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The Goldman Sachs Group, Inc.
Looking over the valley
Is there another BULL market lurking around the corner?
Steel Manufacturers Association, Annual Members Conference
May 19, 2009
Sal Tharani
Goldman, Sachs & Co.
212-357-0695
[email protected]
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Is there another BULL market lurking
around the corner?
The US economy appears to be close to bottoming; will recovery be V-shaped?
•
Consensus among economists indicates that US economic activity will
stabilize later in 2009.
•
Most forecasters, both within and outside the government, are leaning
towards a V-shaped recovery rather than a U-shaped path.
•
The latest budget report shows that the Obama administration expects
GDP growth to reach 3.5% by end of 2009, and stay there in 2010.
•
The Congressional Budget Office (CBO) estimates 2.9% GDP growth in
2010.
•
Most private forecasters, though a bit cautious, are also expecting about
2.7% to 3.0% GDP growth rate beyond 1Q2010.
•
Economists could be basing their V-shaped recovery forecast on
“Zarnowitz’s Slingshot Rule” that posits that deeper recessions are typically
followed by more rapid growth.
Goldman Sachs Global Investment Research
2
Is there another BULL market lurking
around the corner?
US economic recoveries were strong until lately
Percent
Percent
21
21
Real GDP Growth in First Two Years (not annualized)
18
Real GDP Growth in First Year
Cumulative Decline in Real GDP
15
18
15
12
12
9
9
6
6
3
3
0
*
0
-3
-3
-6
-6
49Q2 54Q1 58Q1 60Q4 70Q4 75Q1 80Q3 82Q3 91Q1 01Q3
**
* The recovery that began in 80Q3 lasted only one year.
** Although real GDP hit its low point in 82Q1, it was nearly as low in
82Q3. This is when the dynamics of recovery really set in.
Source: US Commerce Department, US Labor Department, Goldman Sachs Blobal ECS Research.
Goldman Sachs Global Investment Research
3
Is there another BULL market lurking
around the corner?
Forces that have usually helped recovery in the past
Five forces have usually come together in the past to shift the US
economy from recession into recovery:
•
Stimulative economic policies, both monetary easing and fiscal
packages.
•
Owner-occupied housing picks up in response to easier credit
conditions.
•
Consumer spending on durable goods rebounds.
•
Companies are usually quick to boost payrolls.
•
A sharp swing in inventory cycle—from liquidation to
accumulation—turbo-charges recovery in industrial sector.
Goldman Sachs Global Investment Research
4
Is there another BULL market lurking
around the corner?
Cyclical rebounds in Housing and Durable Goods post historical recessions
Percentage points
Percentage points
3.0
3.0
Contribution to Real GDP Growth in
the First Year of Recovery
2.5
Residential Investment
2.5
Consumer Durables
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
49Q2 54Q1 58Q1 60Q4 70Q4 75Q1 80Q3 82Q3 91Q1 01Q3
**
** Although real GDP hit its low point in 82Q1, it was nearly as low in
82Q3. This is when the dynamics of recovery really set in.
Source: US Commerce Department, US Labor Department, Goldman Sachs Global ECS Research.
Goldman Sachs Global Investment Research
5
Is there another BULL market lurking
around the corner?
Companies start quick re-hiring and industry begins to re-stock post recessions
Percent
Percentage points
7
7
Change in Pvt Payrolls in First Year*** (left)
6
6
Contribution of Inventories to Real GDP
Growth in First Year (right)
5
5
4
4
3
3
2
2
1
1
0
0
-1
-1
49Q2 54Q1 58Q1 60Q4 70Q4 75Q1 80Q3 82Q3 91Q1 01Q3
**
** Although real GDP hit its low point in 82Q1, it was nearly as low in
82Q3. This is when the dynamics of recovery really set in.
*** Measured beginning one quarter after the GDP trough.
.
Source: US Commerce Department, US Labor Department, Goldman Sachs Global ECS Research.
Goldman Sachs Global Investment Research
6
Is there another BULL market lurking
around the corner?
But we do not see a V-shaped recovery this time
We do not see a V-shaped recovery as three of the five growth
powering forces are vertically challenged.
•
A huge overhang of unoccupied houses prevents cyclical
recovery in homebuilding.
•
Efforts to lift the savings rate limit consumer spending on durable
goods.
•
Reluctance to hire in early recovery could prove to be a structural
change in corporate behavior.
Goldman Sachs Global Investment Research
7
Is there another BULL market lurking
around the corner?
A large overhang of vacant homes
Percent
Percent
3.5
3.5
Homeowner Vacancy Rate
3.0
3.0
2.5
2.5
0.9 million units above 19852005 average
2.0
2.0
1.5
1.5
1985-2005 average =1.7%
1.0
1.0
0.5
0.5
56
60
64
68
72
76
80
84
88
92
96
00
04
08
Source: US Department of Commerce.
Goldman Sachs Global Investment Research
8
Is there another BULL market lurking
around the corner?
The savings rate has a long way to go
Percent
Percent
14
14
Personal Saving Rate
12
12
10
10
8
8
6
6
4
4
2
2
0
0
-2
-2
48
52
56
60
64
68
72
76
80
84
88
92
96
00
04
08
Source: US Department of Commerce.
Goldman Sachs Global Investment Research
9
Is there another BULL market lurking
around the corner?
Stimulus package and inventory re-stocking should have some positive offsets
Fiscal stimulus is front-loaded. We expect another $250
billion stimulus in 2010-12
Percentage points, annual rate
Percentage points, annual rate
4
There is near-term upside risks from a bigger
contribution from Inventories
Percentage points
Percentage
points
GS Forecast
4
Estimated Effect of Stimulus
Package on Real GDP Growth
3
3.0
3
2.0
2
2
1
1
0
0
-1
-1
-2
-2
-3
-3
1.0
0.0
-1.0
-2.0
-3.0
Q1
2009
Q2
Q3
Q4
Q1
2010
Q2
Q3
Public non-residential construction spending makes up
about 15% of total steel consumption
Private
20%
Container
5%
Highway
4%
Construction
35%
Industrial/OEM
22%
Q2
Q3
Q4
Q1
2010
Q2
Q3
Other public
11%
Auto
21%
Q4
A rapid destocking in Q4-2008 has set the stage for a
rapid restocking phase in near-term
Percent of GDP
2.0
Others
12%
Energy
5%
Q1
2009
Q4
Percent of GDP
2.0
Change in Private Inventories
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
-1.0
-1.0
-1.5
-1.5
65
70
75
80
85
90
95
00
05
Source: US Commerce Department, US Labor Department, Goldman Sachs Global ECS Research.
Goldman Sachs Global Investment Research
10
Is there another BULL market lurking
around the corner?
Reaching for the green shoots
10.00%
Y-O-Y (%)
PMI-China
55
5.00%
40%
4%
0.00%
35%
3%
-5.00%
30%
-10.00%
50
-15.00%
45
3%
25%
2%
20%
2%
15%
-20.00%
1%
10%
-25.00%
40
M-O-M, seasonally adjusted (%)
PMI
60
China- Fixed assets investment growth
Y-O-Y (%)
PMI China
Y-O-Y (%)
65
1%
5%
-30.00%
0%
35
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
0%
Mar 08
-35.00%
May 08
July 08
Sep 08
Y-O-Y (%)
Mar-09
Nov 08
Jan 09
Mar 09
M-O-M (%)
US ISM New Orders Index
80%
Industrial production index China
18%
18.2% 18.3% 18.1%
18.0%
16%
17.5%
16.2%
15.9%
16.2% 15.9%
14.8%
14%
13.0%
12%
10%
8%
7.3%
US ISM New Orders Index (%)
Industrial production index China Y-O-Y (%)
20%
70%
60%
50%
47.2%
40%
30%
6.4%
6%
5.1%
April 09
2009Q1
2008Q4
2008Q3
2008Q2
2008Q1
2007Q4
2007Q3
2007Q2
2007Q1
2006Q4
2006Q3
2006Q2
2006Q1
4%
20%
Jan-97
Jan-00
Jan-03
Jan-06
Jan-09
Source: Goldman Sachs Global ECS Research.
Goldman Sachs Global Investment Research
11
Is there another BULL market lurking
around the corner?
GS Global leading indicator is trending up
GS Global Leading Indicator
GLI Level
106
Momentum of GLI
Y-O-Y
6%
0.6
0.4
104
4%
0.2
102
2%
0
0%
98
96
-2%
y-o-y (%)
GLI Level
100
-0.2
-0.4
-0.6
94
-4%
92
-1
-6%
90
88
Dec-99
-0.8
-1.2
-8%
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
-1.4
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Source: Goldman Sachs Global ECS Research.
Goldman Sachs Global Investment Research
12
Is there another BULL market lurking
around the corner?
The drivers of new growth: BRICs
1995
1996
1997
1998
1999
2000
Real GDP Growth Forecasts
2001
2002
2003
2004
2005
2006
2007
2008
2009E
2010E
United States
Canada
2.5%
2.8%
3.7%
1.6%
4.5%
4.2%
4.2%
4.1%
4.4%
5.5%
3.7%
5.2%
0.8%
1.8%
1.6%
2.9%
2.5%
1.9%
3.6%
3.1%
2.9%
2.9%
2.8%
3.1%
2.0%
2.9%
1.1%
0.5%
-3.0%
-1.9%
1.2%
1.8%
Euroland
2.6%
2.0%
3.0%
1.5%
1.1%
2.9%
2.6%
1.9%
3.3%
2.7%
1.8%
3.6%
2.8%
1.9%
3.5%
4.0%
3.5%
3.9%
1.9%
1.4%
2.5%
0.9%
0.1%
2.1%
0.8%
-0.2%
2.8%
1.9%
0.7%
2.8%
1.8%
1.0%
2.1%
3.0%
3.2%
2.8%
2.6%
2.6%
3.0%
0.7%
1.0%
0.7%
-3.7%
-5.2%
-3.4%
0.7%
0.9%
1.9%
5.5%
2.2%
6.4%
6.4%
7.6%
6.8%
4.3%
10.0%
4.4%
8.4%
6.0%
1.3%
5.1%
5.8%
8.3%
6.4%
2.7%
4.7%
3.8%
9.1%
7.9%
1.1%
7.4%
8.5%
10.0%
8.4%
5.7%
7.2%
7.5%
10.1%
8.2%
3.2%
6.3%
9.5%
10.4%
9.1%
4.0%
7.6%
9.7%
11.7%
10.4%
5.7%
8.1%
9.0%
13.0%
7.5%
5.1%
5.6%
6.4%
9.0%
4.8%
-1.5%
-5.5%
5.8%
8.3%
7.8%
3.0%
2.8%
6.6%
10.9%
Germany
UK
BRICS
Brazil
Russia
India
China
-4.5%
-3.6%
1.4%
10.9%
10.0%
9.3%
3.6%
4.2%
-5.3%
6.7%
7.8%
5.3%
1.9%
-6.1%
4.1%
0.2%
0.5%
1.8%
6.0%
4.4%
5.5%
5.7%
4.2%
-1.7%
2.4%
5.7%
1.7%
2.3%
-2.0%
6.8%
-0.1%
7.4%
2.9%
4.9%
0.2%
6.5%
0.3%
7.1%
1.4%
7.9%
2.7%
8.0%
1.9%
8.8%
2.0%
10.0%
2.4%
6.7%
-0.6%
4.8%
-5.3%
7.9%
1.1%
4.2%
1.5%
2.0%
2.6%
3.8%
3.4%
4.0%
5.0%
2.9%
-1.1%
3.2%
Latin America
Asia ex Japan
Japan
7.6%
2.0%
6.8%
2.7%
World
Source: Goldman Sachs Global ECS Research.
Goldman Sachs Global Investment Research
13
Is there another BULL market lurking
around the corner?
Our outlook for steel prices
HRC price
HRC price
$900
$1,068
$1,100
$1,000
$700
$756
$700
$630
$600
$500
$500
$400
$400
$508,
Feb & Aug 07
$435,
Aug 05
$300
$434
$400
$320
$298
$282
$300
$227
$100
Rebar price
2011E
2010E
2009E
2008
2007
2006
Scrap price
$900
$400
$787
$800
$354
$568
$600
$469
$500
$475
$506
$479
$483
$500
$400
$295
$288
$293
$302
$200
$100
#1 HM Scrap Price ($ per s.ton)
$350
$700
Rebar ($ per ton)
2005
2004
2003
$0
$0
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
$300
$525
$490
2000
$100
$527
$500
$200
$260,
May 03
$210,
Dec 01
$580
$541
2002
$200
$400,
June, 09
$605
$600
2001
$800
HRC Price ($ per s.ton)
$900
HRC price ($ per ton)
$843
$800
$300
$256
$250
$216
$213
$213
$195
$200
$225
$191
$150
$122
$100
$97
$94
$76
$50
2011E
2010E
2009E
2008
2007
2006
2005
2004
2003
2002
2001
$0
2000
2011E
2010E
2009E
2008
2007
2006
2005
2004
2003
2002
2001
2000
$0
Source: Steel Business Briefing, Purchasing Magazine, American Metal Market, Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
14
Is there another BULL market lurking
around the corner?
Domestic demand indicators remain low
Industrial production index
New Privately Owned Housing Units Starts
110.0
4%
3%
3%
2,000
1,500
10%
8%
6%
6%
2%
1%
0%
-4%
-10%
1,000
-13%
-20%
-25%
500
1%
1%
1%
0%
0%
0%
100.0
-2%
-3%
-3%
-4%
-4%
95.0
-6%
90.0
-8%
-10%
85.0
-12%
-12%
-30%
-33%
-34%
80.0
Auto production (US till Apil 2000, Total NA thereafter)
20%
20%
14,000
8%
7%
6%
6%
10,000
0%
0%
1%
-3%
-3%
8,000
0%
-2%
6,000
-10%
4,000
-17%
-20%
2,000
-24%
0
Y-O-Y (%)
10%
Auto sales (000 units of light vehicles)
24%
-1%
2010E
2009E
2008
2007
2006
2005
2004
16,000
30%
12,000
2003
Auto sales (000 units)
18,000
16,000
2002
2001
2000
1999
-14%
1998
2010E
2009E
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
-40%
10%
7%
14,000
12,000
7%
7%
7%
5%
2%
1%
1%
0%
10,000
0%
-2%
-2%
-3%
-4%
-5%
-5%
8,000
-10%
Y-O-Y (%)
6%
Y-O-Y (%)
10%
1%
105.0
20%
0
6,000
-15%
-15%
4,000
-20%
-20%
2,000
0
2012E
2011E
2010E
2009E
2008
2007
2006
2005
2004
2003
2002
2001
2000
-25%
1999
2012E
2011E
2010E
2009E
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
-30%
1998
Auto production (000 units)
2%
2%
22%
Source: Auto news, US Census Bureau, Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
15
Y-O-Y (%)
30%
Industrial production index, 1997=100
New Privately Owned Housing Units Started
2,500
Is there another BULL market lurking
around the corner?
Non-residential construction
Non residential construction spending
Highway construction spending
20%
120
11%
10%
9%
600
10%
7%
5%
4%
500
3%
0%
-2%
400
-2%
-5%
-5%
300
-10%
-11%
200
-15%
100
-20%
-22%
0
-25%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E
14%
12%
12%
100
10%
10%
9%
80
8%
8%
60
6%
6%
5%
4%
40
3%
4%
Y-O-Y % change
15%
13%
Highway construction spending ($ in billion)
16%
700
Y-O-Y % change
Non residential construction spending ($ in
billion)
800
3%
3%
2%
2%
1%
20
0%
-1%
0
-2%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009E 2010E 2011E 2012E
Private spending flat ytd
Non residential construction spending ($ in billion)
Non residential construction spending ($ in billion)
450
400
350
300
250
200
150
100
50
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009E
Public spending up 4.3% ytd
350
300
250
200
150
100
50
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009E
Source: US Census Bureau, Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
16
Is there another BULL market lurking
around the corner?
Build America Bonds; further boost to infrastructure spending
The Build America Bond allows for tax-exemption for issuance in 2009 and 2010,
attracting demand from US retail investors, property & casualty insurance companies,
and US-domiciled banks and broker-dealers
First week starting April 24, the bond raised $7.5 billion, and there is an opportunity of
extension if it is successful
If the proceeds of the issue are to be used for capital expenditures, the Issuer can
elect to receive a federal subsidy of 35% of the total interest expense
There are other bonds like Qualified School Construction ($ 22 billion), and Recovery
Zone Bonds ($25 billion) that could further increase infrastructure spending
Build America Bonds
State
VA
NJ
MN
CA
CA
MI
NY
Description
University of Virginia
New Jersey Turnpike Authority
University of Minnesota
State of california
State of california
Milan Area School District
Metropolitan Transportation Authority
Total
CUSIP/Deal size ($
million)
250
1,375
37
2,000
3,000
14
750
7.426 billion
Dated date Coupon Maturity
22-Apr-09
6.20%
1-Sep-39
28-Apr-09
7.41%
1-Jan-40
5-May-09
6.30%
1-Dec-28
30-Apr-09
7.50%
1-Apr-34
30-Apr-09
7.55%
1-Apr-39
4-May-09
7.10%
1-May-34
30-Apr-09
7.34% 15-Nov-39
Ratings
Aaa/AAA/AAA
A3/A+/A
Aa2/AA/NR
A1/A/A+
A1/A/A+
NR/AA-/NR
A2/A/A
Indicative
yield
5.92%
7.03%
N/A
7.16%
7.15%
N/A
7.02%
Source: American Recovery and Reinvestment Act, Bloomberg Data Service
Goldman Sachs Global Investment Research
17
Is there another BULL market lurking
around the corner?
Mills have tried to match production to shipment levels
Domestic mills shipments
Domestic mills production (million tons)
120.0
15.0%
120.0
30.0%
10.0%
5%
5%
0%
100.0
5.0%
0.0%
(2%)
(5.0%)
90.0
(8%)
(9%)
(9%)
(10.0%)
80.0
(15.0%)
(20.0%)
70.0
(25.0%)
(26%)
60.0
100.0
20.0%
20%
110.0
8%
6%
4%
2%
2%
0.0%
0%
-5%
90.0
-7%
(10.0%)
-11%
80.0
(20.0%)
70.0
(30.0%)
-30%
(30.0%)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009E
2010E
2011E
60.0
(40.0%)
2000
Domestic mills utilization rate
100%
Domestic mills utilization rate (%)
90%
10.0%
4%
Y-O-Y (%)
6%
5%
Steel mills production (million tons)
8%
110.0
Y-O-Y (%)
Steel mills shipment (million tons)
11%
2001
2002
82%
89%
85%
86%
83%
88%
87%
2005
2006
2007
2008
2009E
2010E
2011E
5%
81%
78%
80%
2004
Domestic mill shipment and production trends
3 month average of sequential decline
10%
93%
86%
2003
70%
70%
0%
65%
60%
-5%
55%
50%
-10%
40%
30%
-15%
20%
-20%
10%
0%
2011E
2010E
2009E
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
-25%
Jan-08
Mar-08
May-08
Jul-08
3 per. Mov. Avg. (Shipments)
Sep-08
Nov-08
Jan-09
Mar-09
3 per. Mov. Avg. (Production)
Source: Goldman Sachs Research estimates, American Steel Institute, World Steel Association
Goldman Sachs Global Investment Research
18
Is there another BULL market lurking
around the corner?
Global steel demand and supply
Global consumption of steel
Global production of steel
12%
1,600
1,000
7%
Production of steel (million tonnes)
9%
8%
7%
7%
6%
6%
800
4%
4%
2%
600
2%
0%
400
-2%
200
13%
1,400
10%
Y-O-Y (%)
Consumption of steel (million tonnes)
10%
1,200
15%
-4%
10%
10%
10%
1,200
7%
7%
7%
1,000
5%
4%
800
0%
-1%
Y-O-Y (%)
1,400
600
-5%
400
-9%
-10%
200
-4%
0
-6%
2001
2002
2003
2004
2005
2006
2007
2008E
2009E
Apparent consumption of steel
700.0
Brazil
Russia
India
China
0
2010E
2002
2003
800.0
25%
2004
2005
700.0
20%
500.0
17%
15%
14%
400.0
13%
13%
300.0
10%
10%
200.0
6%
6%
5%
Production of steel (million tonnes)
20%
2006
Production of steel
Russia
India
Brazil
Y-O-Y (%)
600.0
Consumption of steel (million tonnes)
-15%
2001
2007
2008E
2009E
2010E
25%
China
Y-O-Y (%)
21%
20%
600.0
18%
500.0
15%
15%
15%
14%
13%
400.0
11%
10%
300.0
9%
8%
200.0
6%
5%
4%
100.0
100.0
2%
0.0
0%
2001
2002
2003
2004
2005
2006
2007
2008E
2009E
2010E
0%
0.0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
0%
2008E 2009E 2010E
Source: Goldman Sachs Research estimates, World Steel Association.
Goldman Sachs Global Investment Research
19
Is there another BULL market lurking
around the corner?
All eyes on China
20%
China: Real GDP - yoy
18%
PMI China
China: Industrial Production - yoy
18.2%
18.0%
60
16%
16.2%
15.9%
14.8%
55
14%
11.4%
12.0%
12.0%
11.2%
11.6%
10.6%
10%
10.0%
10.4%
8%
PMI China
12%
53.5
13.0%
12.5%
50
45
6.1%
6%
5.1%
40
4%
38.8
2%
35
Ja
n0
M 5
ar
-0
M 5
ay
-0
Ju 5
l-0
Se 5
p0
N 5
ov
-0
Ja 5
n0
M 6
ar
-0
M 6
ay
-0
Ju 6
l-0
Se 6
p0
N 6
ov
-0
Ja 6
n0
M 7
ar
-0
M 7
ay
-0
Ju 7
l-0
Se 7
p0
N 7
ov
-0
Ja 7
n0
M 8
ar
-0
M 8
ay
-0
Ju 8
l-0
Se 8
p0
N 8
ov
-0
Ja 8
n0
M 9
ar
-0
9
2010Q4E
2010Q3E
2010Q2E
2010Q1E
2009Q4E
2009Q3E
2009Q2E
2009Q1
2008Q4
2008Q3
2008Q2
2008Q1
2007Q4
2007Q3
2007Q2
2007Q1
2006Q4
2006Q3
2006Q2
2006Q1
0%
Crude steel production and finished steel apparent
consumption (y-o-y change)
Apparent consumption of finished steel in China
600
Apparent consumption of finished steel in China (million
tonnes)
30%
China
26%
25%
26%
500
30%
Y-O-Y (%)
25%
21%
20%
21%
20%
400
19%
18%
16%
15%
20%
13%
15%
300
15%
15%
13%
Y-O-Y (%)
13%
10%
9%
10%
5%
8%
5%
6%
5%
100
5%
4%
Oct-08
Sep-08
Jul-08
Aug-08
Jun-08
Apr-08
May-08
Mar-08
Jan-08
Feb-08
Dec-07
Oct-07
Nov-07
Sep-07
Jul-07
Aug-07
Jun-07
Apr-07
May-07
-5%
Mar-07
10%
Jan-07
9%
9%
Feb-07
0%
200
-10%
-14%
3%
-15%
-16%
0
0%
2001
2002
2003
2004
2005
2006
2007
2008E
2009E
-20%
2010E
Crude steel production yoy %
Finished steel apparent consumption yoy %
Source: GS Global ECS Research, Bloomberg, Goldman Sachs Research estimates, World Steel Association.
Goldman Sachs Global Investment Research
20
Is there another BULL market lurking
around the corner?
Valuations have recovered from lows, still more upside
1Q09 earnings season
$950
$900
$100
$850
$90
$800
$80
Steel price fell
by 42%
by 19% by 9%
15.1X
Expected
drop by 63%
41% decline
14.0X
EV/EBITDA (12-months forward)
$110
16.0X
S&P 500 Index
GS Steel Index
$120
$750
12.2X
12.0X
10.0X
10.7X
8.9X
49% decline
8.0X
7.6X
7.4X
6.0X
39% decline
5.7X
4.8X
4.0X
$70
$700
S&P 500
17-Jan
1-Feb
16-Feb
3-Mar
18-Mar
2-Apr
17-Apr
Jan-09
May-09
Sep-08
Jan-08
May-08
Sep-07
Jan-07
May-07
Sep-06
Jan-06
May-06
Sep-05
Jan-05
May-05
Sep-04
Jan-04
May-04
Sep-03
Jan-03
May-03
Sep-02
Jan-02
May-02
Sep-01
Jan-01
$650
2-Jan
May-01
Jan-00
$60
Sep-00
2.0X
May-00
GS Steel Index
2-May
$1,900
Steel price fell
by 42%
by 19%
Expected drop
by 63%
by 9%
48.0X
$1,700
46.1X
44.0X
32.0X
28.4X
28.0X
24.0X
20.0X
P/E fell
by 48%
P/E fell
by 55%
16.0X
12.0X
14.7X
$1,100
$900
$900
$700
$500
9.7X
12.0X
$1,300
8.0X
P/E fell
by 38%
10.0X
4.0X
EV/ton 2007: $570
$517
$466
$300
$364
$327
$342
$371
$311
4.9X
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jul-08
Jan-09
Jul-07
Jan-08
Jul-06
Jan-07
Jul-05
Jan-06
Jul-04
Jan-05
Jul-03
Jan-04
Jul-02
Jan-03
Jul-01
Jan-02
Jul-00
Jan-01
Jan-00
Jan-91
$100
0.0X
Jan-90
P/E (12-months forward)
36.0X
EV/ton shipped ($/ton)
$1,500
40.0X
Source: Company data, Factset, Goldman Sachs Research estimates, Bloomberg.
Goldman Sachs Global Investment Research
21
Reg AC Analyst Certification
I, Sal Tharani, hereby certify that all of the views expressed in this report accurately reflect my personal
views about the subject company or companies and its or their securities. I also certify that no part of my
compensation was, is or will be, directly or indirectly, related to the specific recommendations or views
expressed in this report.
Goldman Sachs Global Investment Research
22
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May 18, 2009
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54%
51%
43%
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Goldman Sachs Global Investment Research
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Goldman Sachs Global Investment Research
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Goldman Sachs Global Investment Research
27