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TRANSCRIPT
Steel Market Outlook
AM/NS Calvert
Topics for Discussion
• ArcelorMittal Overview
• Key Economic Indicators
• Key Steel Consuming Markets
• Steel Consumption Trends
• Global Steel Outlook
• Questions
8/22/20161
The world’s leading steel and mining company
• ArcelorMittal is the world's leading steel and mining company, with around 222,000 employees in more than 60 countries. ArcelorMittal is the leader in all major global steel markets, including automotive, construction, household appliances and packaging, with leading R&D and technology, as well as sizeable captive supplies of raw materials and outstanding distribution networks.
• An industrial presence in 19 countries exposes the company to all major markets, from emerging to mature.
• ArcelorMittal values geographical breadth, product diversity and raw materials security. Around 38% of our steel is produced in the Americas, 47% in Europe and 15% in other countries such as Kazakhstan, South Africa and Ukraine.
Underpinning all our operations is a philosophy to produce safe, sustainable steel2
Top Steel-Producing Companies (2015)millions of metric tons
18.8
19.6
20.4
21.6
25.7
26.3
28.5
29.8
32.5
34.2
34.9
41.9
46.4
47.7
97.1
0 20 40 60 80 100 120
Maanshan
Nucor
Hyundai
Shandong
Wuhan
Tata Steel
Shougang
JFE Steel
Ansteel
Shagang
Baosteel
POSCO
Nippon/Sumitomo
Hesteel
ArcelorMittal
3
* Includes share of production
ArcelorMittal Mining – portfolio
Key assets and projects
USA Iron Ore
Mexico Iron Ore
LiberiaIron Ore 85%
Brazil Iron Ore
Canada AMMC 85%
Bosnia Iron Ore
51%
USA Coal
Ukraine Iron Ore95.13%
Kazakhstan Coal
Kazakhstan Iron Ore
Iron ore mine
Coal mine
CanadaBaffinland 50%
4
Geographically diversified mining assets
5
2015 R&D spend of $227m (~1/3 for automotive sector)
• Over 1,300 full time researchers
• Working on all process and development needs
• Expanding worldwide network of laboratories (currently 12 labs in Europe, North America, and South America)
• Key challenges fully aligned with the group strategy: geography, value chain, product differentiation
58% Product
36%Process
6%
Exploratory
General industry10%
Construction
Plates and specialities13%
10%
Others7%
60%Automotive
R&D budget spending by need
Global R&D key facts and figures
8/22/2016 6
Strong track record of successful integration
Arbed
Aceralia
Usinor
Aristain
UCIN
Sacilor
Usinor
Ugine
Aceralia
Arbed
Belgo
Bremen
Sidmar
Velasco
Cockerill/EkoStahl
Sibalsa
Trinidad
Sidbec
Hamburg
Hochfeld
Ruhrort
Inland
Unimetal
Jones & Laughlin
Youngstown Sheet & Tube
Bethlehem
Lukens
J&L
Republic
Acme
LTV
ISG
Alfasid
Karmet
Sidex
Novahut
Hunedoara
PHS
BH Steel
Iscor
LNM
Ispat Intl
Bethlehem
Kryvorizhstal
Belgo
CST
Arcelor Brazil
Dofasco
Weirton Steel
GeorgetownKorf Group
National Steel
Hunan Valin
Acindar
Acesita SonasidHuta Warsawa
The ArcelorM
ittal Orbit
Economic indicators
8
U.S. Gross Domestic Product (GDP)Real GDP Growth vs. Prior Years 2000-2015, Forecast 2016-2017Source: U.S. Department of Commerce; June 2016 Blue Chip for 2016-2017 forecasts.
4.1%
1.0%1.8%
2.8%
3.8%3.3%
2.7%1.8%
-0.3%
-2.8%
2.5%
1.6%2.2%
1.7%2.4%2.4%
1.9%2.3%
-4.0%-3.0%-2.0%-1.0%0.0%1.0%2.0%3.0%4.0%5.0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017%
Ann
ual G
DP
Gro
wth
Real GDP growth has fallen below 2% in each of the last three quarters, measuring 0.9% in Q415, 0.8% in 1Q16 and 1.2% in 2Q16 (advance estimate). Growth in PCE climbed to 4.2% in 2Q16 from 1.6% in 1Q16, while nonresidential fixed investment growth was negative for the 3rd consecutive quarter as investment fell in nonresidential structures (-7.9%) and equipment (-3.5%).
The June 2016 Blue Chip consensus 2016 full year GDP growth is forecast at 1.9%, close to the average rate seen in the U.S. economy for the past several years. Consumer spending is expected to drive much of the growth, with job gains expected to continue and the unemployment rate to improve.
2017 full year GDP growth is forecast at 2.3% with growth driven largely by the same sectors as in 2016, though nonresidential fixed investment and industrial production are expected to make larger contributions, improving upon their 2016 softness.
8
9
Industrial Production Index (IP)Percent Change in Index vs. Prior Years 2000-2015, Forecast 2016-2017Source: U.S. Federal Reserve Board; base year for index 2012: June 2016 Blue Chip for 2016-2017 forecasts.
4.0%
-3.3%
0.2%1.3%
2.3%3.2%
2.2%2.7%
-3.5%
-11.4%
5.7%
3.0%2.8%1.9%
3.7%
1.3%
-0.5%
2.3%
-12.0%-10.0%
-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017%
Ann
ual G
row
th
IP declined by 1.0% in 2Q16, following a 1.8% drop in 1Q16. Mining (which includes crude oil and natural gas production) declined significantly (-15.9%) during the period. Manufacturing output (NAICS basis) fell 0.8%.
The 2016 forecast for IP is -0.5% as the mining sector will decline further, offsetting marginal gains posted in manufacturing. Weak global conditions and prior appreciation of the U.S. dollar will limit exports.
IP is seen returning to growth in 2017 at 2.3% as headwinds slowly dissipate for the manufacturing and upstream energy sectors.
9
The ArcelorM
ittal Orbit
Key steel markets
11
Automotive
• Pent-up demand from the recession is exhausted on the retail side of the market. Replacement is now the biggest driver of retail sales.
• The average age of vehicles on the road is now over 11.5 years. The fleet is old and needs to be replaced.
• There is still some pent up demand left on the fleet side of the market. Fleet sales are now increasing as a percent of total sales.
• As the housing market improves demand for pickup trucks is improving.
• Low gasoline prices are also increasing demand for trucks.
• Trucks achieved record market share in 2015 at 57%. Through 2016 trucks are running at 61% market share.
• Although the rate of increase will slow as long as demographics & economics remain positive sales will continue to increase, unless there is a change in lifestyle and behavior. There is no peak in sales until we go into a recession.
Source: LMC & AM USA Marketing
15
12.6
8.5
11.813.1
15.4 16.1 16.9 17.5 17.9 18.1 18.3
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
North America Auto Production(millions of units)
16.1
13.2
10.411.6
12.714.4
15.6 16.417.4 17.4 17.7 17.9 18.1
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
US Auto Sales (millions of units)
Building constructionSome growth in private construction
• Economic conditions continue to support steady improvement in 2016, but not robust recovery.
• The residential construction recovery that began in 2012 should continue its momentum in 2016 & 2017 prompted by improving labor markets, demographics, affordability, and mortgage availability. Homeownership rates remain historically low; however, growth in multifamily construction is expected to slow in 2016.
• The non-residential construction sector weakened in 2015, however market fundamentals suggest return to modest growth across both commercial and institutional sectors in 2016 & 2017.
• Growth in the residential sector should continue to provide a catalyst for growth in several nonresidential segments in 2016 & 2017.
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Squa
re fo
otag
e (0
00)
Residential (1 & 2 family dwellings)Non-Residential
* Non-building structures (e.g. infrastructure) not included
12Source: McGraw-Hill (Dodge)*
1,500
1,600
1,700
1,800
1,900
2,000
2,100
2,200
2,300
2,400
2,500
2,600
4,500
5,000
5,500
6,000
6,500
4,768
201620152014201320122011
2,328
4,754
InventoryShipments
Service Center Monthly Shipments and Inventory
2.0
2.4
1.8
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
201620152014201320122011
10-Year AverageMOH
Months on Hand
U.S. Service Center Data: Carbon Flat Roll Shipments, Inventory, and Months-on-Hand: Source: MSCI
Shipments Inventory
Steel markets direction in 2017
Auto
Residential Construction
Non-residential Construction
Machinery
Appliance
Infrastructure
Energy
Steel Inventories
Source: AMUSA analysis
• There is no expectation that we will see robust growth any time soon. Steel markets are still slowly recovering from the recession.
• Auto growth is in Mexico in 2017. USA market is flat.
• Non-res construction will add about 1 million tons of demand in 2016.
• Energy activity will continue to be soft but recovers off the bottom in 2017.
• Steel inventories will add some demand in 2016 but will end low in 2016 and will be rebuilt in 2017.
USA apparent steel consumption
Short tons (in millions)
% change
2013 106 1%
2014 118 12%*
2015 106 -11%
2016 105 -1%
2017 108 3%
*About 3 million tons of the 2014 increase was an inventory overbuild due to a late year surge in imports.
The ArcelorM
ittal Orbit
Steel consumption trends and global markets
Weekly US raw steel production Capacity utilization
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
201520142013201220112010
Weekly Utilization
Source: American Iron & Steel Institute
As of 8/13/2016:72.1%
USA Apparent Steel Consumptionmillion of short tons
0
20
40
60
80
100
120
140
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
8/22/2016
1953 – 22%1957 – 22%1973 – 23%1981 – 27%2009 – 41%
Drop in ASC in select recessions
Source: AISI, AM Marketing
USA imports and shipments
19
6.4 6.0 7.2
8.4 8.7 9.3 9.7 8.2 7.3
6.3 6.4 6.2
-20%
-10%
0%
10%
20%
30%
40%
50%
-
2
4
6
8
10
12
3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd
2013 2014 2015 2016
Q-Y
-Q %
incr
ease
Mill
ion
net t
ons
Finished imports
24.5 23.6 23.9
24.9 25.3
23.8
22.0 22.0 22.2
20.1
21.5
23.0
-20%
-10%
0%
10%
20%
30%
40%
50%
18 19 20 21 22 23 24 25 26
3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd
2013 2014 2015 2016
Domestic shipments
Imports market share
2015 & 2016Q1 - 34%Q2 - 30%Q3 - 27%Q4 - 26%Q1 – 25%Q2 – 23%
Source: American Iron & Steel Institute
Trade Cases
20
Global steel consumption
21Source: World Steel Association – Short Range Outlook (April 2016)
1,4941,4881,500
1,5431,532
1,4421,416
1,312
1,1521,2291,225
1,139
0.4%-0.8%
6.2%
1.9%
13.9%
-6.3%
9.2%
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
2,100
2,200
2,300
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2017
F
% Change Y/YASC
2016
F
2015
-2.8%
2014
0.7%
2013
2012
2011
7.9%
2010
2009
2008
0.3%
2007
2006
% Change Y/YASC
WSA - Global Apparent Steel Consumption million metric tons
WSA - Global ASC Growth Forecast by Region % Change Y/Y
2016F
Global -0.8%
China -4.0%
C&S America* -6.0%
CIS -7.4%
EU28 1.4%
NAFTA 3.2%
1.7%
0.4%
4.6%
2017F
3.2%
-3.0%
2.6%
* Central and South America
22
Summary
• Industrial markets continue to be soft but should improve in 2017
• Auto continues to be strong but is nearing its peak
• Housing and construction remain solid
• Energy market will increase after contracting for a few years
• Trade issues will continue to evolve
23
Contact ArcelorMittal USA
usa.arcelormittal.com
@ArcelorMittalUS
@ArcelorMittalUSA
ArcelorMittal USA
Questions?