structure of presentation where are we now? influences in 2006 forecasts for 2006 managing...
TRANSCRIPT
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
SBB Presentation 19-11-05 at
MEsteel-SBB Dubai Dinner
Long Term Influences on the Steel Price in 2006
SBB Presentation 19-11-05 at
MEsteel-SBB Dubai Dinner
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
MEsteel-SBB Dubai Dinner
• 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
MEsteel-SBB Dubai Dinner
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
MEsteel-SBB Dubai Dinner
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%
SBB Presentation 19-11-05 at
MEsteel-SBB Dubai Dinner
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
SBB Presentation 19-11-05 at
MEsteel-SBB Dubai Dinner
Higher Iron Ore Prices
Winners Losers
$/t Forecast
SBB Presentation 19-11-05 at
MEsteel-SBB Dubai Dinner
0
100
200
300
400
500
600
700
800
2000 2001 2002 2003 2004 2005
European Shredded Scrap EXW N.European HRC EXW European Rebar Delivered
Volatile Scrap ($/t)
Source: SBB
SBB Presentation 19-11-05 at
MEsteel-SBB Dubai Dinner
More Reactive to Sentiment“US sets the tune”
Changeable Spot Prices
- Expectations
- Inventories
- International trade
Sentiment
SBB Presentation 19-11-05 at
MEsteel-SBB Dubai Dinner
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?
SBB Presentation 19-11-05 at
MEsteel-SBB Dubai Dinner
Turnaround in ImportsSBB Presentation 19-11-05 at
MEsteel-SBB Dubai Dinner
4th Quarter of 2005US and EU: • Stocks back to normal: • Prices rising in US; Europe…?Asia: • Stocks rising• Prices weakening
SBB Presentation 19-11-05 at
MEsteel-SBB Dubai Dinner
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
SBB Presentation 19-11-05 at
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
MEsteel-SBB Dubai Dinner
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