Copyright ©2003 Global Insight, Inc. GLOBAL INSIGHT STEEL OUTLOOK May 2006 John Anton Director...

Copyright ©2003 Global Insight, Inc.

GLOBAL INSIGHT STEEL OUTLOOK

May 2006

John Anton

Director Global Insight Steel Service

(202) 481-9231

[email protected]

Copyright ©2003 Global Insight, Inc. 2

BOTTOM LINEBOTTOM LINE

Demand is growing, but only China is booming

Supply is taut but loosening in the United States, ample everywhere else

Prices in the U.S are far above world, so look for higher imports to restrict upward price movement

China is the story, the rest is embellishment


China is the KeyChina is the Key

• In 1995 China’s steel production was equivalent to the U.S. slightly less than Japan

• For 2005, China made 3.7 times more steel than the U.S., 3.1 times the output of Japan

• Since 2001, annual growth of 14%, 24%, 22%, 26%, and 26% 0

100

200

300

400

1990 1995 2000 2005

China U.S.A.

China Now Dwarfs USA Steel Production(Millions of metric tonnes, annual rate)


Why Chinese Growth Is Certain to SlowWhy Chinese Growth Is Certain to Slow

0

50

100

150

200

250

300

350

400

450

1990 1993 1996 1999 2002 2005

USA China

Per capita production(Kg/person)

0

500

1000

1500

2000

2500

3000

3500

1990 1995 2000 2005 2010 2015

China Production at 25% Growth(Millions of metric tonnes)


Global Industrial Production GrowthGlobal Industrial Production Growth

-5

0

5

10

15

20

2002 2003 2004 2005 2006 2007 2008

Other Asia China E Europe

Latin America NAFTA W Europe

Percent


Individual Domestic Demand SectorsIndividual Domestic Demand Sectors

Automotive is high but dipping slightly

Residential construction is falling, but still high

Industrial machinery production rising

Non-residential growing but not back to 2000 level

Heavy machinery is strong

Energy is the best sector

Plate, pipe, and specialty


Demand in the U.S. Needs Until 2008 to Demand in the U.S. Needs Until 2008 to Regain PeakRegain Peak

• Rising from 2003q2 trough

• But below 2000q2 peak

• Demand fell 14%, has risen only 10% through 2006q1

• Without consumer goods (autos and appliances), there would have been a complete rout

• Now business investment is strong, and consumer side is starting to weaken

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1995 1997 1999 2001 2003 2005 2007

90

100

110

120

130

140

150

GII Steel Demand Index (2004=1.000)

Finished apparent consumption


SupplySupply

China production had slowed to “only” 20% y-o-y, but likely to rise again

Pressure on raw materials continues, look for easing in 2007

Domestic shipments are rising, but modestly Imports Inventory

Imports are up, and will rise further

Inventory does not explode, but tightness dissipates


Price – Outlook Price – Outlook

Carbon prices gain through remainder of 2006Q2 Imports have not yet been incorporated Inventory still relatively thin

Q3 is the unsettled quarter Announced increases, but also recissions No clear up or down trend

Prices decline late in 2006, and across 2007. The decline is mild Lower ore costs Most likely alternative is flat to barely down


USA Prices Are Far Above Rest of the WorldUSA Prices Are Far Above Rest of the World(Source: (Source: Metal BulletinMetal Bulletin, all rights reserved), all rights reserved)

160

240

320

400

480

560

640

720

800

880

2002 2003 2004 2005 2006

Europe Latin America US China World Avg

Hot Rolled Coil Steel $/mt

source: Metal Bulletin


Price – the Exceptions Price – the Exceptions

Plate Extremely strong endmarkets Traditional link with HRCS has been severed

Galvanized Zinc is one of the strongest of non ferrous metals Price should barely decline, gap over cold rolled widens

Specialty steels


Specialty Steel Specialty Steel

Demand is spectacularly strong Power plants and refineries Pipelines Aerospace and defense

Supply cannot keep up

Mills are sold out Anecdotes of lead times through 2007 and even into 2008 Little or no relief until new mills are built

Prices will rise Not driven by input costs But when demand exceeds supply, mills first ration thru

allocation and lead time, but eventually through price

Copyright ©2003 Global Insight, Inc. GLOBAL INSIGHT STEEL OUTLOOK May 2006 John Anton Director...

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