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The Metallurgical Industry, Steel market Forecasts for the future Sanjay Samaddar CEO & Chairman of the Board, ArcelorMittal Poland Katowice, 18th May 2011 Europe in the scheme of world economics We live in a “Two Speed World” Real GDP Growth Forecast 2011-2012 Percentage Growth © IMF April 2011 Source: World Economic Outlook Different speed of advanced and emerging & developing economies growth GDP to grow by 2.5% and 6.5% respectively 2 BRIC countries GDP… …will continue to grow faster than G7 50 40 35 2001-2010 45 2000 2011-2020 30 2010 25 2020 35 20 15 % Global Growth US$ trn 40 30 25 20 15 10 10 5 5 0 0 G7 BRIC N-11 Other Other Developed Emerging Markets Markets China Russia India Brazil BRICs G3 Source: GS Global ECS Research, 2010 By 2020 it is expected that BRICs to account one third of the global economy (in PPP terms) and contribute about 49% of global GDP Growth* *Goldman Sachs May 2010 3 World Steel Production 2010 ROW 11.7% Russia 4.7% Ukraine 2.4% Steel Production China 44.3% EU-27 12.2% World: 1, 414 MT Asia: 898 MT Brazil 2.3% EU 27: 173 MT USA 5.7% Japan 7.8% Source: World Steel Association India 4.7% South Korea 4.1% Global annual steel production will grow from 1.4 billion in 2010 to 2.3 billion tonnes in 2020. This growth will entirely be generated outside Europe, most of it in emerging economies, with an increase in CO2 emissions in the range of 2.5 billion tons in the global steel sector. (Source: EUROFER, 2011) Post crisis …Europe is the No #2 steel producer in the world 4 Challenges for Europe… The “Global” Challenge 80% Growth in emerging economy High productivity ambition Resources scarce in Europe Flexibility and Volatility 21% CO2 reduction versus 2005 needed in 10 years Low Inventory Low Lead Times Oil and Natural Gas depletion in 2050 McKinsey, 2010 Customer oriented products FOCUS on EXCELLENCE ATTRACT THE BEST AND BRIGHTEST PEOPLE 6 Resources will be scarce in Europe Pricing of Raw materials no longer driven by 7 European consumption 7 Oil Price Could Limit Economic Growth “Green” strategy is the only way to preserve growth8 8 • • The Climate Change Challenge Steel industry as part of the global CO2 emission picture Emissions 2030 (BAU) 70GtCO2eq/y Emissions 2005 46GtCO2eq/y 4% 21% of total emissions * * 16% 28% of total emissions 5% 14% 6% 10% * 6% * 6% * 15% 11% * 8% * 8% * 6% * 16% 18% * 18% 18% Source: McKinsey: Pathways to a Low-Carbon Economy * 18% Cement Chemicals Iron & Steel Petroleum & gas Transport Buildings Other Agriculture Forestry * dark part refers to indirect emission of power generation linked to each activity Today, the steel industry is responsible (directly and indirectly) for 6% of the world’s CO2 emissions and will be 8% in 2030 if no actions are taken. Effective abatement policies will lead to huge costs for industry and society. 9 European industrial policy… …requires a strong coordinated appraoch ENVIRONMENT Climate change Industrial emissions SOCIAL Salary cost Education Industrial Policy COMMERCIAL POLICY Access to raw materials Trade barriers ENERGY Competitive prices Compensation for indirect costs R&D Breakthrough Energy-efficiency 10 Climate Change Impact of EU ETS / 2050 Roadmap EU ETS Benchmarks agreed in December 2010 not to grant 100% free allocations notwithstanding carbon leakage status of steel sector Carbon leakage will be a reality for the steel sector as allowance shortages will exist in EU ETS III EU Commission 2050 Roadmap for Low Carbon Economy suggests higher GHG emission reduction target (80%) Currently available technologies in the steel sector do not allow further reduction of CO2 emissions the EU ETS system is not an incentivizing but a penalizing system 11 Energy market Steel industry needs a market that warrants, in the longterm, at least for base-load consumption: Competitive electricity prices sustainable global competitiveness for European industry Security of supply for continuous power delivery The rights to conclude long-term bilateral contracts (cost +) warranting visibility for investments To avoid abnormal “windfall profits” from generators Avoid direct and indirect CO2 impact for carbon leakage industry Need for a market that is capable of delivering competitive prices adapted to steel industry needs 12 Commercial Policy and R & D Access to raw materials (iron ore; coal) at reasonable cost is essential ArcelorMittal supports EU three pillar approach to raw materials, including focus on recyclability EU should adopt trade defence measures to oppose unfair trade practices and ensure international level playing field Focus on industry driven initiatives and link with 2020 program Concept of a Common Strategic Framework (one stop shop) Strong funding for breakthrough technologies (e.g. ULCOS) 13 Summary Steel industry faces several challenges Challenges • Unpredictability of the market • Volatility of raw material prices • Climate Change responsibility CO2 allowances Mitigations •Adequate market intelligence and trading capability need to find value-generating niches •Implementation of varied sourcing and sales models flexibility: Raw-material sourcing optimization • Increasing energy costs Capacity & Inventory management • Shift of consumption and production from traditional to emerging markets High level of end-to-end value-chain • European competitiveness threatened by lack of level playing field • Risk of sudden import surge from outside EU •Long term adaptive strategy diversifiedcapacity networks, resource adaption and lean management, cutback and subsequent use of external services •Focus on innovation (R&D): improving profitability and fueling growth •Rigid system quality Source: BCG Dec 2010 14 Thank you!!! 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