Global Steel Industry: Future Outlook

Nae Hee Han/Director, Economic affairs

Presentation to Mining on Top: Stockholm, 26-27, November 2013

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2

Current State of the Steel Industry

Slower growth of demand

Overcapacity

Low profitability

Strengthening environmental regulations

3

100

120

140

160

180

200

220

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2000=100

Apparent steel use, crude steel equivalent Capacity, crude steel

Steel Capacity Outgrows Demand Growth

During 2000~2012, global crude steel capacity ∆ 1,013 Mt to reach

2,063 Mt, whereas crude steel production ∆ 683 MT to 1,532 Mt

Chinese capacity ∆ 771Mt to 921 Mt, production ∆ 602 Mt to 731 Mt

After the global economic crisis, capacity expansion momentum slows,

but the emerging economies continue to seek expansion

Steed Demand vs Capacity (2000=100)

4

Return of Overcapacity

While world steel demand continues to grow, capacity utilization ratio

trends down

No easy solutions to overcapacity in sight

Jun-08 92.7%

Dec-08 59.9%

Apr-10 84.5%

Aug-10 74.2%

Apr-11 83.4%

Dec-12 71.5%

Sep-13 79.3%

50%

60%

70%

80%

90%

100%

Jan-0

8

Jul-08

Jan-0

9

Jul-09

Jan-1

0

Jul-10

Jan-1

1

Jul-11

Jan-1

2

Jul-12

Jan-1

3

Jul-13

World crude steel capacity utilisation

5

6

value chain profit pool split evolution

Value chain profits has been shifting away from the steel industry

Volatility and uncertainty in raw materials prices since departure from

the benchmarking pricing system

Raw Materials Side Adds to Adversity

81

78

61

35

26

27

11

7

22

22

28

32

8

23 54 125 156 230 135

1995 2000 2005 10 2011 2017

100%=

Iron ore

Steel

making

(HRC)

Coking

coal

15

17

44

46

42

Source: McKinsey & Company

6

7

Steel Industry Performances

Steel industry stocks vs Dow Jones

Index 2005=100

Steel vs Raw materials prices

Index 2005=100

7

1 2191 219

1 141

1 3001 403 1 430

1 475 1 523

7.0

0.0

-6.4

14.0

7.9

2.0

3.1 3.3

0

200

400

600

800

1 000

1 200

1 400

1 600

-10

-5

0

5

10

15

2007 2008 2009 2010 2011 2012 2013 2014

Mt%

Mt y-o-y % growth

125.0*

Steel Demand Forecasts for 2013-14 Apparent Steel Use, finished steel (SRO October 2013)

*) 2014 as % of 2007

8

Demand Forecasts for selected countries Apparent Steel Use, finished steel (SRO October 2013)

2012 2013 2014 12/11 13/12 14/132014 as %

of 2007

World 1,430.3 1,475.1 1,523.2 2.0 3.1 3.3 125.0

United States 96.2 96.9 99.8 7.8 0.7 3.0 92.2

European Union (27) 140.2 134.9 137.8 -9.5 -3.8 2.1 69.1

Japan 63.9 64.0 63.0 -0.2 0.1 -1.6 77.6

China 660.1 699.7 720.7 2.9 6.0 3.0 172.2

India 71.6 74.0 78.2 2.6 3.4 5.6 151.8

Brazil 25.2 26.0 27.0 0.6 3.2 3.8 122.3

ASEAN (5) 54.8 57.3 60.4 12.8 4.6 5.4 149.7

MENA 63.2 64.3 69.0 2.2 1.7 7.3 127.2

Developed Economies 390.2 384.1 390.5 -1.7 -1.6 1.7 82.4

Emerging & Developing

Economies excl China380.0 391.4 412.1 4.2 3.0 5.3 126.0

World excl. China 770.2 775.4 802.6 1.1 0.7 3.5 100.3

Mt %

9

Key Trends in Post-Crisis Period Steel Demand

Multi-speed recovery continues driven by emerging economies, but

weakening growth in the emerging world

Eurozone stabilizes and finally positive growth expected in 2014

China moves into slower growth phase

Key emerging economies struggling with structural issues

Multi-Speed Recovery of Steel Demand

60

80

100

120

140

160

180

2007 2008 2009 2010 2011 2012 2013 2014

2007=100 World China Developed Economies Em. & Dev. Economies excl. China

10

11

41.5%

46.1%

48.5%

52.2%

53.0%

58.3%

58.4%

61.1%

63.3%

73.7%

71.3%

71.7%

72.7%

74.0%

74.4%

58.5%

53.9%

51.5%

47.8%

47.0%

41.7%

41.6%

38.9%

36.7%

26.3%

28.7%

28.3%

27.3%

26.0%

25.6%

16.4%

20.5%

23.3%

27.4%

28.3%

33.3%

33.1%

34.3%

36.7%

48.3%

45.2%

45.7%

46.1%

47.4%

47.3%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Emerging & Developing Economies Developed Economies China

Regional Share in World Steel Demand Apparent Steel Use, finished steel (SRO October 2013)

11

China Entering a New Phase of Development

After soft landing, renewed focus on rebalancing of the economy

Less steel intensive growth to come, implying steel demand growth will

underperform GDP growth

Future focus will be on capacity closures, environmental performance

and upgrading

Growth trend of China’s steel use Steel intensity (ASU/GDP)

12

0

200

400

600

800

1 000

1 200

1 400

0 10 20 30 40 50

GDP per capita, 2005 PPP$, thousands USD

S-Curve of different countries

Thailand China Indonesia India

United States Japan South Korea

AS

U p

er

ca

pit

a, A

SU

, cru

de s

teel e

quiv

ale

nt p

er

capita

, kg

South Korea

Japan

United States

China

Economic Growth and Steel Demand

40 57

127

222

305279

488 506

220

Africa India Brazil MiddleEast

UnitedStates

EU (27) China Japan World

Per Capita Steel Use finished steel, kg, 2012

13

How Far Will Chinese Steel Demand Grow?

Positive Negative

Further room for urbanization and

Industrialization

Low level of development in the West

Condensed growth, high share of

investment in GDP

Environmental regulations, resource

constraints

Manufacturing relocation out of China

Speed and mode of development in the West

China provincial steel use per capita (2011, kg/per, crude steel equiv )

US (1973) Japan (1973) China (2012)

14

World Developed China Other Emerging

1992-2000 142.6 84.1 51.1 7.4

2000-2007 480.3 74.2 297.8 108.4

2007-2014 320.2 -85.5 314.8 90.9

Contribution to Apparent Steel Demand Growth( ∆ Mt)

0

200

400

600

800

1 000

1 200

1 400

1 600

1 80019

50

19

55

19

60

19

65

19

70

19

75

19

80

19

85

19

90

19

95

20

00

20

05

20

10

Evolution of Steel Demand (1950-2014, crude steel equiv)

RoW

China

former USSR

US, EU, Japan

Mt

CAGR 1950-19755.0%

CAGR 1975-20001.1%

CAGR 2000-20076.6%

CAGR 2007-20143.1%

End of the China Effect, Next Growth Engine?

15

Population

(million)

Urbanisation

(%)

GDP per capita,

(PPP$)

Steel Use/

capita(Kg)

2012 2020 2010 2020 2012 2020 2012

Mexico 116 126 77.8 80.5 14.4 17.3 173

Turkey 75 81 70.5 78.6 14.1 17.9 382

Brazil 198 210 84.3 86.8 11.0 13.8 127

Thailand 70 72 33.7 38.0 9.4 12.9 234

China 1 354 1 388 49.2 61.0 9.0 15.3 488

Indonesia 245 263 49.9 57.2 4.7 6.7 51

India 1 258 1 387 30.9 34.8 3.7 5.7 57

Vietnam 90 96 30.4 36.9 3.4 5.1 122

Developing World: Strong Fundamentals

16

Energy use reduction efforts in developed world already at theoretical limit

and limited progress in Break-Through technologies. Pressure on costs

and also negative impact on steel demand growth

However. steel has been successful in providing solutions to the

sustainability - lighter vehicles, renewable energy, etc …

Energy Intensity of steel production (N America+Japan +EU27)

Environmental Challenges

Energy intensity of iron and steel

production (GJ/t of crude steel)

17

1.HH = households; CTS = commerce, trade, and service 2. Geothermal, biomass, hydro 3. CO2 expenditure for other materials not examined;

values are rounded 4. Ratio relates exclusively to the emissions

Source: BCG analysis

Innovative use of steel saves six times as much CO2 as is caused by

the production of the steel → LCA approach

Steel as Solution to Sustainable Future

Net CO2 reduction potential Emissions in the

steel production3

1.9

2.1

Mt

5 30 10 0

9.2

1.0

11.2

5.0

14.2

29.5

Mt

9 11 10 1 0

1.0

0.9

8.4

0.7

0.1

0.03

0.4

<0.1

Case study

1.3 : 1

14 : 1

1.1 : 1

Efficient fossil fuel PPs

Wind power plants

Other renewables2

Efficient transformers

Efficient e-motors

Weight reduction cars

Weight reduction trucks

Combined heat/power

Energy

industry

Traffic

HH, ind.,

CTS1

3

5

1

2

4

6

7

8

Ratio between CO2

reduction/emission4

3 : 1

~ 400 : 1

32 : 1

9 : 1

∑~ 74 Mt ∑~ 12 Mt

~ 200 : 1

6 : 1

18

19

Long Term View on Steel Demand

Mt

Years Mt

1970 589

1975 640

1980 713

1985 719

1990 773

1995 743

2000 846

2005 1 139

2010 1 404

2012 1 542 0

500

1 000

1 500

2 000

2 500

3 000

1870 1890 1910 1930 1950 1970 1990 2010 2030 2050

Long Term Evolution of World Steel Demand

*apparent steel use, crude steel equivalent

Global steel demand could reach 2.2~3.0 billion in 2050

19

Conclusion

Despite current difficulties, future scenarios for the steel industry have

optimistic starting point: Urbanization and population growth will support

industry growth for considerable time

Surplus capacity in the industry will be difficult to reduce quickly, but can

be absorbed in long term

Steel industry will continue to provide the basis for sustainability of the

modern society through innovation

But the industry is facing formidable challenges ahead

Changing position in value chain through expanding product mix,

development of new applications becomes crucial for steel industry

Sustainable development and, in particular, Life Cycle Assessment

focus provides interesting challenges to the steel industry

20 20

Steel touches every

aspect of our lives. No

other material has the

same unique combination

of strength, formability

and versatility.

Steel is a cornerstone

and key driver for the

world’s economy.

Thank you for your attention.

For further information contact:

Nae Hee HAN| Director, Economic Affairs/Chief Representative, Beijing Office

World Steel Association han@worldsteel.org | T: +86 (10)6464 6733| worldsteel.org

worldsteel.org