American Metal MarketStructural and Mechanical Tube Conference

Drawn-Over-Mandrel (DOM) Market Presentation

Patrick M. TobinDirector of SalesArcelorMittal Shelby, Tubular ProductsOctober 2011

1

Drawn-Over-Mandrel (DOM)Agenda Topics

• ArcelorMittal Product Overview• Key Market Sectors• DOM Market Overview• Segment Forecasts

2

Mechanical Tubular Products

• DOM – Drawn-Over-Mandrel• ERW - Electric Resistance Welded• HFS - Hot Finished Seamless• CDS - Cold Drawn Seamless

3

Mechanical Tubing Key Markets

• Automotive

• Bearings Manufacturers

• Construction Equipment

• Farm Equipment

• Forgers and Converters

• Hydraulic Cylinders

• Industrial Equipment

• Oil and Gas

• Service Centers

4

Market Segments• Fluid Power-Industrial

-Hydraulic and pneumatic cylinders, accumulators, pump housings, actuators• Agricultural, Forestry and Mining

-Hydraulic cylinders and assemblies-Structurals including shafts, axles, pins, implements

• Construction; residential and commercial-Horizontal and vertical drilling including rods, piping-Concrete pumping-Hydraulic cylinders

• Automotive and off road construction, commercial applications- Heavy duty truck and trailer suspensions, drive shafts, axle housings- Exhaust- Accumulators - Hydraulic cylinders including refuse trucks, dump trucks, compactors, loaders, excavators, backhoes, dozers, etc.

• Cranes- Tower and crawler chord; lacing; and hydraulics

• Bearings manufacturing- Primarily seamless HF

5

DOM and Seamless Mechanical Tubing Customers and Applications

Major SIC Group 35

Industrial and Commercial Machinery and Computer EquipmentCode Customers Application3523 Farm machinery and equipment Agriculture equipment, conveyor rolls3531 Construction machinery and equipment Construction equipment, concrete pumping

equipment, off-road equipment, and vehicles and truck components.

3532 Mining machinery and equipment except oil and gas field

Drill rods, mining equipment

3533 Oil and gas field machinery and equipment Drill rods, perforating guns, pump barrels3534 Elevators and moving stairways Hydraulic cylinders3535 Conveyors and conveying equipment Conveyor rolls3537 Industrial trucks, tractors, trailers, and stackers Material handling equipment and truck

components3541 Machine tools, metal cutting types Drill press columns3554 Paper industries machinery Paper mill rolls3555 Printing trades machinery and equipment Printing rolls3562 Ball and roller bearings Bearings 3566 Speed changers, industrial high-speed drives, and

gearsGears

3568 Mechanical power transmission equipment not elsewhere classified

Bearings, bushings, shafts, spacers

3569 General industrial machinery and equipment not elsewhere classified Reel/spool manufacturers, refuse industry

3593 Fluid power cylinders and actuators Hydraulic cylinder barrels and rods and telescopic cylinders; OEM's and repairs shops

3599 Industrial and commercial machinery and equipment not elsewhere classified

General machine shops (various parts)

6

Tubular Products has a diversified and global industrial base focused on 3 key markets

2.7mt of capacity offering a unique range of products

ArcelorMittal industrial network in Tubular Products

Mechanical44%

Energy36%

Automotive20%

Energy

AutomotiveMechanical

ArcelorMittal capacity breakdown in 2011

Main production centres are in North America and Central & East Europe but significant and growing positions in Latin America, Africa and CIS

Saudi Arabia project

ArcelorMittal Tubular Products

Key facts & four operating groups

7Business structured to optimize market segments & regions

•Headquarteredin Luxembourg

•25 industrial units in 12 countries

•Total capacity of3 million tons

•2010 revenues:USD 1.9 billion

•9,000+ global employees

Energy

• Aktau - Kazakhstan: spiral to 56”• Galati - Romania: DSAW to 52”• Ostrava - Czech Republic: spiral to 32”

• Brampton - Canada: welded to 3”• Hamilton - Canada: welded to 6”• London - Canada: tubular components• Marion - USA: welded to 6”

Mechanical & Automotive –North America

• Monterrey - Mexico: welded to 6”• Shelby - USA: welded to 12.5” &

seamless to 7.75” • Woodstock - Canada: welded to 7”

• Chevillon - France: welded to 5”• Hautmont - France: welded to 5”• Iasi - Romania: welded to 8”• Karvina - Czech Republic: welded to 6”• Krakow - Poland: welded to 6”

Mechanical & Automotive –Europe

• La Victoria - Venezuela: welded (energy, mechanical, standard to 12”)

Unicon

• Annaba - Algeria: seamless to 14”• Ostrava - Czech Republic: seamless to 10”• Roman - Romania: seamless to 20”• Vereeniging - South Africa: seamless to 6”

• Jubail - Saudi Arabia: seamless to 16” (under construction)

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Product Overview:• Drawn-Over-Mandrel (Cold Drawn Welded)• Precision ERW (Calibrated Tubes) and Standard ERW

– broad range of sizes and grades– Hot-Stretch-Reduced or Cold Formed– Black, Galvanized, Coated, or P&O– Mechanical, Pipe and HSS size and specifications

capabilities• Cold-Drawn and Hot Finish Seamless (Carbon and Low

Alloy)– #1 producer of cold-drawn in North America– custom-made to precise customer specs

Mechanical Tubular Products

Location Unit Production Type 2011 Capacity (mt)

Poland Krakow Longitudinal Welded 250

USA Shelby Welded & Seamless 240

Czech Republic Karvina Longitudinal Welded 240

Romania Iasi Longitudinal Welded 200

USA Marion Welded 70

Kazakhstan Temirtau Longitudinal Welded 80

Total 1080

• Construction of a 600 kt/yr seamless tube mill in Saudi Arabia to supply the Middle East high quality energy tubes market from a local source:

– Size range from 4” to 16” (rolling capability)

– OCTG: 370 kt/yr

– Line pipe & process pipe: 230 kt/yr

– OCTG tubing processing from 2” (20 kt/year green pipe sourced from inter-company units)

– Heat treatment capability at 350 kt/yr

• SMS Meer PQF ® mill: fully automated plant benefiting from low energy costs & high-quality, semi-finished products sourced from ArcelorMittal steel plants

• Joint venture with local partner Al-Tanmiah Company for Industrial and Commercial Investment (majority shareholder of Al-Tanmiah is Bin Jarallah Group):

ArcelorMittal JubailProject overview and capability highlights

• Located in Jubail 2 Industrial City• Total area covers 48 hectares• Distance to port 25 km

9

• Site work started: Sept. 2009• 6.9 million consecutive hours worked with

no LTI (lost time injuries): September 2011• First production: Q1 2013

10

DOM Market Changes

• Maverick entered DOM market in 2000….Incumbents were protective of market share and positions

• LoneStar/USS exited market in 2008 to focus on Oil and Gas Segment, taking 70-90,000 tons out of the supply chain

• In 2009, the DOM market demand was down 40% yet NA producer shipments down 70%

• The 2009-2010 demand driven by service centers who had liquidated inventories and were now replenishing the pipeline. Market demand was fulfilled by current domestic DOM producers and some moved off-shore

• DOM Inventory levels still relatively low, mitigating risk of destocking

• Currently DOM producers have upgraded equipment, announced expansion intent, and brought on idled capacity

Barriers to Entry

• High cost of capital • Significant increments of capacity• “Engineered” Product • Manufacturing and Process Expertise

DOM Cylinder Tubing• Ferrous steel used moving from low-carbon 1026 (UNS G 10260) to a large

extent by domestic equivalent grades 520 (EN E355) or 620 (E460)

• Primary difference in chemical, mechanical, and impact properties is the addition of a micro-alloying element (Vanadium or Columbium)

• Used in the manufacture of hydraulic and pneumatic cylinders (including single and double acting, ram, and telescopic cylinders)

• These grades meet the recognized need for higher toughness through improved impact properties. Higher toughness improves resistance to damage from impact and other factors that may contribute to catastrophic failure over a range of temperatures

• The flat rolled steel production of these grades requires careful processing controls during continuous casting and rolling

Export Markets

• Traditionally served by regional seamless tubing suppliers

• US market conversion from seamless to DOM started to gain traction in the early 1970s but still lag globally

• Conversion to DOM slower internationally due to supply availability, resulting in delayed specification development changes

• Significant European and Asian investment in DOM which endorses the product’s viability and value globally

• Export orders are strong on weak US dollar

• European bias long term indicates concern, still seamless and welded products stable

14

DOM Cost Drivers

– Steel– Labor– Transportation– Energy – Gas– Energy – Electric– Process Fluids (oil, acids, mill coolants, sulfur)

15

Forecast 2012 – DOM Influences

– Domestic Capacity– Weak Dollar– Election Year– Re-Shoring– Imports – specifically Group 1 (< 2” O.D.)– Product Substitution

16

Markets Influencing DOM Shipments

• Service Center business is expected to remain strong. - This supply channel has had 2 strong years which should be sustained- Continued “trading” of inventories in 2011

• Heavy Truck is expected to show in second half 2011. – Regulations that have driven demand are ending, but backlogs are very

strong• Energy Markets

– Investments in expansions and tooling remain strong• Fluid Power

– Strong growth in 2010 of 30-40% with estimated growth in 2011 of 25%• Auto Production

– Estimates of 12.7-13.2 million vehicles in 2011 with estimates upwards of 13.8-14.0 million vehicles in 2012

Source: ITR

DOM Market Overview

• Major North American Producers• Supply/Demand Changes• Economic and Segment Outlook

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AMTP FacilityOther DOM Producers

AM Woodstock

AM Shelby

PTCAlliance –Alliance, OH

Wheatland Tube

PTCAlliance –Hopkinsville, KY

PTCAlliance –Chicago, IL

Saltzgitter (MHP)

PTCAlliance – Beaver Falls, PA

Metal Matic

Major NA DOM Producers

Webco

Peasa

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Mechanical Tubing Market

0102030405060708090

DOM Seamless

% Of NAMechanical Market

• Mechanical market includes all NA producers of DOM, welded mechanical, and seamless tubing. This includes both AISI reporting and non-reporting companies.

• Source: AISI and ArcelorMittal estimates

20

NAFTA DOM Market

10/18/2011 20

•The major DOM producers have historically been able to export to non-NAFTAcountries when excess capacities allowed. On average these shipments constituted 5 – 10% of annual DOM shipments.

•Source: ArcelorMittal estimates

US Canada Mexico

2005-2010 87.0% 8.8% 4.2%

2011E 87.0 8.5% 4.5

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NAFTA DOM Market

2006

2007

2008

2009

2010

2011

Demand

Capacity

10/18/2011 21

Source: MSCIArcelorMittal Estimates

Source: MSCI & ArcelorMittal estimates

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Substrate Drivers

• Input costs primary driver for increased flat rolled costs early in 2011– Australian floods sent Coking Coal prices up 40% earlier in 2011. Coal

output decreases of 25-50% for Q1 2011 – Iron Ore supply and demand

• AISI reports Industry Raw Steel Capacity Utilization between 75-77% which covers all steel making and all products

• Weak US dollar continues to affect imports and input costs• Scrap values• HRC for fluid power applications restricted to integrated supply

– Function of % reduction requirements for material sourcing• Specialty steel including micro alloyed, HSLA and alloy grades

– Higher minimum buys and increased costs reflective of volume production and input costs at the mills

24

Product Lead Times

• SBQ Bar

• Tubing lead times– DOM – CD Seamless – HF Seamless

Potential Factors: • Market demand• HR Steel Availability & lead-times • Strength of the U.S. Dollar (Export Business)• Mechanical tube supply strategy and product mix

GDP

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The dashed line is the current growth rate. Growth in Q2 at 1.0% annualized was below trend growth (around 3%) – and very weak for a recovery, especially with all the slack in the system.

Purchasing Managers Index

26

As domestic demand shows signs of weakness, exports remain an area of opportunity for manufacturers.

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Market Segments

• Strong segment demand coming from the following:• Oil and Gas Industry for Energy applications• Heavy Equipment• Mining and Drilling • Ag Equipment Manufacturers• Automotive • Fluid Power

• Construction Machinery - New orders for 2010 were up 90.7% from previous year. Latin America and Asia are leading the way with the Q4 2010 sales increase of over 65% versus 2009. Machinery sales in NA increased nearly 50% in Q4 2010 in spite of the sluggish economy. Forecast for 2011 is up 15.3% and 2012 is expected to be up 11.8%.

Market Segment Forecasts

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2011 will remain strong through year-end….2012 remains cloudy.

2011 2012 2013 2014 2015Class 8 Truck Production 50.0% 21.4% 5.2% -6.3% 12.3%Construction Machinery Production 12.3% 3.8% 0.9% 7.2% -7.3%Farm Machinery & Equipment Production -3.8% 8.8% 3.6% -15.5% 9.0%Material Handling Equipment New Orders 8.6% 3.2% 5.9% -5.6% 11.4%Mining & Oil Field Machinery Production 16.7% 1.6% 13.1% -3.9% -0.5%North America Light Vehicle Production 6.5% 9.0% 0.6% -6.2% 15.5%Oil & Gas Extraction Production 2.3% 2.8% 2.1% -1.2% 3.1%

US Total Industrial Production 3.4% 4.3% 3.0% -2.9% 3.7%Total Fluid Power Shipments Index 13.0% 3.5% 9.6% -9.9% 12.6%

Source: ITR

Fluid Power Market

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Annual Shipments: Next 12 Months vs. Last 12 Months above % the same % below % index Pneumatic 43.8 56.3 0.0 72 Industrial 55.2 37.9 6.9 74 Mobile 69.0 26.2 4.8 82 Total Participants = 53

Source: National Fluid Power Association

Fluid Power Market cont.

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Source: National Fluid Power Association

Trucking Industry

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• Truckers continue to show healthy profits• Rates continue to move higher• Active capacity remains relatively tight• Drivers are still hard to find• Regulatory headaches persist

– Additional driver shortages are on the way as a result• Fleets are still lining up for new trucks; It is getting more difficult to get a new

vehicle.• Components will be the limiter to growth in 2011 if the economy remains on

track (e.g. tires, engine exhaust systems, casting…)• Freight will grow slightly above its historical average over the next several

years; but will not reach a new peak until 2016.• Current underlying fundamentals have weakened but have not seen a collapse

NA Factory Shipments Class 8 Forecast

32Source: FTR Associates

Freight Index

33

Over the past 12 months tonnage is 5.2% ahead of the previous year.

Conclusion

• Relative tight balance with Supply/Demand for DOM• Slower but steady growth in 2012• Lead times to continue to be beyond norm in 2012• Global financial uncertainties remain

3510/18/2011 Author35

Thank you.