PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, III. INTERNATIONAL STEEL - - PowerPoint PPT Presentation

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, III. INTERNATIONAL STEEL - - PowerPoint PPT Presentation

Jan 22, 2023 142 likes •340 views

STSG - EUROMETAL PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, III. INTERNATIONAL STEEL TRADE DAY RE-ROLLERS AND PROCESSORS Made in Steel, Milano - April 4, 2013 Antonio Marcegaglia CEO & Managing Director, Marcegaglia, Italy KEY CHALLENGES

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS

  • III. INTERNATIONAL STEEL TRADE DAY

Made in Steel, Milano - April 4, 2013

Antonio Marcegaglia CEO & Managing Director, Marcegaglia, Italy

STSG - EUROMETAL

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia

STEEL DEMAND

Steel demand is slowing down, well below its 3.7% p.a. long term growth rate (it was 1.8% in 2012,

  • est. 2.7%* in 2013)...

(*WSA +3.3% • WSD +2.0%)

KEY CHALLENGES FOR THE GLOBAL STEEL INDUSTRY

‘00 7.6% 1.6% 6.5% 6.3%

  • 6.4%

8.2% 9.2% 7.0% 2.7% 5.6% 0.0% 1.8% 10.1% 14.1% YoY growth in global steel consumption (%) 20% 15% 10% 5% 0%

  • 5%
  • 10%

‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13f

  • Av. growth 1950-2011: 3.7% p.a.

Source: WSA. SteelConsult

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia

STEEL DEMAND

…and will not be driven by China and Asia as in the recent past (+15.8% CAGR between 2000 and 2011, +3.5% CAGR in the next decade) because

  • f the reduction
  • f fj

xed asset investment

KEY CHALLENGES FOR THE GLOBAL STEEL INDUSTRY

WSD CHINA MACRO-ECONOMIC STEEL INDEX (MOVING AVERAGE BASIS) VS APPARENT STEEL CONSUMPTION (ASC)

Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Apr-01 Apr-03 Apr-05 Apr-07 Apr-09 Apr-11 Apr-02 Apr-04 Apr-06 Apr-08 Apr-10 Apr-12 Jul-01 Jul-03 Jul-05 Jul-07 Jul-09 Jul-11 Jul-02 Jul-04 Jul-06 Jul-08 Jul-10 Jul-12 Oct-01 Oct-03 Oct-05 Oct-07 Oct-09 Oct-11 Oct-02 Oct-04 Oct-06 Oct-08 Oct-10 Oct-12 Source: WSD estimates

2000 1900 1800 1700 1600 1500 1400 1300 1200 1100 1000 900 800 700 600 500 400 300 200 100 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 Macro Index, Moving Average Basis ASC, Million Metric Tonnes Macro Index consists of fj xed asset investiment (12-month moving average), retail sales, M2 money supply (6-month moving average) and value added of industry (6- month moving average). The weights are 0.35, 0.25, 0.20 and 0.20, respectively.

Steel Consumption (right axis) Macro Index (left axis)

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia

OVERCAPACITY

With a slower demand,

  • vercapacity is an issue worldwide,

but while in the emerging countries it can be absorbed in the long term, in the OECD countries it has become (again) a structural problem, particularly in BOF in EU.

KEY CHALLENGES FOR THE GLOBAL STEEL INDUSTRY

Based on 2012 production level, integrated mills represent 85% of OECD overcapacity

SHARE OF CAPACITY AND EXCESS CAPACITY BY PROCESS AND REGION (MT)

Source: Worldsteel, Laplace Conseil analysis

28 8 7 5 2 1 105 54 75 105 48 133 Europe BOF NAFTA BOF Asia BOF Europe EAF NAFTA EAF Asia EAF

2012e Capacity in OECD Total = 520 Mt 2012e estimated overcapacity in OECD Total = 51 Mt

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia

COST OF RAW MATERIALS

Costs of raw materials have grown immensely (and unreasonably), leading to price instability…

KEY CHALLENGES FOR THE GLOBAL STEEL INDUSTRY

EVOLUTION OF IRON FINE PRICES (LHS) AND COKING COAL (RHS) ($/T)

Jan 00 Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12

Source: Steel Business Briefj ng,Bluescope, Laplace Conseil analysis

150 300 200 400 100 200 50 100

Iron ore

Coking Coal

COST CURVE FOR IRON ORE FINES (US$/T CIF CHINA EQUIVALENT BASIS)

Cumulative volume (million tonnes)

Source: Macquarie Research March 2012, Laplace Conseil analysis

150 200 100 50 Due to the steepness of the cost curve A small reduction in demand or a small increase in capacity Lead to a relatively large decline in prices

Established low cost producers from Australia and Brazil VS New entrants and high cost producers

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia

COST OF RAW MATERIALS

… and moving upstream all the profj t in the value chain, while squeezing the margins of the steel mills.

KEY CHALLENGES FOR THE GLOBAL STEEL INDUSTRY

100 200 300 400 500 600 700 800 900 1000 Mt iron ore 200 100 150 50 US$/t

Marginal cost of production: ~US$125/t

RIO BHP FMG Vale China

ESTIMATED 2012 IRON ORE COST CURVE [US$/Y CFR CHINA]

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia

Within OECD countries, the European

  • nes are the worst positioned, since…

NAFTA • has more natural resources (raw materials and energy)

  • is developing aggressively

shale gas projects

  • has a higher ratio
  • f EAF based steel

ASEAN • have a stronger industrial base OECD (Japan and Korea)

  • are large net exporters,

mostly in the RoW

ADDITIONAL CHALLENGES FOR THE EU STEEL INDUSTRY

EU 27 + TK Japan + S.Korea NAFTA Net OECD

Source: Worldsteel, Laplace Conseil analysis

30 40 50 60 20 10

Japan+S.Korea Net exports to NAFTA The bulk of NAFTA net imports are from third countries The bulk of Japan+ S. Korea net exports are for third countries Japan+S.Korea Net exports to EU 27 EU27 net exports to NAFTA

NET EXPORT POSITION OF THE THREE LARGEST TRADING REGIONS IN 2010 (MT)

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia

While Europe:

  • has witnessed a continued sharp reduction in steel demand

(2012 real -5.1%, apparent -9.7%; 2013e real -1.8%, apparent -0.7%)

  • is lacking natural resources, while has the most challenging

environmental constraints

  • is not a competitive region for steel, while it is the least protected market
  • is facing a potential fj

nancial instability, while its currency (euro) is overevaluated

  • is lacking any monetary or fj

scal policy, while the economy is suffering and the credit is constrained

ADDITIONAL CHALLENGES FOR THE EU STEEL INDUSTRY

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia

Today, Italy is facing particularly challenging times:

  • weak domestic market
  • high cost of energy
  • stiff labor market, but with growing unemployment rate
  • high debt/GDP ratio
  • credit crunch and high cost of money
  • lack of political leadership
  • micro-entrepreneurial industrial base

THE ITALIAN INDUSTRIAL SCENARIO

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia

2011 2012 var % 12/11 Total general 29 872 238 24 875 452

  • 16.7

Total semiprocessed 3 192 765 2 271 337

  • 28.9

Total laminates 26 679 473 22 604 115

  • 15.3
  • f which: long products

11 477 730 9 400 661

  • 18.1
  • f which: fm

at products 15 201 743 13 203 454

  • 13.1

Sections and railway track material 904 920 760 042

  • 16.0

Sheet piles 21 259 25 960 22.1 Total merchant bars 3 588 861 3 023 706

  • 15.7
  • f which: bars

2 553 844 2 191 125

  • 14.2
  • f which: profj

les 512 866 362 335

  • 29.4
  • f which: fm

ats 522 151 470 247

  • 9.9

Reinforcing bar 2 794 250 2 097 393

  • 24.9

Wire rod 4 168 440 3 493 560

  • 16.2

Total HR sheets and fm ats 2 060 085 1 742 612

  • 15.4

HR strips <600 139 653 150 459 7.7 Coils 5 512 875 5 122 638

  • 7.1

Galvanized and coated sheet 2 957 692 2 421 057

  • 18.1

Electrogalvanized sheet 189 817 161 209

  • 15.1

Synthetic coated sheet 657 483 513 590

  • 21.9

Other products (*) 737 242 656 687

  • 10.9

Magnetic sheet 587 677 518 871

  • 11.7

CR sheet and coil 2 359 218 1 916 330

  • 18.8

(*) Tin plate, black plate and tin free steel

Apparent consumption in 2012 in Italy was 24.9 m ton, down -16.7% from 2011 and far below the peak

  • f 2006 and 2007.

Flats were down -13.1%, longs -18.1%, semis -28.9%

THE ITALIAN STEEL INDUSTRY

APPARENT CONSUMPTION

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 50 50% 30 0%

  • 16.7%

24.9 40 25% 20

  • 25%

10

  • 50%
  • var. % on previous

apparent consumption M.t.

Source: Federacciai

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia

Steel production was down “only” -5.2%, thanks to some growth

  • f export (+6.4%) and signifj

cant reduction of imports (-20.6%) In the fj rst two months of 2013, steel production was down -17.2%, especially in fm ats, because

  • f the output constraints

in Riva’s Taranto plant.

THE ITALIAN STEEL INDUSTRY

WORLD STEEL PRODUCTION JAN-FEB 2013 January - February 2013 2012 Variation M.t. % European Union 27.0 28.3

  • 1.3
  • 4.5%

Others Europe 5.8 6.2

  • 0.4
  • 7.1%

C.S.I. 17.0 18.4

  • 1.5
  • 7.9%

North America 19.5 20.6

  • 1.2
  • 5.7%

South America 7.1 7.5

  • 0.4
  • 5.7%

Africa / Middle East 6.0 6.2

  • 0.2
  • 3.9%

Asia 169.7 158.1 11.6 7.3% Oceania 1.0 0.9 0.1 5.6% World Production 253.0 246.4 6.6 2.7% Italy 3.9 4.7

  • 0.8
  • 17.2%

China 125.5 113.4 12.0 10.6% World excl. China 127.6 133.0

  • 5.4
  • 4.1%

Source: elaborations on WSA data

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia

  • It is the second largest in Europe, after Germany, representing around

16% of the European Union output.

  • It is a lively, open market with import representing around 56-58%
  • f apparent consumption, but export representing 60-65% of production.
  • In 2012 net export was 4.1 m ton, including

(2.4) m t net import of semis +2.2 m t net export of longs +0.4 m t net export of fm ats +3.9 m t net export of fj rst and second transformation products.

  • In fact a strong, independent, export oriented chain of re-rollers,

processors and service centers has come about, more than in other countries.

THE ITALIAN STEEL INDUSTRY

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia

  • Family owned companies, highly fragmented
  • entrepreneurial / reactive / resilient
  • consolidation or restructuring more diffj

cult

  • Lack of vertical integration in the value chain
  • highly fm

exible in sourcing, processing, selling

  • highly competitive / low pricing and marginality
  • Very “open system”
  • strong import/export orientation
  • lack of “industrial loyalty”

Overall, lively, fm exible, competitive but …

THE ITALIAN STEEL INDUSTRY

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia

… may face big changes:

  • the ILVA case
  • the Lucchini case
  • AST for sale
  • other changes on the processing side

but most of the assets are sound and competitive and will be able to survive in the European context.

THE ITALIAN STEEL INDUSTRY

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia

  • With a stagnating demand (Europe) expected in the future,

with limited export opportunities and some recent capacity additions (eg: steel in Russia and Turkey, HDG in Italy, etc) structural overcapacity is the new (old) challenge

  • Overcapacity is a problem throughout the steel chain,

from mills to tube makers and rerollers, from distribution and service centers to end-users.

  • Structural overcapacity means structural squeeze in the marginality
  • Other than mining, margins are now down to unsustainable levels,

throughout the whole value chain

RESHAPING THE VALUE ADDED

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia

  • Consolidation between players is not an easy solution.

In fact:

  • even if desired in some cases, there is little cash or credit

lines available

  • consolidation without closures is not effective,

consolidation with closures is too expensive

  • when associated to signifj

cant moves, European Antitrust Authorities are not friendly to the industry

  • no new global consolidator (after ArcelorMittal) is showing up
  • Effj

ciency improvements are always possible, but most of the efforts have already been performed and the additional possible gains will hardly compensate the gap in lacking marginality. We rather see a combined need of ....

RESHAPING THE VALUE ADDED

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PERSPECTIVES FOR ITALIAN STEEL PRODUCERS, RE-ROLLERS AND PROCESSORS - Antonio Marcegaglia, CEO Marcegaglia

  • Voluntary or unvoluntary restructuring efforts, with capacity cuts/closures

to adapt fj xed and break-even costs to the new demand levels, throughout the steel chain.

  • A reduction in the cost of raw materials, in order to re-balance the value

added in the steel chain, with a reduction of the mining portion in favour of the downstream.

  • A closer focus of each player on his own role, geographical and target

market, in order to avoid excess overlapping and value destruction.

  • Sound alliances between strong players, in order to become even stronger,

especially within a Region.

  • A more intense effort of the industrial policy makers in favour of the steel

industry, which can support the restructuring effort, protect from unfair external competition, enhance some stimulus in the steel consuming sectors.

RESHAPING THE VALUE ADDED

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www.marcegaglia.com