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Global Outlook for Pipes from a Steel Maker’s Perspective. National Association of Steel Pipe Distributors New York September 15, 2006. More than 20 yrs in the industry, in several countries. Introduction. Sanjiv Goel General Manager Pipes & Tubes Mittal Steel Holdings B.V.

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Global outlook for pipes from a steel maker s perspective l.jpg

Global Outlook for Pipes from a Steel Maker’s Perspective

National Association of Steel Pipe Distributors

New York

September 15, 2006


Introduction l.jpg

More than 20 yrs in the industry, in several countries

Introduction

Sanjiv Goel

General Manager Pipes & Tubes

Mittal Steel Holdings B.V.

Hofplein 20

3032 AC Rotterdam

The Netherlands

T: + 31 10 217 96 37

E: [email protected]

www.mittalsteel.com

I am based in Holland

How you can reach me


Agenda l.jpg

Agenda

  • Arcelor Mittal

  • Mittal Steel Pipes & Tubes

  • Global outlook for Pipes & Tubes

  • Challenges ahead for steel makers


Arcelor mittal l.jpg

Arcelor Mittal


Mittal steel and arcelor together have created the global leader in steel l.jpg

Mittal Steel and Arcelor together have created the global leader in steel

#1 steel producerOver 20 acquisitions

during the past 5 years

#2 steel producerNumerous acquisitions over the past 5 years

Creating a sustainable future for the steel industry through consolidation


The merger creates the undisputed leader l.jpg

The merger creates the undisputed leader…

Combined Entity Production vs. Competitors (2004 pro forma – mt)

Combined Entity EBIT vs. Competitors (2004 pro forma – US$bn)


The merger creates a powerful combination l.jpg

The merger creates a powerful combination…

  • Leadership position in high-end segments in North America, with strong R&D capabilities

  • Operations in high-growth economies with low-cost, profitable assets and local operating expertise in numerous emerging markets

  • Access to raw materials and upstream integration

  • Entrepreneurial culture

  • Leadership position in high-end segments in Western Europe, with strong R&D capabilities

  • Low-cost slab manufacturing in Brazil which can be expanded for export to Europe and North America

  • Successful distribution business in Europe


Forces driving consolidation in the steel industry l.jpg

Forces driving consolidation in the steel industry

Increasing Concentration Among Suppliers

Globalisation & Consolidation of Customers

  • Service global customer base increasingly seeking global procurement

  • Critical mass in R&D

  • New product development

Steel Industry Consolidation

  • Disproportionate negotiating power due to raw materials supplier consolidation

Capture Growth Opportunities in New Markets

Increasing need for Sustainability

  • Reduce earnings volatility

  • Better capacity management

  • Improved returns on capital

Economies of Scale

  • Slow growth in mature markets

  • Growth driven by emerging markets

  • Plant specialisation, manufacturing excellence, and greater ability to sustain R&D investments


Consolidation process is moving to the next phase l.jpg

Consolidation process is moving to the next phase

2002-2004

Regional Consolidation

2004-2005

Increasing Cross-Border Consolidation

2006-

Formation of Global Steel Companies

  • Industry remains fragmented and largely regional

    • Medium-scale producers

  • Large transformational combinations will be faster, more capital efficient and carry less risk than a series of acquisitions

    • Good quality assets becoming increasingly scarce

    • Fierce competitive bidding

    • Continuous need for integration

  • First mover advantage will be critical in global steel industry consolidation

  • Industry leaders of the future will be global producers with annual capacity of 150-200m tonnes


Mittal steel pipes tubes l.jpg

Mittal Steel Pipes & Tubes


Our profile l.jpg

Our profile…

  • Over 2,000,000 MT/yr of production capacity

  • 50/50 seamless-welded (excl. Valin JV in China)

  • On four continents

  • And growing ….


Our production capacity l.jpg

Our production capacity…

Aktau (Greenfield Project)

???

Krakow

Iasi

Roman

Vereeniging

Contrecoeur

Ostrava

Karvina

Annaba

Galati

Temirtau


Our recent history l.jpg

Our recent history…

  • Early 2005 Mittal’s tube plants were still a conglomerate of independent units.

  • Late last year a comprehensive Pipe & Tube strategy became operational.

  • Today Mittal Steel owns a highly profitable tube producing “division” – ranking # 6 in the world.

  • Focus on sales & marketing: new offices in Houston and Dubai

    September 2006 : Formation of a separate strategic division


Our sales offices and production units l.jpg

Our sales offices and production units…


Our segmentation l.jpg

Our segmentation…

Mittal Steel’s Pipe & Tube activities are approaching customers by application-segment:

  • Energy

  • Construction

  • Engineering & Automotive

    Thus combining seamless and welded products, services and projects as required by our customers


Global outlook for pipes tubes l.jpg

Global Outlook for Pipes & Tubes


Market environment consumption of 85 million tons dominated by china l.jpg

57.0

Market environment: consumption of 85 million tons, dominated by China

84.9

1.0

1.8

3.2

Apparent consumption 2005, mln tons

Welded

23.8

Seamless

27.9

CIS

China

Europe

North America

Developed

Asia

Emerging Asia

Latin America

Middle East

Africa

Australia

Total

Percentage of total

28%

20%

13%

12%

10%

5%

5%

4%

2%

1%

Absolute growth 2000-2005

146%

12%

3%

-6%

31%

30%

17%

49%

21%

69%

Absolute growth ’05-’10 (projected)

48%

12%

10%

-4%

21%

25%

11%

27%

17%

9%

Source:IISI; ISSB; JFK; McKinsey 2006


Market environment expected growth of 4 1 per annum to 104 million tons l.jpg

0.1

-0.7%

1.7%

4.1%

84.9

103.6

2.3%

2.0%

2.6%

5.3%

8.2%

4.8%

5.6%

5.5%

3.9%

3.0%

2.3%

2.4%

7.7%

3.2%

4.9%

2.2%

4.5%

3.8%

Market environment: expected growth of 4.1% per annum to 104 million tons

Real GDP CAGR

CAGR

’05-’10

Total 2005

Projection 2010

Welded

Seamless

Total 2005

China

23.8

35.2

11.2

Europe

17.2

19.3

4.9

North America

11.0

12.1

3.2

1.1

Developed Asia

10.3

9.9

CIS

8.2

9.8

3.4

Emerging Asia

4.2

5.3

0.6

Latin America

4.2

4.7

1.6

Middle East

3.2

4.1

1.3

1.8

Africa

2.1

0.5

1.0

Australia

1.1

0.1

Total

Source:Global Insight; McKinsey analysis


Market environment capacity concentrated in seamless fragmented in welded l.jpg

89%

Market environment: capacity concentrated in seamless, fragmented in welded

Seamless capacity, 2005

100% = 39 mln tons

  • Large share of capacity controlled by few players

    • Global players: Tenaris (10%), Vallourec (7%), and Sumitomo (5%)

    • Local champions: TMK (9%), Interpipe (5%), Tianjin (4%), Bao Steel (3%)

Seamless capacity concentrated to small set of:

  • Global players

  • Local champions in CIS and China

  • In the next 5 years time we expect new capacity of 2.5 mi tons

  • Welded capacity is very fragmented

    • Small and medium diameter dominated by local players

    • Large diameters is a global market driven by investment and know-how

    • In the next 5 years time we expect new capacity of nearly 1.5 mi tons

  • Still further options for consolidation out

  • Global players*

    21%

    58%

    Other

    21%

    • Very fragmented market

      • Over 1,000 companies Characteristics differs by products

      • Small diameter pipes (<6.3’’)

        • 67% of welded market

        • Highly fragmented local/regional market driven by efficiency

      • Medium pipes (6.3’’< D < 16’’)

        • 16% of welded market

        • Regional/global market driven by efficiency

      • Large diameter pipes (>16’)

        • 17% of welded market

        • Global market driven by investments and know-how

    Local champions**

    Welded capacity, 2005

    100% = 109 mln tons

    Global players*

    Local champions**

    9%

    4%

    • 89%

    * Tenaris, Vallourec Mannesmann, Sumitomo

    ** TMK, OMK, Interpipe, Tianjin, Bao Steel

    Other

    Source:JFK; China steel yearbook; Company publications; Analyst reports; company websites; McKinsey


    Market environment summary of global perspective l.jpg

    Market environment: summary of global perspective

    • The overall tube market shows attractive growth from 85 million tons in 2005 to104 million tons in 2010

      • Some selected segments are of major interest due to high share of growth, financial attractivity, or stable (less cyclical) demand, e.g. OCTG, line transportation, automotive or specific parts of industrial.

      • Regions to focus upon include:

        • China,

        • OCTG in North America,

        • line transportation in CIS and Middle East.

  • In the tube market polarization is occurring around “solutions in specialties” and “standard products” with different success factors for customer value creation and supplier value capture, with the specialty market being more protected against competition.


  • Challenges ahead for steel makers l.jpg

    Challenges Ahead for Steel Makers


    World energy demand ever growing l.jpg

    World energy demand.. ever growing …


    Oil prices continue going up l.jpg

    Oil prices continue going up…

    2007 -2010


    Landscape l.jpg

    Landscape…

    • High oil prices are there to stay: > US$ 70 per barrel and expected to rise further during the next 10 years

    • Allowing for economic exploration for deep reservoir both land and marine under difficult climatologically conditions and for energy source of lower quality (for example high sulfur)

    Lead to following challenges…


    Challenges l.jpg

    Challenges…

    • More higher steel grades required => X70 – X120;

      Q125; specialty grades and beyond

    • Gas discoveries lead to large diameter pipes => plates


    Challenges26 l.jpg

    Challenges…

    • Sour service requirements everywhere

    • Drilling in difficult areas leads to the need for alloyed / high strength material


    What producers need to do to face the challenges l.jpg

    Will lead to an attractive and sustainable industry in the 21st century

    What producers need to do to face the challenges...

    • Embrace growth geographies – these are a major driver of the future

    • Market better – to open up latent demand

    • Manage better – for value, rather than volume

    • Price better – microeconomics based; minimize volatility

    • Continue consolidation trend


    Which trends will influence the pipes industry l.jpg

    Which trends will influence the pipes industry?

    • The upstream steel industry is consolidating

    • The pipe & tube industry will also consolidate- Has already partially taken place in seamless- Mittal Steel will grow its participation in tubes:

      • Direct producer of pipes & tubes

      • Key supplier of inputs for pipe & tube-making

  • Access to inputs and raw materials will be paramount


  • Some less obvious medium term trends l.jpg

    Some less obvious medium term trends …

    • Within 5 years the growth rate for natural gas will be twice as high as for crude oil (fueling demand for large diameter pipes…)

    • Within 7 years premium connections will have some sort of universal standard rather than the multiple proprietary types (is API strong enough to drive this process?)


    Summary l.jpg

    Summary…

    • Further consolidation in Pipe Industry as already seen in Steel. Recent mergers Tenaris/Maverik & Ipsco/NS group.

    • Pipe industry shall need dedicated steel sources.

    • Steel and Pipe Industry to work together in R&D efforts to meet new challenges.


    Slide31 l.jpg

    THANK YOU!

    Any questions?


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