchase declarations covering 64% of demand only

• Analysis shows end use demand (irrespective of purchase intermediaries†)

• The full analysis by product and region is shown in Appendix 2

†:Stockholder purchases e.g. in Slask sold on to an end-user e.g. in Malopole are thus reflected above as demand in Malopole


THE INDUSTRYPOLISH STEEL MARKET – Routes to market

Imported production 5396 kt

Analysis is shown forfull year 2006 data

Domestic production 4875 kt

Intermediaries 1875 kt

Direct 3000 kt

Intermediaries 2167 kt †

Direct 3229 kt

Total finished steel purchases in Polish marketplace ~10271 kt

of which ~4042 kt pass through intermediaries

†:Of this volume, ~1598 kt was flat products, ~311 kt was long and ~258 kt was tube. Semis route to market (mostly MSP Dabrowa Gornicza) is almost completely 100% direct.


STEEL STOCKHOLDING IN POLAND

SSC SECTOR


SSC SECTOROVERVIEW - Industry structure†

• Currently ~100 ‘players’ with gradually diminishing distinction between the ‘stockholder’ and the ‘service centre’

• Across the 100 firms, multiple sites [especially for larger sites] mean that across Poland as a whole there are perhaps ~250 locations where customers may purchase steel / get access to simple mechanical services such as cutting † †

Tier 1: Top 5

Tier 2: Next 10

Tier 3: Other ~85

Total: ~100 firms with sales ~4 mt/yr

Avg: ~9 kt/yr

Avg: 140 kt/yr

Avg: 325 kt/yr

Sales: 1mt

Sales: 1.4 mt

Sales: 1.6 mt

†: All figures are MCI estimates. In terms of approx. number of locations, broad MCI assessment is that Tier 1 firms have ~80 depots [Grupa Polska Stal dominating with ~44], Tier 2 firms have ~70 depots [incl Stalexport, Stalprodukt with 15 each] and Tier 3 firms ~100 depots. ††: Figures of 100 and 250 are estimates covering PUDS member firms only. A handful of non-PUDS members may also exist, with another ~10 depots (possibly more) – these other firms are however excluded from analysis above.


SSC SECTOROVERVIEW - Top Players†

Company Name Tonnage kt

1 ThyssenKrupp Energostal S.A. 4782 "Grupa Polska Stal" Sp. z o.o. 3113 Sambud-2 Sp. z o.o. 3084 Bowim S.A. 2605 Bodeko Sp. z o.o. 2486 Stalexport S.A. 2257 Stalprofil S.A. 2068 Stalprodukt-Centrostal Kraków Sp. z o.o. 1619 Konsorcjum Stali Sp. z o.o. 15810 Montan Stal Sp. z o.o. 131

†: Source: PUDS 2006 rankings [Polska Unia Dystrybutorow Stali; www.puds.pl ]. Note that estimates above may contain some degree of double counting (possibly ~5-10% or even more in the case of Grupa Polska Stal) because of inter-company sales and reprocessing of processed material. Figures above also include exports where these arise.

By steel tonnage


SSC SECTORGROWTH PROSPECTS – Market demand

• Polish steel market has been growing fast. MCI assess that a pause in growth will be probable in 2008, but that subsequent moderate demand growth will continue

• Current West European steel demand is ~412 kg/capita. In Poland it amounts to ~270 kg/capita

• If half this difference was eliminated in 5 years, Polish demand intensity would increase to ~340 kg/capita, predicting overall steel demand of 12.8mt by 2012†

• With steel deliveries via intermediaries maintained at ~40%, total SSC mediated sales would rise from ~4mt in 2006 to 5.1mt in 2012

Country Population m Steel ADC mt Demand kg/capFrance 61.2 16.4 268Germany 82.4 38.4 466Italy 59 36 610Spain 45.5 23.4 514UK 60.5 12.9 213Total 308.6 127.1 412

Poland 2006 38.1 10.3 270Poland 2012 37.7 12.8 340

MCI predict Polish SSC sector growth of ~4% per

annum to 2012

†: This is probably a conservative estimate. EU structural funds driving construction sector growth, plus continuing foreign investment in steel consuming sectors / applications could means much higher steel demand in the medium term


SSC SECTORCOMPETITION – Recent events summary

• Events of last three years can be summarised in terms of– The move away from the highly fragmented industry structure

of the late 1990s

– Merger and consolidation, with Zlomrex leading the field

– Much foreign investment [even by traditionally very risk averse firms]• In sectors/applications: including auto, white goods, construction,

roofing

• In high value steels including alloy, stainless

• In product specific SSCs [heavy plate, coated steels, rebar]

• Broadly, in keeping up with needs of Western investors

• Since 2005, we are witnessing much reorientation of the typical

‘Polish steel depot’ as follows:

Stockholder Service CentreStockholder +

From competition back to oligopoly?

Growing competition?


SSC SECTORWEAKNESSES – MCI appraisal

• Number of players at 250+ suggests that high competition, poor margins and small average size [sales under 10kt/year] are likely to be key weaknesses

• Know-how in terms of sophisticated add-on services / advanced customer needs is also judged by MCI to often be problematical

• Market understanding also is likely to be:– Often limited;

– Typically highly local;

– Typically lacking broader / international perspective

• Access to capital considered to be a significant weakness for many smaller operators

These matters potentially define quite a strong opportunity for industry investors


SSC SECTORSOME IDEAS …

• Can MCI help you develop your presence in the Polish steel sector?

• Can we provide an update of the slides above?

• Further detailed or regional analysis?

• Polish customer assessments?

• Review or optimisation of your entry strategy?

• Some introductions?

Please contact: Andrzej M Kotas, Managing Director, MCI

Email: [email protected]

Mobile: +44 (0) 775 149 0885

Documents

Steel Stockholding in Poland