structure of presentation where are we now? influences in 2006 forecasts for 2006 managing...

Structure of Presentation

• Where are we Now?

• Influences in 2006

• Forecasts for 2006

• Managing Volatility/Risk

SBB Presentation 19-11-05 at

MEsteel-SBB Dubai Dinner

An Industry in Transition

Long Term Changes

• Companies Consolidate

• Consumption Growth Shifts

• Capital markets

• Costs and Prices – cycles to continue

SBB Presentation 19-11-05 at MEsteel-SBB Dubai Dinner

Linked Price Cycles

• Scrap• Commodity steels

• Iron ore, coke, coal• Quality steels

• Sentiment

SBB Presentation 19-11-05 at

MEsteel-SBB Dubai Dinner

Today’s Market

Binge Buying and Hangover November 2005:

US and EU: stocks returning to normal; prices rising in US

Asia: stocks rising; prices slidingPrice collapse

from March

SBB Presentation 19-11-05 at

MEsteel-SBB Dubai Dinner

Near Term Influences on the Steel Price in 2006

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Long Term Influences on the Steel Price in 2006

SBB Presentation 19-11-05 at

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Chinese ProductionMill t

0

50

100

150

200

250

300

350

400

1993 1995 1997 1999 2001 2003 2005E

Net ImportDomestic Production

SBB Presentation 19-11-05 at

MEsteel-SBB Dubai Dinner

China• Engine of Global Steel

Economy?

• Growing Consumption gap?

… exports… plant closures ?

• Fragmented industry

• Inefficient

• Capital intensive

SBB Presentation 19-11-05 at

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• Strong growth• Raw materials availability• Growth in infrastructure• Low kg/head consumption• CIBERT

Russia Brazil India

Cons kg/head

Source: IISI, SBB Estimates

SBB Presentation 19-11-05 at

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Real GDP Growth (% change) 2004 2005e 2006e

Middle East 5.5 5.4 5.0

China 9.5 9.0 8.5

India 7.3 7.1 6.3

U.A.E. 8.5 5.6 4.2

Turkey 8.9 5.0 5.0

Newly Industrialised

Asian Economies3

5.6 4.0 4.7

Major Advanced

Economies1

3.2 2.5 2.6

ASEAN 42

5.8 4.9 5.4

SBB Presentation 19-11-05 at

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0

200

400

600

800

1,000

1,200

1,400

2000 2001 2002 2003 2004 2005e 2006e

Production Excess CapacitySource: OECD, IISI, SBB

Global Capacity Utilization89.2%

87.1%Mill t

79%

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Nascent Global Companies

Posco Shougang

Bluescope Mechel

JFE Nippon

Tata Global

Essar CMC

Baosteel Evraz

ThyssenKrupp

More Global Companies

US Steel

Ternium

Gerdau

Duferco

Mittal

Severstal

Arcelor

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Higher Iron Ore Prices

Winners Losers

$/t Forecast

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0

100

200

300

400

500

600

700

800

2000 2001 2002 2003 2004 2005

European Shredded Scrap EXW N.European HRC EXW European Rebar Delivered

Volatile Scrap ($/t)

Source: SBB

SBB Presentation 19-11-05 at

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More Reactive to Sentiment“US sets the tune”

Changeable Spot Prices

- Expectations

- Inventories

- International trade

Sentiment

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Trade Flows in 2006

Japan to export more

globallyUkrainian exports to rise

Russian exports may

decline

US imports to rise

EU exports stable

China: exports to

rise?

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Turnaround in ImportsSBB Presentation 19-11-05 at

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4th Quarter of 2005US and EU: • Stocks back to normal: • Prices rising in US; Europe…?Asia: • Stocks rising• Prices weakening

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200

250

300

350

400

450

500

550

600

650

1998 Nov 2005 Dec 2006

Price Outlook 2006: HRC $/t

Source: Steel Business Briefing

Forecast

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MEsteel-SBB Dubai Dinner

230

280

330

380

430

480

530

1998 Nov 2005 Dec 2006

Price Outlook 2006: Rebar $/t

Source: Steel Business Briefing

Forecast

SBB Presentation 19-11-05 at

MEsteel-SBB Dubai Dinner

Price Outlook 2006: HRC $/t

Source: Steel Business Briefing

190

240

290

340

390

440

490

540

590

640

690

740

790

1998 Nov 2005 Dec 2006

Global Forecast

190

240

290

340

390

440

490

540

590

640

690

740

790

1998 Nov 2005 Dec 2006

N. American Forecast

190

240

290

340

390

440

490

540

590

640

690

740

790

1998 Nov 2005 Dec 2006

European Forecast

SBB Presentation 19-11-05 at

MEsteel-SBB Dubai Dinner

Source: Steel Business Briefing

190

240

290

340

390

440

490

540

590

640

690

740

790

1998 Nov 2005 Dec 2006

Eu $/t Forecast

Price Outlook 2006: HRC $/t & Euro/tEuropean Average

190

240

290

340

390

440

490

540

590

640

690

740

790

1998 Nov 2005 Dec 2006

Eu Euro/t Forecast

SBB Presentation 19-11-05 at

MEsteel-SBB Dubai Dinner

Price Outlook 2006: Rebar $/t

210

260

310

360

410

460

510

560

610

1998 Nov 2005 Dec 2006

Global Forecast

Source: Steel Business Briefing

210

260

310

360

410

460

510

560

610

1998 Nov 2005 Dec 2006

N. American Forecast

210

260

310

360

410

460

510

560

610

1998 Nov 2005 Dec 2006

European Forecast

SBB Presentation 19-11-05 at

MEsteel-SBB Dubai Dinner

230

280

330

380

430

480

530

580

630

680

2000 Nov 2005 Dec 2006

Source: Steel Business Briefing

Price Outlook 2006: Beams $/tWorld Average

SBB Presentation 19-11-05 at

MEsteel-SBB Dubai Dinner

230

280

330

380

430

480

530

580

630

680

730

780

1998 Nov 2005 Dec 2006

Source: Steel Business Briefing

Price Outlook 2006: Beams $/t

Global Forecast

230

280

330

380

430

480

530

580

630

680

730

780

1998 Nov 2005 Dec 2006

N. American Forecast

230

280

330

380

430

480

530

580

630

680

730

780

1998 Nov 2005 Dec 2006

European Forecast

SBB Presentation 19-11-05 at

MEsteel-SBB Dubai Dinner

Source: Steel Business Briefing

230

280

330

380

430

480

530

580

630

680

730

780

1998 Nov 2005 Dec 2006

Eu $/t Forecast

Price Outlook 2006: Beams $/t & EUR/tEuropean Average

230

280

330

380

430

480

530

580

630

680

730

780

1998 Nov 2005 Dec 2006

Eu Euro/t Forecast

SBB Presentation 19-11-05 at

MEsteel-SBB Dubai Dinner

Contract prices : 2006

• Fewer multi-year deals

• Up to 5-15% rise in 2006 (if Q4 stabilises)

• Impacts on financial results

• Linkage to raw materials

SBB Presentation 19-11-05 at

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Managing Volatility/Risk

Risks in 2006: China; volatile scrap, excessive stocks,

sentiment, lack of transparency ……Managing risk:• Hedging: OTC, surcharges, indexation,

LME?, active exchanges• More Annual Contracts• Managing Capacity

SBB Presentation 19-11-05 at

MEsteel-SBB Dubai Dinner