Steel Market Outlook AM/NS Calvert
Agenda Economic indicators Key steel consuming markets and forecasted demand Steel consumptions trends Global steel markets and raw materials Comments on trade 1
U.S. Gross Domestic Product (GDP) From 2016 Real GDP Growth vs. Prior Years 2000-2015, Forecast 2016-2017 Source: U.S. Department of Commerce; IHS November 2016 % Annual GDP Growth 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% 4.1% 2000 1.0% 2001 1.8% 2002 2.8% 2003 3.8% 2004 3.3% 2005 2.7% 2006 1.8% 2007-0.3% 2008 2009 2.5% 2010 1.6% 2011 2.2% 2012 1.7% 2013 2.4% 2.4% 2014 2015 1.5% 2016 2.2% 2017-3.0% -2.8% -4.0% 2
Gross Domestic Product (GDP) Sources: U.S. Department of Commerce; Oxford Economics Oct 2017 % Annual GDP Growth 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% 4.1% 2000 1.0% 2001 1.8% 2002 2.8% 2003 3.8% 2004 3.3% 2005 2.7% 2006 1.8% 2007-0.3% 2008 2009-2.8% 2.5% 2010 1.6% 2011 2.2% 2012 1.7% 2013 2.6% 2.6% 2014 2015 1.6% 2016 2.3% 2.6% 2017 2018-4.0% - The economy is improving in 2017 and 2018 after a weak 2016. - Primary drivers of growth will be improvement in consumer spending and business spending as business confidence has improved significantly in 2017. - Improving markets in the EU and Asia will also help USA growth. 3
Industrial Production Index (IP) from 2016 Percent Change in Index vs. Prior Years 2000-2015, Forecast 2016-2017 Source: U.S. Federal Reserve Board; base year for index 2012: November IHS forecasts. 6.0% 5.7% % Annual Growth 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% 4.0% 2000 2001-3.3% 0.2% 2002 1.3% 2003 2.3% 2004 3.2% 2005 2.2% 2.7% 2006 2007 2008-3.5% 2009 2010 3.0% 2.8% 1.9% 2013 2012 2011 3.7% 2014 1.3% 2015 2016-1.1% 1.1% 2017-8.0% -10.0% -12.0% -11.4% 4
Industrial Production Index (IP) Sources: U.S. Federal Reserve Board; Oxford Economics Oct 2017 forecast % Annual Growth 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% 4.0% 2000 2001-3.3% 0.2% 2002 1.3% 2003 2.3% 2004 3.2% 2005 2.2% 2.7% 2006 2007 2008-3.5% 2009 5.5% 2010 3.1% 2.9% 2011 2012 2.0% 2013 3.1% 2014 2015-0.7% 2016-1.2% 1.7% 2017 2.9% 2018-10.0% -12.0% -11.5% Business spending is increasing, supported by: - Improvements in business confidence - Improvements in US exports - Increased spending for labor productivity as the labor market tightens 5
Steel Consuming Markets The ArcelorMittal Orbit
Auto US Auto Sales (millions of units) 17.4 17.5 16.1 16.4 17.0 17.1 17.0 17.2 15.6 14.4 13.2 12.7 11.6 10.4 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 North American Auto Production (millions of units) 15 15.4 16.1 16.9 17.5 17.9 17.2 17.5 17.4 17.5 12.6 13.1 11.8 8.5 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Auto sales are soft because all pent up demand from the recession has been used up, both on the retail side and the fleet side of the market, interest rates are increasing, a large number of good used vehicles are coming off lease, the OEMs are less aggressive with incentives than expected, and there is a lack of new launches compared to previous years. The major drivers for sales now are replacement and an expanding economy. Fortunately the fleet in very old with the average vehicle on the street just over 11.5 years old. Therefore a lot of replacement is needed. Low gasoline prices continue to increase demand for trucks to an extent that is surprising analysts. Truck market share finished 2016 at 62% and through June 2017 it has increased even more to 63%. Recovery in the housing market is also contributing to the strong market for trucks. 7
Construction Put-in-Place Source: FMI Construction Outlook 550 500 450 400 Residential buildings 19.0 17.0 14.0 9.0 22 20 18 16 14 12 10 500 400 300 200 Nonresidential buildings 13.0 9.0 6.0 7.0 5.0 2.0 5.0-3.0 2011 2012 2013 2014 2015 2016 2017 2018 15 10 5 0-5 350 300 250 200 0.0 5.0 6.0 4.0 billion dollars (left) % change (right) 2011 2012 2013 2014 2015 2016 2017 2018 8 6 4 2 0-2 -4 260 235 210 185 160 Nonbuilding structures 10.0 10.0 6.0 4.0-1.0 0.0-5.0-5.0 2011 2012 2013 2014 2015 2016 2017 2018 12 10 8 6 4 2 0-2 -4-6 Residential construction spending increased 5% in 2016, slower than in each of the previous four years. FMI expects growth to proceed at a similar pace in 2017 and 2018. Nonresidential building construction spending increased 6% in 2016, also slower than in recent years, and is projected by FMI to post similar-sized gains during the forecast horizon. 8 Nonbuilding construction is seen averaging 5% growth in 2017 and 2018. 8
USA Energy Market Steel Demand (millions of tons) 6 5 4 3 2 1 3.6 4.9 5.1 2.3 line pipe 3.2 3.9 4.8 4.3 4.2 4.6 2.9 [VALUE].0 3.9 9 8 7 6 5 4 3 2 1 4.9 4.6 5.2 3.2 4.7 OCTG 5.9 6.2 5.9 8.1 3.9 [VALUE].0 2.3 0 0 Preston optimistic case for 2017 was 8.2m tons Source: Preston Pipe and Tube Report, November 2017 Totals: 2014-12.3 2015-8.5 2016-5.2 2017-9.9 2018-10.0
U.S. Service Center Data: Carbon Flat Roll Shipments, Inventory, and Months-on-Hand Shipments Service Center Monthly Shipments and Inventory 2,600 Shipments Inventory 2,500 2,400 2,300 2,200 2,100 2,000 1,900 1,800 1,700 1,600 1,500 2012 2013 2014 2015 2016 2017 Inventory 6,400 6,200 6,000 5,800 5,600 5,400 5,200 5,000 4,800 4,600 4,400 4,200 3.4 3.2 Months on Hand MOH LT Average 3.0 2.8 2.6 2.4 2.2 2.1 2.0 1.8 1.6 2012 2013 2014 2015 2016 2017
Steel markets direction in 2017 & 2018 Auto Residential Construction Non-residential Construction Machinery Appliance Infrastructure Auto growth is in Mexico in 2018. USA market is flat. Non-res construction will add about 500k in 2018. After being negative in 2015 and 2016 energy activity will see positive demand in 2017 & 2018. Steel inventories started 2017 at low levels, are rebuilding this year, and will continue to rebuild in 2018. Energy Steel Inventories Source: AMUSA analysis
USA apparent steel consumption Short tons (in millions) % change 2013 106 1% 2014 118 12%* 2015 106-11% 2016 101-5% 2017 106 5% 2018 109 3% *About 3 million tons of the 2014 increase was an inventory overbuild due to a late year surge in imports.
Steel consumption trends AM/NS Calvert
Weekly US raw steel production Capacity utilization 100% 95% 90% As of 11/11/17 74.6% 85% 80% 75% 70% 65% 60% 55% 50% 45% 40% Weekly Utilization 2010 2011 2012 2013 2014 2015 2016 2017 Source: American Iron & Steel Institute
Average Daily Shipment Rate: Y/Y % Change Flat Roll Plate Pipe & Tube 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% Jan 2012 Apr Jul Oct Jan 2013 Apr Jul Oct Jan 2014 Apr Jul Oct Jan 2015 Apr Jul Oct Jan 2016 Apr Jul Oct Jan 2017 Apr Jul Shipments Flat Roll Plate Pipe & Tube Jan-Sep 2016 19,530 2,494 1,781 Jan-Sep 2017 19,896 2,632 1,687 Diff: Tons 366 137-94 Diff: % 2% 6% -5%
U.S. Flat Roll Imports and Import % of ASC (Carbon Only) Imports (short tons) Import Share of ASC Import % of ASC 30% 25% 20% 15% 10% 5% 0% Annual Average (Import % of ASC) 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 2013 Jan Feb Mar Apr May Jun Jul Aug Oct Sep 2014 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2015 Jan Feb Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Apr May Sep Total Monthly Imports (1000s of s.tons) Nov Dec Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2016 Jan 2017 Jan Feb Mar Jun Jul Aug Year 2013 2014 2015 2016 2017 YTD (Sept) Average Import % of ASC 14% 21% 21% 18% 18%
Steel Production and Apparent Demand Source: AISI, U.S. Department of Commerce Million Net Tons 26 25 24 23 22 21 20 19 18 Domestic Shipments 24.9 25.3 24.1 22.0 22.0 22.2 22.7 22.6 22.8 23.0 21.8 21.5 20.7 20.4 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 50% 40% 30% 20% 10% 0% -10% -20% Q/Q % increase Million Net Tons 12 11 10 9 8 7 6 5 4 3 2 1-8.4 8.7 9.3 9.7 8.2 7.3 Finished Imports 6.3 6.4 7.0 6.4 6.5 6.9 8.1 7.9 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 50% 40% 30% 20% 10% 0% Q/Q % increase -10% -20% 2014 2015 2016 2017 2014 2015 2016 2017 Million Net Tons 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Exports 3.2 3.1 2.9 2.7 2.6 2.5 2.2 2.3 2.6 2.8 2.6 2.4 2.3 2.2 2nd3rd4th 1st2nd3rd4th 1st2nd3rd4th 1st2nd3rd 2014 2015 2016 2017 50% 40% 30% 20% 10% 0% -10% -20% Q/Q % increase Million Net Tons 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Apparent Consumption (ASU) 29.7 30.5 30.1 28.4 27.1 26.5 23.9 25.0 26.1 25.7 26.4 27.6 27.7 24.5 2nd3rd4th1st2nd3rd4th1st2nd3rd4th1st2nd3rd 2014 2015 2016 2017 17 50% 40% 30% 20% 10% 0% -10% -20% Q/Q % increase
USA Apparent Steel Consumption million of short tons 140 120 100 80 60 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Drop in ASC in select recessions 1953 22% 1957 22% 1973 23% 1981 27% 2009 41% Source: AISI, AM Marketing
Manufacturing and Indirect Steel Trade Deficits Sources: U.S. Census (manufacturing trade deficit in $ billions); AISI (indirect steel trade deficit in net tons) $ Billion Net Annual Trade $0 -$100 -$200 -$300 -$400 -$500 -$600 -$700 -$800 -$900 -$1,000 U.S. Manufacturing Trade Deficit Source: U.S. Census *2017 annualized based on data through July 50% 48% 51% 50% 49% 46% 45% 43% 2010 2011 2012 2013 2014 2015 2016 2017 ROW (300) (348) (337) (339) (389) (446) (476) (511) China (298) (325) (349) (341) (374) (387) (392) (377) The U.S. manufacturing trade deficit is projected at $868 billion in 2017 (based on 7 months of data annualized), a increase of $2 billion from 2016. The U.S. indirect steel trade deficit posted another sizable increase in 2016, climbing to 23.9 million net tons from 21.4 million net tons in 2015. In 2016, China accounted for well over one-third (35.6%) of the total U.S. indirect steel trade deficit. Indirect Steel Deficit Million Net Tons 0-5 -10-15 -20-25 -30 U.S. Indirect Steel Trade Deficit Source: AISI 53% 47% 47% 47% 42% 38% 36% 2010 2011 2012 2013 2014 2015 2016 ROW -6.2-7.1 (8.0) -8.2-10.6-13.2-15.4 China -5.7-6.3-7.0-7.2-7.7-8.2-8.5 19
Global Market Outlook & Raw Materials AM/NS Calvert
Global Steel Demand WSA - Global Apparent Steel Consumption million metric tons ASC ASC % Change Y/Y % Change Y/Y WSA - Global ASC Growth Forecast by Region % Change Y/Y 2017f 2018f 2,300 2,200 2,100 2,000 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 2006 1,139 9.2% 2007 1,218 2008 1,226 0.7% -6.1% 2009 1,151 1,308 13.7% 2010 2011 1,412 7.9% 2012 1,439 1.9% 2013 1,528 6.2% 2014 1,540 0.7% -2.6% 2015 1,500 2016f 1,516 1.1% 7.0% 2017f 1,622 2018f 1,648 1.6% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% NAFTA EU28 CIS C&S America* China Global 4.9% 2.5% 3.6% 2.5% 12.4% 7.0% 1.2% 1.4% 3.8% 4.7% 0.0% 1.6% * Central and South America Source: World Steel Association Short Range Outlook (Oct 2017)
Steelmaking Raw Material Input Costs 2014-2016 Averages and 2017 YTD All charts in $ per metric ton except for Scrap #1 Busheling Midwest Scrap ($/GT) Iron Ore 62% Delivered to China Premium Hard Coking Coal FOB DBCT* $395 $350 $333 $239 $236 $182 $184 $141 $97 $56 $58 $71 $62 $117 $90 2014 2015 2016 2017 YTD Oct 17 2014 2015 2016 2017 YTD Oct 17 2014 2015 2016 2017 YTD Oct 17 Source: MBR 22
Coking Coal MBR Jan 2014 2017 YTD Coking Coal Price Premium Hard Coking Coal $/tonne FOB DBCT $350 HCC 2017 Average $300 301 $250 234 262 258 $200 $150 194 186 161 155 175 145 165 197 203 116 $100 76 74 79 93 91 91 96 $50 Source: MBR Jan- 16 Feb- 16 Mar- 16 Apr- 16 May- 16 Jun- 16 Jul- 16 Aug- 16 Sep- 16 Oct- 16 Nov- 16 Dec- 16 Aug- Sep- 17 17 23 Jan- 17 Feb- 17 Mar- 17 Apr- 17 May- 17 Jun- 17 Jul- 17
Summary In 2017 and 2018 steel markets will expand after 2 years of contracting Energy is a major contributor of the improvement Consumer confidence and business confidence are surging since the election Markets are anticipating the administration s policies will continue support a strong revival of industrial markets 2016 decisions on trade will continue to limit the impact of imports...but Raw materials will remain volatile for the next several years Unlike the last few years the risk is more to the upside than the down side 24
Trade 232 TPP NAFTA 25