Source: Eurostat, EUROFER Economic Committee

Market Situation in Europe and Competitiveness Issues

Platts - European Steel Summit

London, 23rd May 2013

Gordon Moffat, Directeur General

EUROFER

EU economy: uncertainty is the name of the game

EU not out of the woods yet

• Eurozone deeper in recession in Q4-2012

• Indicators lost ground in March-April

• Widening gap Germany vs. the rest

• Worrying signals from labour market

• Financial markets keep their calm

• Loose ECB policy – but credit remains tight

• Drag from austerity, uncertainty, financing

• Only support from exports

• Near-stagnation still plausible in 2013

• Turnaround hinges on sentiment & credit

Source: Eurostat, EUROFER Economic Committee Macro-economic Outlook

Source: European Commission, EUROFER

2014: mild recovery

• Global recovery + less risk aversion financial sector

• Exports remain lifeline EU economy

• Moderate rebound investment & private consumption

• Uncertainties will remain

• GDP growth 1.3% in 2014

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Indicators going south again – a blip or something more serious?

Source: Eurostat, EUROFER Economic Committee

Source: European Commission, IFO, Markit

Macro-economic Outlook

Manufacturing PMI France

3

EU steel-using sectors’ resilience put to the test by difficult market conditions

Source: Haver Analytics

• Weak start Q1-2013

• Uncertainty and financing key issues

• Strong exposure to weak domestic

market

• Depletion order books

• First signs improvement late 2013

owing to 3rd country exports

• Total drop activity 2013: -1.5%

• All sectors register positive growth in

2014

Source: EUROFER, Q2-2013 Outlook

Steel-using Sectors 4

Construction: more weakness ahead

Q1-2013 output fell 5% Long duration of winter conditions

Continued impact of austerity, financing strains and economic uncertainty

All sectors affected

Large country differentials remain in Q1

Sharp contraction in Spain and Poland

Stability in smaller countries in Northern Europe

Slump to continue in 2013

Construction investment to slip further

Availability project funding is key issue

Pipeline of projects running low or dried up

SMEs in trouble; defaults rising

Larger groups are fleeing Europe

2014: mild rebound Improving economic and financial conditions

Construction investment seen rising

Plenty of projects waiting for funding

Construction activity to rise 1% in 2014

Source: EUROFER Q2-2013 Outlook

5 Construction Sector

Automotive: economic woes drive down demand across the EU

Q1’13 passenger car sales -9.8%

Sharp slump extended into Q1, spreading from south to north - only UK positive growth

Hyundai, Kia and JLR strength continued

Q1’13 commercial vehicle sales -11% y/y

Support of export demand fading German car exports Q1-2013 -9% y/y

Reflects weak EU market rather than demand 3rd countries – USA, Asia and Russia robust

Output Q1-2013 fell approx. 7.5% y/y Strong divergence at the country level Sales seen slowing down further in 2013

Consumer retrenchment due to rising taxes and unemployment, tight credit

Fleet renewal preceding years

Fierce competition in mass segment

Also slump in CV demand to continue

Exports provide some relief

Total output -3.5 to -4%

2014: moderate recovery In line with broader economy

Output +2.5%

Source: EUROFER Q2-2013 Outlook

6 End-User Sectors

Steel Market: moving towards late 2013 low-level stabilisation

Source: EUROFER

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2013-Q1 apparent consumption -7.5%

6% drop real steel consumption

Less stock replenishment than in 2012

Sharp rise in imports: China key factor

EU suppliers lose market share

Steel Market Outlook

2014 steel consumption to remain

still 15% below 2005 level

2013: no repeat of 2012 stock pattern

Q2 demand to remain weak

Stocks kept as low as possible

H2 will not see similar destocking as in 2012

Demand to stabilise in Q4

Imports remain reason for concern

2013 RSC -3% and ASC -2%

2014 should see moderate rebound

Cautious recovery steel-using sectors

Real consumption to rise 1%

Some restocking during H1-2014 as activity picks up

Increase apparent consumption 3%

EU Apparent

Consumption in million tonnes per

annum

2007 201

2008 185

2009 121

2010 148

2011 157

2012 142

2013 (f) 139

2014 (f) 144

•EU: continuation of tough economic conditions

• Domestic demand to remain weak

• Only exports supportive to growth – Euro?

• Zero-growth GDP 2013, cautious recovery 2014

• Outlook US & emerging countries improving

• Global economy on track for mid-year recovery

• Risks appear more balanced

• Steel users resilience tested during 2013

• Business climate to improve in 2014

• EU steel market: depressed outlook 2013

Evidence of technical restocking in early 2013

EU market lacks positive demand-side impulses

Destocking in H2, but less pronounced than in 2012

Tentative signs of improvement late 2013

Imports to remain low, but no further drop

Mild recovery EU steel market in 2014

Risks: prolonged real demand weakness, supply-side disruptions via imports, stronger Euro, continued margin pressure

Key Messages

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Communication on Industrial Policy 2010 Communication on Competitiveness 2012

Ambition of the Commissioner for Industry:

- halt the decline in industry’s share in GDP and restore it to 20%

Manufacturing industry in Europe represents:

• 75% of European exports

• 80% of all private R&D

• 25% of all private sector jobs

The Communications enshrine the following conditions for

existing and new EU regulations:

• Competitiveness proofing

• Fitness tests (costs and effectiveness)

• Impact assessments

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High Level Round table on the Future of the Steel Indudustry

Recommendations

Demand-side measures and employment policy • Support for construction + automotive sectors • Measures to soften social impact of restructuring

Trade + Raw Materials • must aim to support EU manufacturing base. • Industrial trade interests must be pursued robustly

Climate Policy • Call for reflection on policy design • Correctly points out that industry cannot reduce emissions further

without new technologies

Energy: calls for • Completion of the single market in energy • Improvement in cost-efficiency of support for renewables • Support for complementary energy sources (shale) • Exemptions for industry from renewables and green levies • Long term contracts

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Source: OECD, December 2012

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Only developed steel markets signed up to WTO zeroing of steel import

tariffs…import tariff protection remaining for

emerging steel industries

* Major developed steel regions including EU, USA, Canada, Japan, South Korea, Taiwan

% world production with

zero tariffs

% world production with zero tariffs has

halved

60%

46%37%

29%

0%

20%

40%

60%

80%

100%

1994 2004 2008 2009

Steel market protectionism proliferating

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ETS: Results of Implementation contrary to the political

understanding made with the member states

Benchmarks

The adopted benchmark values differ substantially from those proposed by

EUROFER due to the refusal of the Commission to assign all the carbon in

recovered waste gases to the steel producer benchmark (the proportion used for

power generation has been excluded).

Result: → Even the best performers will be short 8,5%

→ The sector as a whole will be short over 23%

Total cost to industry €11bln

Cross-Sectoral adjustment Factor

Could reduce the benchmarks by a further 2-3%.

Cost = €1bln

Electricity Compensation:

Electricity prices estimated to increase by 30% 2013-2020.

Compensation will be limited, covering only marginal increases.

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The Commission Low Carbon Roadmap 2050

In October 2009, the Council endorsed a long-term target of reducing

collective greenhouse gas emissions by 80-95% by 2050 compared to

1990 levels

Main EUROFER objections to the roadmap are:

• Very questionable economic modelling

• The targets are not technology-led. Only CCS is explicitly mentioned,

the Commission assumes other technologies will “appear” as necessary.

• The targets are unilateral.

• Confiscation of free allowances (600-800 Mio).

• No account of the situation of individual industries and no provision

for economic growth.

• ETS sectors would have to reduce by 29% in 2020, by 45% in 2030,

by 65% in 2040 and 87% in 2050.

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