steelnado ending, charleston, nov 2015

Steelnado Ending -Will Reduced Imports Save

the Day for 2016?Presentation to:

AIST SE Chapter Annual MeetingCharleston, SC

by: Becky E. Hites, PresidentNovember 17, 2015

Steel Imports into the USA Have Dropped Back to 2013 Levels

2

25

30

35

40

45

50

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep-

13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep-

14

Nov

-14

Jan-

15

Mar

-15

May

-15

Jul-1

5

Sep-

15

Mill

ion

Net

Ton

s

USA Monthly Steel Imports Annualized Rate

Source: AISI

And, Yet, Prices Continue to FallUSA Hot-Rolled Band Prices at $320 Per Ton;

Global Prices Have Dropped Below $400 Per Metric Tonne

3

0

200

400

600

800

1,000

1,200

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

$ pe

r Met

ric T

onne

World Export and USA Hot-Rolled Band Spot Prices

World HRB Price, FOB the port of export

USA HRB Spot Price

Source: WSD's SteelBenchmarker & Steel-Insights, LLC estimates

Steel Scrap Prices Are Down 54% For the Year, or $170 Per Ton at $145 Per Ton - Still Well Above The Historic Average

4

0

100

200

300

400

500

600

Jan-

69

Jan-

71

Jan-

73

Jan-

75

Jan-

77

Jan-

79

Jan-

81

Jan-

83

Jan-

85

Jan-

87

Jan-

89

Jan-

91

Jan-

93

Jan-

95

Jan-

97

Jan-

99

Jan-

01

Jan-

03

Jan-

05

Jan-

07

Jan-

09

Jan-

11

Jan-

13

Jan-

15

$ pe

r Gro

ss T

on

USA #1 Heavy Melt Scrap Spot Price

Source: AMM, WSD's SteelBenchmarker & Marley's Heavy Melt, Shredded Power

Metal Margin of Hot-Rolled Band to Scrap Has Contracted Back to the $250 Per Ton Range

5

0

100

200

300

400

500

600

700

800

Jan-

74

Jan-

76

Jan-

78

Jan-

80

Jan-

82

Jan-

84

Jan-

86

Jan-

88

Jan-

90

Jan-

92

Jan-

94

Jan-

96

Jan-

98

Jan-

00

Jan-

02

Jan-

04

Jan-

06

Jan-

08

Jan-

10

Jan-

12

Jan-

14

$ pe

r Net

Ton

Metal Margin: Spread USA Hot-Rolled Band versus #1 Heavy Melt Scrap Prices

Source: WSD's SteelBenchmarker & Steel-Insights, LLC estimates

Integrated Raw Material Costs Also in a Pretty Steep Decline Due to the Correction in the Commodity Cycle

6

150

200

250

300

350

400

450

500

550

600

Jan-

09M

ar-0

9M

ay-0

9Ju

l-09

Sep-

09N

ov-0

9Ja

n-10

Mar

-10

May

-10

Jul-1

0Se

p-10

Nov

-10

Jan-

11M

ar-1

1M

ay-1

1Ju

l-11

Sep-

11N

ov-1

1Ja

n-12

Mar

-12

May

-12

Jul-1

2Se

p-12

Nov

-12

Jan-

13M

ar-1

3M

ay-1

3Ju

l-13

Sep-

13N

ov-1

3Ja

n-14

Mar

-14

May

-14

Jul-1

4Se

p-14

Nov

-14

Jan-

15M

ar-1

5M

ay-1

5Ju

l-15

Sep-

15N

ov-1

5

$ pe

r Met

ric T

onne

Cost of BF/BOF Metallics - Iron Ore/.62 + Coal x (1.5*0.50)+50

Source: Vale, The Steel Index, Steel Market Update & Steel-Insights, LLC analysis

How Does the Commodity Cycle Work?Global GDP in Sync in 2003/2004 and 2011

7

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014World 38.6 43.5 47.0 51.0 57.5 63.0 59.7 65.5 72.6 74.0 76.1 77.9 North America 12.4 13.3 14.3 15.2 15.9 16.3 15.8 16.6 17.3 18.0 18.6 19.2 European Union 11.9 13.7 14.3 15.3 17.7 19.0 17.0 16.9 18.3 17.2 18.0 18.5 East Asia & Pacific (all income levels) less China 6.8 7.5 7.8 8.0 8.5 9.3 9.2 10.6 11.7 12.1 11.3 11.1 China 1.6 1.9 2.3 2.7 3.5 4.6 5.1 6.0 7.5 8.5 9.5 10.4 Latin America & Caribbean (all income levels) 2.0 2.4 2.9 3.4 4.0 4.6 4.3 5.4 6.1 6.1 6.3 6.3 Europe & Central Asia (all income levels) 1.5 1.9 2.3 2.7 3.4 4.1 3.3 3.9 4.6 4.8 5.0 4.7 MENA 1.1 1.2 1.5 1.8 2.1 2.6 2.3 2.7 3.3 3.5 3.6 3.5 South Asia 0.8 0.9 1.1 1.2 1.5 1.6 1.7 2.1 2.3 2.3 2.4 2.6 Other 0.5 0.6 0.7 0.8 0.9 1.0 1.0 1.3 1.5 1.5 1.6 1.7 Arab World 0.8 1.0 1.2 1.4 1.6 2.1 1.8 2.1 2.5 2.7 2.8 2.9

Growth RatesWorld 12.3% 12.6% 8.2% 8.4% 12.7% 9.6% -5.2% 9.7% 10.8% 2.0% 2.8% 2.3%North America 5.7% 7.2% 7.3% 6.4% 5.1% 2.0% -2.9% 5.0% 4.4% 4.0% 3.4% 3.2%European Union 21.9% 15.5% 4.6% 6.7% 15.6% 7.6% -10.6% -0.4% 8.1% -5.9% 4.2% 2.8%East Asia & Pacific (all income levels) less China 9.3% 10.8% 3.8% 2.1% 6.3% 9.5% -1.0% 15.1% 11.0% 3.3% -6.7% -2.3%China 12.9% 17.7% 16.8% 20.3% 29.1% 29.4% 11.0% 19.4% 24.1% 12.9% 12.2% 9.2%Latin America & Caribbean (all income levels) 2.9% 16.2% 21.1% 17.4% 18.1% 16.2% -6.0% 23.7% 13.3% 0.6% 2.2% 0.6%Europe & Central Asia (all income levels) 22.2% 25.0% 20.2% 18.0% 24.1% 21.3% -18.7% 17.5% 18.8% 3.2% 4.3% -6.2%MENA 12.1% 16.3% 20.3% 18.2% 18.0% 24.8% -10.7% 16.3% 21.2% 7.3% 1.8% -1.9%South Asia 16.7% 16.0% 14.6% 14.3% 26.7% 1.7% 9.9% 22.2% 9.2% 0.6% 2.7% 10.7%Arab World 12.9% 17.3% 23.0% 18.6% 16.9% 26.9% -13.5% 17.0% 18.7% 10.3% 3.6% 0.4%

Source: The World Bank

GDP by Region($ in Trillions)

Known as the K-Wave In Economic TheoryBig Push to Add New Commodity Supply Followed by Price

Plummets When Supply Finally Catches Demand

8

Commodities Have a Non-Linear Supply Curve

• Classic economic theory quite accurately predicts that as prices rise with increased demand, supply will be developed to meet that demand.

• Regarding many, if not all, of the raw materials supplying the steel industry and basic industry in general, additional new supply is not linear, but rather choppy in that it takes a period of years to identify the new resource to be developed, obtain the required environmental licenses, establish funding and then develop the mine.

9

Demand Goes Undersupplied, And Prices Rise

• Thus, the demand goes undersupplied for an extended period until supply catches up.

• And often then supply exceeds demand, pushing the cycle into the over-supply phase.

• Where marginal projects that should not have been completed, but were caught up in the exuberance of the shortage, now get terminated.

10

When Demand Drops, Prices Drop Sharply As Too Many Tonnes Chase Too Little Demand

Rebar Blended Export Rebar Home Billet Export SpreadExport HM Metal Home Metal Import Metal Billet

Market Scrap Margin Market Margin CFR Margin to Scrap

2005 403 503 2006 490 637 2007 577 684 2008 924 419 505 945 440 426 498 7 2009 467 251 216 622 407 276 191 25 2010 582 345 237 716 479 383 199 38 2011 693 423 269 832 562 458 235 35 2012 635 385 250 776 526 411 225 26 2013 595 351 243 728 485 380 214 29 2014 565 340 225 672 446 360 205 20 2015e 413 218 195 521 327 209 203 (9)

Sep-15 345 219 126 490 364 208 137 (11)

Source: SBB Platts, Market Sources & Steel-Insights, LLC estimates

Turkey Rebar Price Scrap Margin Table($ per Metric Tonne)

11

Not All Products Impacted Equally - Nucor Corporation Price & Metal Margin Analysis For Sheet & Bar Products

12

550

600

650

700

750

800

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

Q3

2014

Q4

2014

Q1

2015

Q2

2015

Q3

2015

$ pe

r N

et T

on

Nucor Sheet Average Sales Price

Source: Company Reports

TTMMA

275

295

315

335

355

375

395

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

Q3

2014

Q4

2014

Q1

2015

Q2

2015

Q3

2015

$ pe

r N

et T

on

Nucor Sheet Metal Margin


TTMMA

600

650

700

750

800

850

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

Q3

2014

Q4

2014

Q1

2015

Q2

2015

Q3

2015

$ pe

r N

et T

on

Nucor Bar Average Sales Price


TTMMA

325

335

345

355

365

375

385

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

Q3

2014

Q4

2014

Q1

2015

Q2

2015

Q3

2015

$ pe

r N

et T

on

Nucor Bar Metal Margin


TTMMA

Nucor Corporation Price & Metal Margin Analysis For Structural & Plate Products

13

850

900

950

1,000

1,050

1,100Q

1 20

12

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

Q3

2014

Q4

2014

Q1

2015

Q2

2015

Q3

2015

$ pe

r N

et T

on

Nucor Structural Average Sales Price


TTMMA

400

450

500

550

600

650

700

750

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

Q3

2014

Q4

2014

Q1

2015

Q2

2015

Q3

2015

$ pe

r N

et T

on

Nucor Structural Metal Margin


TTMMA

600

650

700

750

800

850

900

950

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

Q3

2014

Q4

2014

Q1

2015

Q2

2015

Q3

2015

$ pe

r N

et T

on

Nucor Plate Average Sales Price


TTMMA

375

395

415

435

455

475

495

515

535

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

Q3

2014

Q4

2014

Q1

2015

Q2

2015

Q3

2015

$ pe

r N

et T

on

Nucor Plate Metal Margin


TTMMA

Three of the Top 10 Economies – Japan, Brazil and Russia - Were Down in 2014

14

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014United States 11.5 12.3 13.1 13.9 14.5 14.7 14.4 15.0 15.5 16.2 16.8 17.4 China 1.6 1.9 2.3 2.7 3.5 4.6 5.1 6.0 7.5 8.5 9.5 10.4 Japan 4.3 4.7 4.6 4.4 4.4 4.8 5.0 5.5 5.9 6.0 4.9 4.6 Germany 2.5 2.8 2.9 3.0 3.4 3.7 3.4 3.4 3.8 3.5 3.7 3.9 United Kingdom 1.9 2.3 2.4 2.6 3.0 2.8 2.3 2.4 2.6 2.6 2.7 2.9 France 1.8 2.1 2.2 2.3 2.7 2.9 2.7 2.6 2.9 2.7 2.8 2.8 Brazil 0.6 0.7 0.9 1.1 1.4 1.7 1.7 2.2 2.6 2.4 2.4 2.3 Italy 1.6 1.8 1.9 1.9 2.2 2.4 2.2 2.1 2.3 2.1 2.1 2.1 India 0.6 0.7 0.8 0.9 1.2 1.2 1.4 1.7 1.8 1.8 1.9 2.1 Russian Federation 0.4 0.6 0.8 1.0 1.3 1.7 1.2 1.5 1.9 2.0 2.1 1.9 Other 11.7 13.6 15.3 17.1 19.9 22.4 20.3 23.0 25.8 26.3 27.3 27.4

Top 10 26.9 29.9 31.8 33.8 37.6 40.6 39.4 42.5 46.8 47.7 48.9 50.4 Percent of Total 70% 69% 68% 66% 65% 64% 66% 65% 64% 64% 64% 65%

Top 10 Economies Growth RatesUnited States 4.9% 6.6% 6.7% 5.8% 4.5% 1.7% -2.0% 3.8% 3.7% 4.2% 3.7% 3.9%China 12.9% 17.7% 16.8% 20.3% 29.1% 29.4% 11.0% 19.4% 24.1% 12.9% 12.2% 9.2%Japan 8.1% 8.2% -1.8% -4.7% 0.0% 11.3% 3.8% 9.1% 7.5% 0.8% -17.4% -6.5%Germany 20.5% 12.5% 1.5% 4.9% 14.6% 9.1% -8.9% 0.0% 10.0% -5.8% 5.6% 3.3%United Kingdom 16.1% 18.2% 5.0% 7.1% 14.7% -5.8% -17.3% 4.3% 7.6% 0.9% 2.4% 9.8%France 23.2% 14.9% 3.7% 5.5% 14.5% 9.8% -7.9% -1.7% 8.1% -6.3% 4.8% 0.7%Brazil 9.9% 19.8% 33.2% 24.2% 26.0% 21.4% -1.8% 32.7% 18.4% -7.7% -0.9% -1.9%Italy 23.9% 14.6% 3.0% 4.9% 13.4% 8.5% -8.6% -2.7% 7.1% -8.9% 3.0% 0.3%India 18.0% 16.7% 15.6% 13.8% 30.5% -1.2% 11.5% 25.1% 7.5% -0.2% 1.6% 11.0%Russian Federation 24.7% 37.3% 29.3% 29.6% 31.3% 27.8% -26.4% 24.7% 24.9% 5.8% 3.1% -10.5%Other 16.0% 16.5% 12.6% 12.1% 16.1% 12.7% -9.3% 12.9% 12.5% 1.9% 3.7% 0.7%

Top 10 10.8% 11.0% 6.2% 6.6% 11.0% 8.0% -2.9% 8.0% 9.9% 2.1% 2.3% 3.2%

Source: The World Bank

Top 10 GDP Economies($ in Trillions)

USA Select Macro Indicator Heat Map Pretty Positive Overall –But In Decline for the Past Three Months

15

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep OctGDPCivilian Unemployment Rate (green is down)Civilian Unemployment Rate, TTMMA (green is down)Unemployment Rate With Discouraged Workers (green is down)Unemployment Rate With Discouraged Workers, TTMMAUnemployment Insurance Claims Filed (green is down)Unemployment Insurance Claims Filed, 4 Week Moving AverageUnemployed (green is down)Unemployed, TTMMA (green is down)Total Non-Farm Payroll EmploymentTotal Non-Farm Payroll Employment, Month-to-Month ChangeWagesCPICPI, Trailing 3 Month Moving AveragePPIPPI, Trailing 3 Month Moving AveragePersonal Disposable Income Per CapitaPersonal Disposable Income Per Capita, TTMMARevolving Consumer Credit OutstandingRevolving Consumer Credit Outstanding, TTMMAMortgage DebtRetail SalesRetail Sales, TTMMAExisting Home SalesExisting Home Sales, TTMMAExisting Home Inventories (green is down)Existing Home Inventories, TTMMA (green is down)Existing Home Months Supply (green is down)New Home SalesNew Home Sales, TTMMANew Home Inventories (green is down)New Home Inventories, TTMMA (green is down)New Home Months Supply (green is down)

Positive 18 18 21 21 20 21 17 18 20 26 16 22 15 20 21 24 18 23 24 22 18Neutral 1 2 3 3 2 3 0 3 3 0 3 2 2 2 3 0 5 4 3 2 2Negative 14 13 9 9 11 9 16 12 10 7 14 9 16 11 9 8 10 6 6 9 13

% Positive 55% 55% 64% 64% 61% 64% 52% 55% 61% 79% 48% 67% 45% 61% 64% 75% 55% 70% 73% 67% 55%Partial Results

Code: red=down; green=up; grey=sideways; white=no new data yetSource: Steel-Insights, LLC analysis

Select USA Macro Economic Indicators Heat Map-Month to Month Change

2014 2015

USA Select Leading Indicators Heat Map Continues to Signal Economic Vulnerability – Only 40% of the Indicators Are Positive

16

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep OctArchitectural Billings IndexAuto Light Vehicle SalesAuto Light Vehicle Sales-TTMMAAuto ProductionAuto Production-TTMMAChicago Purchasing Managers IndexChicago Purchasing Managers Index-TTMMAConsumer Confidence, Conference Board IndexConsume Confidence-TTMMA, Conference Board IndexConsumer Sentiment, University of MichiganConsumer Sentiment-TTMMA, University of MichiganHousing StartsHousing Starts-TTMMAIndustrial Production, Seasonally Adjusted (INDPRO)Industrial Production, Manufacturing, Not-Seasonally AdjustedInterest Rates, 10-Year TreasuriesMachine Tool OrdersMachine Tool Orders-TTMMAManufacurers SalesManufacurers Sales-TTMMANatural Gas Prices, Henry HubNew Orders Index, ISMNew Orders Index-TTMMA, ISMNew Orders, Durable Goods, Electrican & ApplianceNew Orders, Durable Goods, Electrican & Appliance-TTMMANon-Defence Capital Goods Orders, Excluding AircraftNon-Defence Capital Goods Orders, Excluding Aircraft-TTMMANon-Residential Construction (SAAR)Non-Residential Construction (SAAR)-TTMMAOil Prices, Brent Crude, EuropeOil Prices, West Texas Intermediate, OklahomaPersonal Consumption Expenditures Durable GoodsPersonal Consumption Expenditures Durable Goods-TTMMAUS Trade Weighted Dollar IndexUS Trade Weighted Dollar Index-TTMMA


% Positive 37% 63% 69% 63% 60% 83% 60% 60% 66% 63% 51% 60% 40% 46% 60% 49% 51% 60% 51% 37% 40%Partial Results

Code: red=down; green=up; grey=sideways; white=no new data yetSource: Steel-Insights, LLC analysis

2014

Select Leading & Other Economic Indicators Heat Map-Month to Month Change

2015

Quarter-to-Quarter GDP Growth of 0.5% to 1.0% Compared to 1.5% to 2.0%

17

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Jan-

47

Jan-

51

Jan-

55

Jan-

59

Jan-

63

Jan-

67

Jan-

71

Jan-

75

Jan-

79

Jan-

83

Jan-

87

Jan-

91

Jan-

95

Jan-

99

Jan-

03

Jan-

07

Jan-

11

Jan-

15

Qua

rter

-to-Q

uart

er C

hang

e

USA Real GDP

Source: US Bureau of Economic Analysis

Total Steel Consumption Trend Showing Signs Of A Downtrend; So It’s Not Just An Import Problem Anymore

The Market Has Softened Compared to 2014

18

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Jan-

13

Feb-

13

Mar

-13

Apr

-13

May

-13

Jun-

13

Jul-1

3

Aug

-13

Sep-

13

Oct

-13

Nov

-13

Dec

-13

Jan-

14

Feb-

14

Mar

-14

Apr

-14

May

-14

Jun-

14

Jul-1

4

Aug

-14

Sep-

14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb-

15

Mar

-15

Apr

-15

May

-15

Jun-

15

Jul-1

5

Aug

-15

Sep-

15

Thou

sand

Ton

s

USA Steel Products Apparent Consumption Monthly

Apparent Consumption Domestic Shipments TTMMA AC TTMMA DS

Source: AISI

2015 Estimated Apparent Steel Consumption of 108 Million Tons - Third Best Year in the Past Eight – But Down from 2014

LessPlus Imported Less Apparent

Q1 Q2 Q3 Q4 Total % Chg Imports Semis Exports Consumption % Chg

1983 15.1 17.0 16.7 18.4 67.2 17.2 0.0 1.2 83.21984 19.4 20.1 17.2 16.3 72.9 26.2 1.3 1.0 96.8 16.4%2004 28.2 28.0 27.9 26.8 111.0 6.1% 35.8 7.2 7.9 131.6 14.8%2005 26.7 25.2 25.3 26.0 103.2 -7.0% 31.8 6.9 9.4 118.8 -9.7%2006 27.7 28.8 27.8 24.3 108.6 5.2% 45.3 9.3 9.7 134.9 13.5%2007 26.3 26.9 26.5 26.4 106.1 -2.3% 33.2 6.6 11.1 121.7 -9.8%2008 27.6 27.5 26.0 16.9 98.0 -7.7% 31.9 5.9 13.5 110.5 -9.2%2009 13.0 13.1 16.6 17.6 60.3 -38.4% 15.8 2.0 9.3 64.8 -41.3%2010 20.5 21.7 20.8 20.3 83.4 38.2% 23.9 5.0 11.9 90.4 39.4%2011 22.5 22.3 23.7 23.4 91.9 10.2% 28.5 6.6 13.5 100.3 11.0%2012 25.4 24.7 23.5 22.3 95.9 4.4% 33.5 7.6 13.7 108.1 7.7%2013 23.6 23.8 24.5 23.5 95.4 -0.5% 32.2 7.3 12.7 107.6 -0.4%2014 23.9 24.9 25.3 24.1 98.2 3.0% 44.3 10.5 12.0 120.0 11.5%2015e 22.0 22.0 22.2 21.5 87.7 -10.7% 37.6 6.8 10.2 108.4 -9.7%

Source: AISI & Steel-Insights, LLC estimates

USA Steel Consumption / Shipment Outlook(Million Net Tons)

Shipments

19

USA Mill Lead Times Remain Well Below “Normal” Levels

20

Source: Steel Market Update, used with permission

Global & USA Steel Production Heat Map More Red Than Green

21

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug SepWorld Monthly Crude Steel ProductionChina Monthly Crude Steel ProductionWorld ex China Monthly Crude Steel ProductionEU (27) Monthly Crude Steel ProductionUSA Monthly Crude Steel ProductionWorld Annualized Monthly Crude Steel ProductionChina Annualized Monthly Crude Steel ProductionWorld ex China Annualized Monthly Crude Steel Production\EU (27) Annualized Monthly Crude Steel ProductionUSA Annualized Monthly Crude Steel ProductionWorld TTMMA Monthly Crude Steel ProductionChina TTMMA Monthly Crude Steel ProductionWorld ex China TTMMA Monthly Crude Steel ProductionEU (27) TTMMA Monthly Crude Steel ProductionUSA TTMMA Monthly Crude Steel ProductionUSA Weekly Crude Steel Production-Month-to-MonthUSA TTMMA Monthly Annualized Weekly Crude Steel ProductionUSA Month-to Month Steel Production Utilization RateUSA TTMMA Monthly Steel Production Utilization RateUSA Monthly Steel ShipmentsUSA Year-to-Year Change Monthly Steel ShipmentsUSA Monthly ImportsUSA Monthly ExportsUSA Imports as a Percent of Apparent Steel Consumption (down is green)


% Positive 83% 50% 92% 29% 75% 58% 46% 50% 50% 38% 46% 58% 42% 17% 42% 29% 54% 33% 13% 29% 25%

Code: red=down; green=up; grey=sideways; white=no new data yet

2014

Steel Production Heat Map-Month to Month Change

2015

China – The All Consuming Storm?

22

12th 5-Year Plan (2011-2015) made it a priority to swing back to a consumer based economy. Was industrial and trade based.

13th 5-Year Plan (2016-2020) makes it a priority to improve the environment and have the RMB included as a reserve currency.

Shifting Their Economic Focus Back to Consumption From Industrial Spending - Private Consumption Was 50% of GDP in

1980

23

“China Needs to Keep Employment High” is the Ubiquitous Comment When the Topic of the China’s Steel Production Overcapacity is Raised

24

• 1.4 billion people in China compared to the world at 7.3 billion – about 19% of the total.

• In the 1970s, capitalist reforms put in place by Deng Xiaoping started a migration to cities.

• In 2012, more people lived in cities than in rural areas – 691 million. As a point of reference, the entire USA population is under 320 million.

• Young people in China are leaving government jobs and heavy industry in favor of finance.

China Will Be Transitioning Jobs Out of the Steel Industry Into Other Areas

• The incentives have been, and will continue to be diverted away from the steel industry.

• September 2013 President ordered “self-criticism”.

• January 2015 steel export rebate removed.

25

Pangang Chengdu Steel & Vanadium Company Closed in April 2015, Cutting 16,000 Jobs

• China’s Shift Away From Industry Drains Life From a Steel Town. Company towns dependent on closed factories are being uprooted, reminiscent of Rust Belt America. WSJ, September 8, 2015

• Has China Finally Started Curtailing Steel Production? MarketRealist, August 27, 2015

• It won’t be a quick, or easy process, but it has started to happen.

• China is still a “controlled economy” so the regulators have additional tools to affect change. (Comment: At the recent NABE annual conference in DC, it was discussed that it seems like China is repeating some of the mistakes the USA Fed made in the 1960s, so there will be a learning curve as they make the decisions regarding management of their banking system.)

26

Process Won’t Be Without Challenges

• China was the latest, largest incremental demand of most resources.

• The recent attempt to bring their currency back to “parity” caused a panic in the financial markets.

• At a recent NABE meeting, former Fed board members commented that some of the actions taken recently by the Chinese that didn’t work as expected reminded them of some of the Fed actions in the 60s. They are learning how to use the levers at their disposal.

• Business gets transacted in stable environments. We’re in a period with a lot of instability with parties trying to figure out how to adjust their business practices to “not get hurt”.

27

RMB Is Targeting Becoming a Reserve Currency

• China Knocks on the Reserve-Currency Door, The Economist, August 5, 2015

• China’s RMB Set to Become the World’s Greatest Currency, Live Trading News, October 19, 2015

• The Yuan as a Reserve Currency? Not So Fast, Forbes, September 14, 2015

• How the Yuan Could Achieve Reserve Currency Even if the USA Objects, Wall Street Journal, April 28, 2015

• IMF Signals Yuan Won’t Become Reserve Currency For At Least a Year, Wall Street Journal, August 19, 2015

• China’s Central Bank Announced It Has Issued 5-Billionn Yuan Denominated Notes in London, the First Offshore Issuance of Such Debts Outside of China, Xinhuanet, October 22, 2015

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One Criteria Has Been Met - Working on the Second;Steel Exports Likely to Stay High Until the Reach the Goal of

Having the RMB Added as a Trade Currency

• Currency must be a significant participant in global trade – China accounted for 12.4% of global exports last year according to JP Morgan.

• Currency must be “stable” and freely used. Recent devaluation and bond offering seem to be steps to fulfil this requirement.

• If a currency meets these two criteria, then just needs a 70% vote to be included. The USA doesn’t have enough votes to block it.

• The UK seems to be supporting the Chinese efforts.• IMF has said it’s more a matter of “when” rather than

“if”.• IMF vote delayed to November from October 2015 seen

as a signal of possible inclusion.

29

World Crude Production Estimated Down Almost 2% for 2015 at 1.6 Billion Tonnes

30

1995 2000 2005 2010 2011 2012 2013 2014 2015e 2013-14 2014-15

China 95.4 128.5 355.8 638.7 702.0 724.7 822.0 822.7 809.0 0.1% -1.7%Japan 101.6 106.4 112.5 109.6 107.6 107.2 110.6 110.7 105.1 0.1% -5.0%India 22.0 26.9 45.8 69.0 73.5 77.6 81.2 86.5 90.1 6.5% 4.1%South Korea 36.8 43.1 47.8 58.9 68.5 69.1 66.0 71.0 69.2 7.6% -2.6%Other Asia 23.8 26.9 37.3 41.4 42.9 41.2 42.3 27.2 29.0 -35.6% 6.5%EU-27 189.7 193.4 195.6 172.8 177.7 168.6 167.0 169.3 169.8 1.4% 0.3%Russia 51.6 59.1 66.1 66.9 68.9 70.4 69.4 71.5 71.1 3.0% -0.5%Ukraine 22.3 31.8 38.6 33.4 35.3 33.0 32.8 27.2 22.8 -17.2% -16.1%Other CIS 4.9 7.6 8.4 7.8 8.5 7.6 6.5 7.3 7.4 11.6% 1.3%Turkey 13.2 14.3 21.0 29.1 34.1 35.9 34.7 34.0 31.7 -1.8% -6.8%Other Europe 89.6 109.2 138.0 134.1 143.3 143.3 140.9 135.1 128.6 -4.1% -4.8%NAFTA 122.7 135.4 127.6 111.6 118.7 121.6 119.3 121.2 113.4 1.6% -6.4%USA 101.8 94.9 80.5 86.4 88.7 87.0 88.2 80.8 1.4% -8.3%South America 34.6 39.1 45.3 43.9 48.2 46.4 46.0 45.0 44.5 -2.1% -1.3%Middle East 8.1 10.8 15.3 20.0 23.0 24.7 25.9 28.0 27.9 8.3% -0.5%Africa 13.7 13.8 18.0 16.6 15.7 15.3 15.8 14.2 14.2 -9.6% 0.0%Oceania 9.3 7.8 8.6 8.1 7.2 5.8 4.6 5.5 5.8 18.2% 5.5%

Total Global 752 849 1,156 1,433 1,537 1,553 1,648 1,644 1,614 -0.3% -1.8%Developed World 504 544 574 528 547 541 538 536 517 -0.3% -3.6%Developing World 249 305 582 905 990 1,012 1,110 1,108 1,097 -0.3% -1.0%

Developed % of Total 67% 64% 50% 37% 36% 35% 33% 33% 32%Developing % of Total 33% 36% 50% 63% 64% 65% 67% 67% 68%

Source: World Steel Association, China Iron and Steel Association & Steel-Insights, LLC estimates

Crude Steel Production by Region(Million Tonnes)

How Low Can It Go? USA Weekly Crude Steel Production Has Dropped to 2011 Levels

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1,150

1,350

1,550

1,750

1,950

2,150

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Thou

sand

Ton

s

Weekly Estimated USA Crude Steel ProductionTrailing Twelve Month Moving Average

Source: AISI

USA Prices Still Sliding, But Still Well Above Global PricesMarket is Looking for the Bottom Anticipated from Trade Cases

32

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct NovUSA #1 Heavy Melt Scrap Spot PriceUSA Shredded Scrap Spot PriceUSA Busheling Scrap Spot PriceUSA Spread Shredded to #1HM Scrap Spot PriceIron Ore Spot Iodex 62% Fe Price, CFR Tianjin PortCoking Coal Spot Price, FOB AustraliaMet Coke Spot Price, FOB ChinaScrap Metallic Comp - BF/BOF Raw Material CostRatio Scrap to BF/BOF MetallicsHBI Spot Price, FOB South AmericaPig Iron Spot Price, FOB N. BrazilSlab Spot Price, FOB Port of ExportBillet Spot Price, FOB Port of ExportWorld Export Price, Hot-Rolled BandUSA Price, Hot-Rolled BandSpread USA Price to World Export Price, Hot-Rolled BandSpread USA HRB to #1 HMChina Price, Hot-Rolled BandSpread World Export HRB to China HRB PriceUSA Plate PriceUSA Rebar Price

Code: red=down; green=up; grey=sideways; white=no new data yet

2014

Raw Material Cost & Finished Steel Prices Heat Map-Month to Month Change

2015

Adam Smith Economics Would Say that USA Prices Should Come Down to Protect the Market Against Imports, But Widely

Expected Trade Duties Make a Price Increase More Likely

33

Prices Up $50 or more10%

Prices Up $20 or more50%

Prices Sideways29%

Prices Down @20 or more10%

Prices Down @50 or more1%

Next Eight Weeks USA Price Odds Wheel from $320 Per Ton

Source: Steel-Insights, LLC estimates

Trade Duties Will Help on the Supply Side As The Delivery Time Table Shortens and Port Inventories Get Worked Down

34

What’s Needed for the Cyclical Rebound

35

Adjustment to the New Normal

Stronger Global Economies

Global Crude Steel Consolidation – Natural Evolution – Darwin’s Survival of the Fittest.

Bottoming of the Commodity Price Cycle – Prices Are Likely to Stay Low for an Extended Period

Embracing & Navigating Disruption

Reduction of the Cash Cost to Produce

Continued Development of New Steels

Steel-Insights, LLC – “Seeing” What Others Don’t

36

In WWII, American submarine commanders endured despite being outclassed by superior equipment and outgunned (fully functioning torpedoes weren’t available to them for the first 21 months of the Pacific War). In the fog of war, as often is the case in business, decisions with long impacting outcomes have to be made without the luxury of complete or definitive information.

Steel-Insights was formed to assist executive management teams navigate the “noise of battle” by more effectively managing the abundant resources available today and

harnessing those resources to explore thought provoking and penetrating issues in order to magnify the pivotal decisions required for the long-term success of their companies in arguably tough industries that must survive challenging cycles, i.e. training and empowering submarine commanders.

This document and all content hereof are intended for informational purposes only and none of the information contained herein or opinions expressed herein should be viewed as an offer or solicitation to buy, sell or otherwise trade futures, options-on-futures, commodities, options, securities or any other investments mentioned herein. All opinions and information contained herein constitute the judgments of Steel-Insights, LLC or its affiliates (collectively “Steel-Insights”) as of the date of this document and are subject to change without notice. Steel-Insights and its directors, members, officers and employees may, directly or indirectly, effect or have effected a transaction for Steel-Insights’ own account in any investment referred to herein, either before or after the material is published, or may give advice to customers which may differ from or be inconsistent with the information and opinions contained herein or may from time to time hold long or short positions in, buy or sell (on a principal basis or otherwise), or act as market maker in, securities, derivatives, futures or other financial instruments or products related to matters discussed herein and may make trading decisions that are different from or contrary to any of those which may be discussed.. The information contained herein is based on data obtained from recognized statistical services and other sources believed to be reliable. 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Disclaimer & Copyright

Conclusion & Questions

38

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NucorBerkeleyUnder Construction

August 1996

steelnado ending, charleston, nov 2015

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