Tinplate Outlook Quarterly Report HARBOR intelligence > Europe Tinplate Quarterly Report Contents 1)...

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Tinplate Outlook Quarterly Report

> Europe Tinplate Quarterly Report

January 2017

All rights reserved. HARBOR intelligence LLC. No part of this publication (text, data, or graphic) may be reproduced, stored in a data retrieval system, or transmitted, in any form whatsoever or by any means (electronic, mechanical, photocopying, recording or otherwise) without obtaining HARBOR Intelligence prior written consent. Brief extracts may be used for the purposes of publishing commentary or review only provided that the source is acknowledged. Disclaimer. HARBOR is not liable whatsoever for any general, special, direct, indirect, consequential, or incidental loss or damage caused by, or resulting from, any use of or any inaccuracies, errors, or omissions in the information provided. Please note that HARBOR does not provide financial, legal, accounting or tax advice nor should the information in here be relied upon such purpose.


HARBOR intelligence > Europe Tinplate Quarterly Report

Contents 1) Drivers behind the EU tinplate annual contract price dynamics.

2) Tinplate price trends and perspective 2017.

a) Price forecast: tinplate contract price.

b) Key drivers behind the tinplate contract price forecast.


> Drivers behind the EU tinplate annual contract price dynamics.


The economic environment in Europe registered a deceleration during 2016...

Source: HARBOR intelligence with government agencies data. E = Estimated

1.6%

2.3%

1.8%

2014

2015

2016

E

Europe Union GDP growth (real annual % growth)


…which translated into a limited steel demand growth in such region, which was a common denominator worldwide.

World Steel Demand (real annual % growth)

?%

?%

?%

?%

?%

?%

?%

?%

?%

?%

?%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

F

EU Steel Demand (real annual % growth)

Source: HARBOR intelligence with World Steel Organization data. F = Forecasted.

?%

?%

?%

?%

?%

?%

?%

?% ?% ?%

?%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

F

? = Example Report


Tinplate annual contracts1 in Europe

Source: HARBOR intelligence. 1.- HARBOR`s estimate for annual contract price change. Final contract agreements are not disclosed and remain confidential, this is just a guideline. Contract price change based in Euro per metric ton price level.

However, the mills in Europe were able to transfer a significant hike in tinplate contract price for 2017, given the support of improved price fundamentals during 2016.

> The negotiations for tinplate annual contract price closed at a higher range than previously expected. The strong hikes of cold rolled steel price (due to the imposition of trade tariffs to cold rolled import), as well as the substantial increases in raw material prices, added a more significant upward pressure on contract negotiations, especially during the last two months of 2016. Negotiations took longer compared to other years, as mills encountered a fierce resistance from tinplate buyers. This year there was more variation in the percentage increase between buyers. Furthermore, the European contract price change has remained below the average percentage change of contract price in the US during the last five years, which also increased the incentive for EU mills to pass a stronger contract price change.

Year Harbor´s Annual Tinplate Contract Range Estimates

2016 ?% and ?%

2017 ?% and ?%

? = Example Report


One of the main variables behind the tinplate contract price growth was that EU cold rolled steel price enjoyed during 2016 an almost non-stop recovery. Such growth in CR price was supported by new trade tariffs in EU, as well as the Euro depreciation against the US dollar.

EU cold rolled steel price (dollars per metric ton) EU cold rolled steel price (Euro per metric ton)

Source: HARBOR intelligence. Source: HARBOR intelligence.

Average annual change 2016 (Jan-Dec) = ?%

Accumulated change Dec15 – Jan17 = ?%


Accumulated change Dec15 – Jan17 = ?%


EU tinplate contract price1 vs. EU cold rolled steel price from a previous year2

(average annual change)

Source: HARBOR intelligence. 1.-HARBOR`s estimate for annual contract price change. Final contract agreements are not disclosed and remain confidential, this is just a guideline. Contract price change based in Euro per metric ton price level. 2.-Domestic price; analysis made comparing cold-rolled steel lagged one year. *Forecasted.

Historically in the EU, a high increase of cold rolled prices has significantly impacted the next year’s tinplate price annual contracts, and 2017 was not the exception.

In 2011 there was a similar environment, where high increases of CR impacted next year’s tinplate contracts.


During 2016, the raw material prices registered a substantial cumulative growth, reaching historical highs in some cases (coking coal), which added significant upward pressure on EU tinplate contract price for 2017.

Raw Material Price Dynamics ( index Jan 2011 = 100)

Source: HARBOR intelligence government agencies data. Steel scrap price refers to #1 heavy melt, Chicago. Iron ore price refers to iron ore fines cfr main China port 63.5% fe. Tin price refers to the 3-month forward price for tin of 99.85% purity (minimum). Metallurgical coal refers to Premium Low Vol, Australia export FOB.

10

30

50

70

90

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

Accumulated change Dec15 – Jan17: Scrap: ?%

Iron ore: ?% Tin: ?%

Coking Coal: ?%

Annual Change of Raw Material Prices ( percentage average annual change, January – December 2016)

?% ?%

?%

?%

Steel scrap Iron ore Tin Coking Coal

? = Example Report


Source: HARBOR intelligence government agencies data. Steel scrap price refers to #1 heavy melt, Chicago. Iron ore price refers to spot price iron ore fines cfr main China port 63.5% fe. Tin price refers to the 3-month forward price for tin of 99.85% purity (minimum). Metallurgical coal refers to spot price, Premium Low Vol, Australia export FOB.

2016 Annual Change of Raw Material Prices ( percentage average annual change)

?%

?% ?%

?%

?%

?%

?%

?%

?%

?%

?%

?%

?%

?%

?%

?%

?%

?%

?%

?%

?% ?% ?%

?%

2011 2012 2013 2014 2015 2016

Steel scrap Iron ore Tin Coking Coal

The last time we had a meaningful raw material price increase was in 2011; back then, the tinplate annual contract price also had a significant increase.

? = Example Report


Behind the surge in coking coal price was the Chinese government resolution to limit the number of working days for mining activity to 276 a year from 330 previously. The iron ore price was pulled by the soar of coking coal prices during the second half of 2016.

Key facts:

> A combination of structural factors (China’s working day policy) and near term factors were behind the surge of coking coal price. China started to suffer transportation issues given heavy rainfall in July and August of 2016, which damaged road network. The global industry then faced the disruption of the Newlands Coal Rail System during September 2016 (Australia), and closures of coal mines, including Anglo American’s German Creek-Grasstree operation in Australia and China’s Jinshangou Coal Mine, which exacerbated the tight coal supply. > Iron ore prices increased given the influence of coking coal soaring prices. Iron ore buyers, mainly in China, looked for medium and high-grade fines of iron ore, as lower impurities consume less coke. This translated into a tight supply of such grades of iron ore, which supported the price increase. Furthermore, as steel prices grew substantially, many mills searched for iron ore in order to maintain production, which kept iron ore demand healthy. > When coking coal and iron ore prices started to increase, many mills had very low inventories, which made them panic and accept higher spot prices during several months.


The international environment also favored mills in 2017 contract price negotiations, as most regions registered a significant cumulative spot price growth.

World’s tinplate spot price1 (in dollars per metric ton)

Source: HARBOR intelligence. 1.-Includes the spot price of weighted export prices for Argentina, Brazil, Colombia, Mexico, Venezuela, Chile, Japan, South Korea, Kazakhstan, Russia, and Ukraine.


Accumulated change Mar16 – Jan17 = ?%


The demand-side drivers closed 2016 with recovery…

EU Industrial Production (index; above 50 point level indicates expansion, below 50 indicates contraction)

Source: HARBOR intelligence government agencies data.

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Jan

-12

Mar

-12

May

-12

Jul-

12

Sep

-12

No

v-1

2

Jan

-13

Mar

-13

May

-13

Jul-

13

Sep

-13

No

v-1

3

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Nov-16: 3.1%


…which was behind the mild growth of EU steel demand during 2016.

EU Steel Demand (real annual % growth)


?%

?%

?%

?%

?%

?%

?%

?% ?% ?%

?%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

F

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

-17


Tinplate buyers in the UK have faced an additional upward pressure on their tinplate purchases outside of the UK, as the pound has substantially depreciated against the US dollar and Euro, due to Brexit.

U.S. / U.K. Foreign Exchange Rate (U.S. Dollars to One British Pound, Monthly, Not Seasonally Adjusted)


Accumulated change May16 – Jan17 = -15%


> Price forecast: tinplate contract price.


Tinplate annual contracts1 in Europe

Source: HARBOR intelligence. 1.- HARBOR`s estimate for annual contract price change . Final contract agreements are not disclosed and remain confidential, this is just a guideline. Contract price change based in Euro per metric ton price level.

Tinplate contract price forecast for 2017.

Year Harbor´s Annual Tinplate Contract Range Estimates

2016 ?% and ?%

2017 ?% and ?%

? = Example Report


> Key drivers behind the tinplate price forecast.


The negotiations for tinplate annual contract price closed at a higher range than previously expected. The variables that supported such price increase, related to 2016, were: the strong hikes of raw material prices and substantial cold rolled prices hikes. This year there was more variation in the percent increase between buyers. The perspectives for the EU tinplate price drivers for 2017 are: Higher cold rolled steel prices. The EU CR steel price closed 2016 with a ?% annual increase. For 2017, we expect an average annual growth of ?% in such steel product price for 2017, which will continue to pressure tinplate prices.

Higher raw material prices. For 2017, we forecast that iron ore price will register an average annual growth of ?%, while coking coal price is forecasted to increase by ?% during next year. Such significant percentage changes, especially coking coal, are influenced by fact that the prices of such inputs grew during the second half of 2016, and closed the year on very high levels. We believe such high levels are not sustainable on the long term, as the coking coal and iron ore industry also suffers with overcapacity. However, it will take some time for such inputs prices to return to lower levels, which is why we expect that in average, coking coal and iron ore prices will register positive annual growths during this year pressuring tinplate prices.

In sum: Key drivers behind the tinplate price forecast for 2017.

? = Example Report


In sum: Key drivers behind the tinplate price forecast for 2017.

A limiting variable for the tinplate price dynamics will be Europe’s economic environment. The EU GDP is forecasted to register a growth of ?% during 2017, which is lower than the estimated ?% growth for this year. We expect the GDP increase to continue to support a modest recovery in steel-intensive industries, benefiting tinplate demand and price, but the growth is expected to be modest.

Another variable that will limit the tinplate price growth for 2017 will be world’s steel overcapacity. The surplus in global crude steel production capacity is far from being resolved to match the expected lackluster steel demand for next year. Although the Chinese government has announced an effort to eliminate obsolete capacity (mainly induction melting furnaces), with a date target of June 30 of 2017, the overcapacity issue needs stronger reforms than just closing already unproductive steel sites. However, this could create incentives for governments, including Europe, to maintain their trend of protective measures in their steel industry, which could keep tinplate prices healthy during next year.


We expect cold rolled steel price in Europe to register a more substantial percentage growth during 2017.

EU cold rolled steel price (in dollars per metric ton)

Source: HARBOR intelligence.

Forecast

Average Annual Change 2016: ?% 2017F: ?%


The key steelmaking input prices, such as iron ore and coking coal price, are also expected to register strong annual hikes. However, the production overcapacity in such inputs could continue to limit their price dynamics.

Source: HARBOR intelligence 1.-Iron ore refers to BF pellet fines, $/metric ton dry CFR China, spot price. Coking coal refers to metallurgical coal price, $/metric ton, FOB Australia, contract price.

Iron ore and coking coal average price1 (average annual change)


The steel industry will continue to face steel production overcapacity, which could continue to limit mill’s ability to transfer significant price hikes.

World steel production over capacity (difference between apparent consumption and production capacity; million metric tons)

0

400

800

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

E

2017

F


? =

Exa

mpl

e R

epor

t


The 2017 GDP for the EU is forecasted to decelerate, compared to 2016…

EU GDP growth (real annual % growth)

Global GDP growth by region (real annual % growth)

China US World

2006 ?% ?% ?%

2007 ?% ?% ?%

2008 ?% ?% ?%

2009 ?% ?% ?%

2010 ?% ?% ?%

2011 ?% ?% ?%

2012 ?% ?% ?%

2013 ?% ?% ?%

2014 ?% ?% ?%

2015 ?% ?% ?%

2016E ?% ?% ?%

2017F ?% ?% ?%

Source: HARBOR intelligence government agencies data. E = Estimated. F = Forecasted.

Source: HARBOR intelligence government agencies data. E = Estimated. F = Forecasted.


…which will limit steel demand growth during next year, as well as the ability of steel mills to transfer substantial price hikes.

World Steel Demand (real annual % growth) Steel demand change by Region (real annual % growth)



2015 2016F 2017F

China ?% ?% ?%

United States

?% ?% ?%

European Union

?% ?% ?%

India ?% ?% ?%

Japan ?% ?% ?%

South Korea ?% ?% ?%

Russia ?% ?% ?%

Germany ?% ?% ?%


For more information on tinplate price trends and price

forecast subscribe to our Tinplate Outlook Service.

Please visit: www.tinplateoutlook.com

Rodrigo Vazquez

Harbor intelligence

Managing director

[email protected]

Tel +1 (512) 342 3151

http://www.tinplateoutlook.com/

mailto:[email protected]

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All rights reserved. HARBOR intelligence LLC. No part of this publication (text, data, or graphic) may

be reproduced, stored in a data retrieval system, or transmitted, in any form whatsoever or by any

means (electronic, mechanical, photocopying, recording or otherwise) without obtaining HARBOR

Intelligence prior written consent. Brief extracts may be used for the purposes of publishing

commentary or review only provided that the source is acknowledged.

Please note: It is a breach of copyright to forward this report to any individual or company not wholly

owned by the subscribed company.

Disclaimer. HARBOR is not liable whatsoever for any general, special, direct, indirect, consequential, or

incidental loss or damage caused by, or resulting from, any use of or any inaccuracies, errors, or

omissions in the information provided. Please note that HARBOR does not provide financial, legal,

accounting or tax advice nor should the information in here be relied upon such purpose. The

information, opinions, estimates, projections and strategies contained in this report were prepared by

HARBOR intelligence and constitute the current judgment of HARBOR intelligence as of the date of this

report. HARBOR intelligence does not undertake, and has no duty, to advise you as to any information

that comes to its attention after the date of this report or any changes in its opinion, estimates or

projections. Estimates in this report represent our best judgment of were the market is heading.

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