Challenges for the European steel market today and tomorrow Platts 3rd Annual Steel Distribution & Supply Chain Meeting – 15 October

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EU27 – Apparent steel consumption (Mt per annum)

Demand is expected to remain below 2007 peak for the period up to 2020

Demand to return to pre-boom

levels only by 2018

Current estimated EU production capacity ~215

million tonnes

European steel demand will not recover to pre-levels until 2020

Forecast

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In Europe, the market for steel lags behind, and is forecasted to do so for the next years

ASU (Mt) Annual Change (%)

2012 2013 2014 2012 2013 2014

World 1413 1454 1500 1.2 2.9 3.2 Developed Economies 389 390 400 -1.9 0.4 2.3

Emerging & Developing Economies

1024 1063 1101 2.5 3.9 3.5

EU27 142 137 140 -10.0 -3.1 1.8 NAFTA 131 135 139 7.8 2.9 3.0

Other Europe 35 37 38 4.1 6.1 4.1

CIS 56 58 60 3.3 2 3.8 Central & South America 47 50 52 2.6 6.2 4.3

Africa 27 29 31 7.1 8.1 7.6

Middle East 49 49 52 -1.2 0.8 6.1

Asia & Oceania 928 957 984 1.8 3.2 2.8

China 646 669 686 1.9 3.5 2.5

Apparent Steel Use (ASU) by Region

3 3 Source: Worldsteel, Eurofer

70%

123%

163%

0% 50% 100% 150% 200%

EU27

NAFTA

CIS

Middle East

Other Europe

World

C & S America

Asia & Oceania

Africa

China

Apparent Steel Consumption 2014 Compared to 2007, %

At the same time there are good opportunities in Europe in selected geographies and industries

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Apparent Steel Consumption 2014 Forecast change vs. 2007, %

Source: Eurofer

Selected Sector Output by Country 2014 Forecast (Index, 2010 = 100)

Increased sector activity vs 2010

Decreased sector activity vs 2010

But will there still be room for all of us?

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2,5

4,2

8,4

12,5

7,2

12 10 8 6 4 2 0

Kloeckner

TSE

TKS EU*

AM

VA

EU27 Apparent Consumption Mt, annualised

020406080

100120140160180200220

-29%

Q4-14

Q3-14

Q2-14

Q1-14

Q4-13

Q3-13

Q2-13

Q1-13

Q4-12

Q3-12

Q2-12

Q1-12

Y14 Y13 Y12 Y07

3-year average Flat Long Semi

EBITDA margins Q2 2013 (% of revenue)

Two scenarios for our industry to respond to the future…

Shape the future together

Adapt Shape

• Take the industry spread dynamics as a given

• Close down marginal capacity • Continuously improve efficiency • Adapt to regulatory environment • Reduce risk exposure

• Influence the fundamentals of the industry

• Influence regulatory environment • Innovative products and services

to open up untapped markets • Develop high value steel-using

supply chains in Europe

USA China India

GDP by segment

Source: EU Industrial Structure, EU Commission 2011 Factories of the Future – 2020 Roadmap EU Factories of the Future Research Association 2012, CIA world factbook

European Manufacturing

Employs 37 million people across 2 million enterprises

Key enabler for Europe’s

Grand Societal Challenges: Employment and Poverty Innovation and Education

More absolute GDP value than

USA and India

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And the manufacturing industry will continue to play a vital role in Europe

GDP EU28: $16 trillion

GDP: $15.9 trillion GDP: $12.6 trillion GDP: $4.7 trillion

Services, 72%

Industry, 25%

Agriculture, 3%

EU28

EU28 USA China India

Services 11,52 12,72 5,67 2,68

Industry 4,00 3,02 5,67 1,22

Agriculture 0,48 0,16 1,26 0,80

Total 16 15,9 12,6 4,7

*All figures in trillion US$

Our customers will become more demanding due to long term mega trends affecting their business

Mega trends

TechnologyImpact for industry• Limited impact in short term• Growing substitution threat in

specific markets e.g. auto, construction

Suppliers - raw materialsImpact for industry• Power to remain with miners• Raw materials to remain expensive• Price volatility management essential• Mining asset valuation to remain high

RegulatoryImpact for industry• EU ETS III requires more flexible

TSE asset base• Resource nationalism increasingly

important

CompetitorsImpact for industry• Increasing comp. intensity in India• Upcoming ‘smart’/global alliances • China Inc. gradually going global

CustomersImpact for industry• Shift to green & cost/energy

effective products and solutions• More focus on joint

innovation/design

The shifting customer needs arising from this, provide opportunities for the European steel industry

• Energy efficiency • Accelerated energy

transition • Unlock & squeeze

energy sources

Energy, power, utilities

• Equipment efficiency & durability

• Stronger supplier relationships

Lifting & Excavation

• Cost of ownership • Rise of mega cities • Earthquake

resistant

Construction

• Stronger supplier relationships

• Green products & technologies

• Affordable vehicles

Automotive

Next 5 years

Timing of significant impact for industry

• Globalisation of value chain

• Unlock clean water sources & distribute

5-10 years

• Zero carbon/ energy buildings

• Globalisation of value chain

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Development of steel grades for automotive illustrate the innovative power of the European steel industry

10 Source: Metal Forming magazine

• Over the past 20 years the steel industry has developed multiple innovative steel grades for automotive customers

• These developments were driven by the need for:

o Lowered weight o Increased safety o Improved sustainability

• 1990 – 2000: the decennium of

conventional high strength steels

• 2000 – 2010: the decennium of advanced high strength steels

• What will this decennium bring?

Automotive steel grade development

Service differentiation is a focus area for building further customer intimacy and capturing value

• Services additional to “standard services” • Differentiated services aimed at building a

competitive advantage • Services should complement the existing or

future product offering and is not aimed at developing “stand alone services” for customers

Service differentiation

• Helps to better understand customers

• Improves customer intimacy

• Drives product innovations

• Relatively short lead time for implementation

• Combining the right service offering with

even a commodity product can create value.

Benefits of services differentiation

Scope of potential services is wide

But key is that the service offering complements and strengthens the product offering!

Source: BCG (The road to service excellence)

Layde

Unitol

Degels

Feijen and JV Laura

Blume

Gelsenkirchen

Blume

MultiSteel

JV Norsk Stal JV Norsk Stal Tynplater Norway

IJmuiden Port Talbot

Scunthorpe

Light Gauge Germany/Benelux

Heavy Gauge Distribution Europe

Light Gauge France and Spain

Mill Tata Steel Europe Llanwern

Steelpark Wednesfield

Tata Steel Distribution UK/I*

* after consolidation, plus one site in North Ireland

Shotton

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Network with several SSC sites in Europe Common Strategy as part of Tata Steel Europe Close collaboration in the network by sharing of

know-how for functional excellence

Acting as a network is essential to meet European wide customer requirements

Producing advanced steel products is critical for a sustainable future

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Steel not only supports the future of energy generation, but new steels make the generators themselves more efficient

Durability, efficiency and flexibility make steel the material of choice for the world’s most sustainable buildings

Steel remains the essential ingredient for sustainable vehicles and new grades make them even more efficient

To adapt or to shape…?