Topics

Price Drivers
Raw Material
Supply/Demand
Trade
Inventory
USA Market
A Look Ahead
Sequester
Impact $85B
Production Cuts
Price Changes
Presented by:
Patrick A. McCormick
Managing Partner WORLD STEEL DYNAMICS
President WORLD STEEL EXCHANGE
MARKETING
Steel Conference - March 1, 2013
Steel Update
The Rolling Tides of Global Steel
1
WSD Steel Stratagems Consulting Service
Offering Creative business solutions to Clients
Raw
Materials
Mill
Service
Center
OEMs
Automotive
Global
Manufacturing
Warehouse
Storage
Systems
HAC
Components
Appliance Fabrication
Agriculture
Distribution
&
Processing
Raw
Materials
Mill
Service
Center
OEMs
Automotive
Global
Manufacturing
Warehouse
Storage
Systems
HAC
Components
Appliance Fabrication
Agriculture
Distribution
&
Processing
Value proposition
Experienced hands-on
consulting to improve clients
buying/selling performance
Steel Industry Analysis
Performance Benchmarking
Strategy Development
Tools & Tactic Support
Non-competing clients. If two
clients buy or sell to each other
we work as a facilitator
Total Supply Chain coverage
Managing price volatility
is a common concern
among clients
553
655
676
100
200
300
400
500
600
700
800
900
1000
1100
1200
D
o
l
l
a
r
s

p
e
r

m
e
t
r
i
c

t
o
n
n
e
USA, China, Western Europe and World Export
(WSD's PriceTrack data, J an. 2000 - March 2006; SteelBenchmarker data begins April 2006)
USA
FOB mill
World Export
FOB port of
China
ex-works
Western Europe
ex-works
February 25, 2013
608
Steel prices have remained on a rollercoaster with many ups and downs
but recent peaks have not eclipsed the 2008 pre-crisis peaks
3
Hot-Rolled Band Spot Prices
www.steelbenchmarker.com
Assess Global
Economic
Growth
FAI Key driver
Assess Global
Steel Production
Forecast and
Demand on Raw
Materials
Calculate Raw
Material Prices
and Steel
Product Price
Spreads
4
WSDs Stratagems
Price Forecast Process Methodology
Using global fundamentals to forecast steel price trends
WSDs Global Steel Information System (GSIS)
Internet accessible global steel statistics
World Cost Curves:
Steel Sheet
Steel Billet/Rebar/Wire Rod
Steel Plate
Coking Coal*
Iron Ore
Pig Iron/DRI/HBI
Global Metallics Balance
Forecast to 2035
All major metallics:
Iron Ore
Steel Scrap
Steel Scrap Substitutes
Coking Coal & Coke
*Powered by Martson
5
0.00
0.20
0.40
0.60
0.80
1.00
1.20
0
100
200
300
400
500
600
700
800
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Obsolete Scrap
Usage Ratio (RHS)
Obsolete Scrap Requirement (LHS)
New Scrap Usage (LHS)
Home Scrap Usage (LHS)
6
Scrap is Considered the Marginal Metallic
Price Spikes are Required to Drive Up the Recovery Rate
of Obsolete Scrap
Obsolete steel scrap demand was 358 million tonnes in 2011 and the recovery rate was the highest on
record. In 2012, the obsolete scrap requirement was flat implying a 0.94 recovery rate from the
obsolete scrap reservoir that is on average 10-40 years old.
7
Scrap Prices Significantly Declined in 2012
Rising prime scrap volumes from manufacturing and black swan events
0
100
200
300
400
500
600
M
i
l
l
i
o
n

M
e
t
r
i
c

T
o
n
n
e
s

p
e
r

Q
u
a
r
t
e
r

&

U
S
A

S
c
r
a
p

P
r
i
c
e

(
$
/
G
T
)
Steel Scrap
USA Scrap Price Versus Global Scrap Demand for SteelMaking
Steel Scrap
Global
Demand
(Million MT)
USA
Busheling
Price -
Chicago
($GT)
USA Heavy
Melt Price -
Chicago
($/GT)
8
Scrap Price Volatility has Declined as Global
Growth Rates have Slowed
During periods of high steel production growth scrap prices spike during demand
increases and supply constraints during winter months
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
M
o
n
t
h

O
v
e
r

M
o
n
t
h

%

C
h
a
n
g
e

f
o
r


G
l
o
b
a
l

S
c
r
a
p

D
e
m
a
n
d





a
n
d

U
S
A

P
r
i
c
e
Steel Scrap Month Over Month % Change
USA Scrap Price Versus Global Scrap Demand for SteelMaking
Steel Scrap
Global
Demand
Monthly
(% Change)
USA
Busheling
Price -
Chicago
Monthly
(% Change)
USA Heavy
Melt Price -
Chicago
Monthly
(% change)
9
Black Swan Events - J apan Tsunami Scrap and
European Recession
Added Scrap Exports to the Global Market in 2012
J apan scrap exports increased 2 million tonnes in 2012. Europe exports spiked in 1Q12
0
1
2
3
4
5
6
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012e
m
i
l
l
i
o
n

t
o
n
n
e
s
Japanese Net Scrap Exports vs.
Eurozone Net Scrap Exports
Eurozone Net Exports
(1,000,000)
J apan Net Exports
(1,000,000)
Source: WSD estimates
10
Global Iron Ore Demand has Increased
703 Million Tonnes since 2000
China Accounted for 669 Million Tonnes (95%)
Domestic production has increased 7.7% CAGR since 2000,
while imports have grown 22% CAGR and account for 61% of the total requirement.
70
92
111
148
208
275
326
383
444
628
619
687
735
149
142
161
193
209
284
323
368
305
264
306
323
361
0
200
400
600
800
1000
1200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Imports Production
M
i
l
l
i
o
n

M
e
t
r
i
c

T
o
n
n
e
s
11
Slowing Chinese Steel Production Growth,
Credit Constraints and the European Recession
Slowed Global Iron Ore Demand Growth
The current rise in iron prices has been driven by Chinese restocking, short term supply
issues and political export constraints in India
0
50
100
150
200
250
300
350
400
450
500
M
i
l
l
i
o
n

M
e
t
r
i
c

T
o
n
n
e
s

p
e
r

Q
u
a
r
t
e
r

&

)

I
r
o
n

O
r
e

C
F
R

C
h
i
n
a

(
$
/
M
T
)
Iron Ore
Iron Ore Price Versus Global Iron Ore Demand
Iron Ore
Global
Demand
(Million MT)
Iron Ore
Price ($/MT)
12
Iron Ore Price Volatility has Declined as Global
Growth Rates have Slowed
Swings in Chinas massive steel production activity,~700 M tonnes,
drives iron ore spot price volatility
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
M
o
n
t
h

O
v
e
r

M
o
n
t
h

%

C
h
a
n
g
e

f
o
r


G
l
o
b
a
l

I
r
o
n

O
r
e

D
e
m
a
n
d





a
n
d

C
h
i
n
a

C
F
R

I
r
o
n

O
r
e

P
r
i
c
e
Iron Ore Month Over Month Percent Change
China CFR Iron Ore Price Versus Global Iron Ore Demand for SteelMaking
Iron Ore
Global
Demand
monthly
(% Change)
Iron Ore
Price
Monthly
(% Change)
13
World Cost Curve Region/Country Ranking
A current snapshot
Region Project Status Gross Capacity Region Project Status Gross Capacity
CIS 3.5 Europe 9.5
Construction 3.5 Closed, reopen/plans 2
Europe 7.5 Closed, reopen/plans 7.5
Closed, reopen/plans 5.0 Oceania 112.8
Feasibility 2.5 Conceptual 15
North America 32.0 Feasibility 80.8
Construction 7.0 Operating, exp/constr 14
Feasibility 3.0 Operating, exp/plans 3
Operating, exp/constr 8.0 South America 61.3
Operating, exp/plans 14.0 Operating, exp/plans 10
Oceania 137.8 Feasibility 24
Conceptual 15.0 Operating, exp/constr 27.3
Construction 63.0
Feasibility 15.0 Under Construction/Operating 41.3
Operating, exp/constr 1.8 Conceptual/Prefeasibility/Feasibility 119.8
Operating, exp/feasib 43.0 Operating Expansion-Planning Stage 13.0
South America 147.5 Closed-Reopen Plans 9.5
Conceptual 10.0 Grand Total 183.6
Construction 19.5
Feasibility 19.5 Source: UNCTAD & WSD estimates
Operating, exp/constr 42.0
Operating, exp/plans 4.1
Prefeasibility 50.0
Operating 2.4
Under Construction/Operating 147.2
Conceptual/Prefeasibility/Feasibility 158.0
Operating Expansion-Planning Stag 18.1
Closed-Reopen Plans 5.0
Grand Total 328.3
Source: UNCTAD & WSD estimates
2013 Upcoming Iron Ore Projects 2014 Upcoming Iron Ore Projects
(million tonnes) (million tonnes)
Iron Ore
Capacity
Additions
Expected
To Push
Down
Prices
In 2H13
and
2014
USA Service Center Steel Inventories
Remain Well Below Pre-Crisis Levels
Credit constraints and uncertainty has many living
hand-to-mouth (buying only what they need)
14
China is Driving the Global Steel Production Bus
USA is less than 6% (5.8%) of global production
47%
6%
24%
23%
% Share of 2012 Forecasted
Global Steel Production
China
USA
Rest of advanced
Developing (non China)
15
<
USA Spot Pricing Comparison (2009 2013YTD)
Declining Raw Material Prices
are Flowing into Steel Prices
16
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
$

p
e
r

S
h
o
r
t

t
o
n
2009 2010 2011 2012 2013
2011 MarchPeak
2012 JanuaryPeak
2013 ???
2010 MayPeak
2009 SeptemberPeak
USA EAF Mill Price Spreads
Between hot-rolled and #1 Busheling in 2H12
were the Highest in Four Years
17
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
$

p
e
r

S
h
o
r
t

t
o
n
USAPriceSpread HotRolledBandPriceMinus#1BushelingPrice
2009 2010 2011 2012 2013
2012hadhighestspreadin2Hofyear
$0
$50
$100
$150
$200
$250
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
$

p
e
r

M
e
t
r
i
c

T
o
n
n
e
HRBPriceSpreadBetweenUSADomesticPriceandWorldExportPrice
2009 2010 2011 2012 2013
2011 AprilPeak
2012 JanuaryPeak
2013 ???
2010 JunePeak
2009 MarchPeak
18
The Price Spread Between the USA Domestic
Price and the World Export Prices has
Significantly Declined During February 2013
India exporters are becoming more aggressive due to domestic credit issues
USA Imports
Increased Significantly in 2012
One Reason There is Excess Supply in the USA
19
USA 2013 Steel Price Outlook
Key Items to watch
1H 2013
Expect current mill price increases
to take hold in March
Scrap prices up $10 - $30/GT in
March
Reduced import competition
Watch for mill production cuts
Import price spread fell in 1Q and
is expected to increase in the 2
nd
quarter
Watch mill lead times closely
Most mills are still chasing orders
as demand is impacted by
uncertainty
Watch consumer spending for any
lull due to higher taxes, reduced
government spending and
economic uncertainty
2H 2013
Expect mill price increases to
reverse in the summer
Scrap prices are likely to be
impacted by falling pig iron prices
and a slowing global economy
Watch for mill production cuts
Import price spreads increase as
raw material prices fall enabling a
more competitive world cost curve
Watch mill lead times closely
Watch for the sustainability of
domestic mill production cuts
Watch consumer spending for
impacts from higher taxes, reduced
government spending and
economic uncertainty
20
Steel futures can provide the opportunity to hedge steel values during long transit times
21
Steel Futures Forward Price Curves Tend to be Too Flat
Offering Buyers and Sellers Trading Opportunities
Integrated/BF Route EAF Route
22
Pat McCormick
Managing Partner
World Steel Dynamics
President
World Steel Exchange Marketing
Work: (201) 503-0920
Cell: (314) 378-4858
pmccormick@worldsteeldynamics.com
Thank you for your kind attention
Thisreportincludesforwardlookingstatementsthatarebasedoncurrentexpectationsaboutfuture
eventsandaresubjecttouncertaintiesandfactorsrelatingtooperationsandthebusinessenvironment,
allofwhicharedifficulttopredict.Althoughwebelievethattheexpectationsreflectedinourforward
lookingstatementsarereasonable,theycanbeaffectedbyinaccurateassumptionswemightmakeor
byknownorunknownrisksanduncertainties,includingamongotherthings,changesinprices,shiftsin
demand,variationsinsupply,internationalcurrencymovements,technologicaldevelopments,
governmentalactionsand/orotherfactors.

Theinformationcontainedinthisreportisbaseduponorderivedfromsourcesthatarebelievedtobe
reliable;however,norepresentationismadethatsuchinformationisaccurateorcompleteinall
materialrespects,andrelianceuponsuchinformationasthebasisfortakinganyactionisneither
authorizednorwarranted.WSDdoesnotsolicit,andavoidsreceiving,nonpublicmaterialinformation
fromitsclientsandcontactsinthecourseofitsbusiness.Theinformationthatwepublishinour
reportsandcommunicatetoourclientsisnotbasedonmaterialnonpublicinformation.

Theofficers,directors,employeesorstockholdersofWorldSteelDynamicsInc.donotdirectlyor
indirectlyholdsecuritiesof,orthatarerelatedto,oneormoreofthecompaniesthatarereferredto
herein.WorldSteelDynamicsInc.mayactasaconsultanttooneormoreofthecompaniesmentioned
inthisreport.

Copyright2012byWorldSteelDynamicsInc.allrightsreserved.
A Look Behind Steel Scrap Pricing
Higher scrap demand is expected to move
closer to the obsolete reservoir driving up prices
23
$0
$75
$150
$225
$300
$375
$450
$525
$600
200
250
300
350
400
450
500
550
600
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
2
0
1
5
Forecast
S
c
r
a
p

R
e
q
u
i
r
e
m
e
n
t
/
C
a
p
a
c
i
t
y
S
c
r
a
p

P
r
i
c
e

(
$
/
t
)
Obsolete Scrap
Requirement
Average
Annual
Reservoir
Shredded Scrap
Price (RHS)
#1HM Scrap
Price (RHS)
24
Steelmakers Metallics