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Juergen Nusser. Juergen Nusser. VICE PRESIDENT. The Survival of the Fittest. The Survival of the Fittest. The Survival of the Fittest. The Survival of the Fittest. Steel Markets 2009. Steel Markets 2009. PRESIDENT. 17 APRIL 2009. The real surrender of the optimists is still to happen.

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17 april 2009

Juergen Nusser

Juergen Nusser

VICE PRESIDENT

The Survival of the Fittest

The Survival of the Fittest

The Survival of the Fittest

The Survival of the Fittest

Steel Markets 2009

Steel Markets 2009

PRESIDENT

17 APRIL 2009

The real surrender of the optimists is still to happen

Prawdziwa klêska optymistów dopiero nadchodzi


NETHERLANDS

NORWAY

STÅL OG METALLGROSSISTENES FORENING

SWEDEN

STÅL- OCH

METALLFÖRENINGEN

FINLAND

ASSOCIATION OF FINNISH TECHNICAL TRADERS (TKL)

GERMANY

BUNDESVERBAND DEUTSCHER STAHLHANDEL

EDELSTAHLHANDELS-VEREINIGUNG

DENMARK

UNITED KINGDOM

NATIONAL ASSOCIATION OF STEEL STOCKHOLDERS

POLAND

POLSKA UNIA DYSTRYBUTORÓW STALI

BELGIUM

GROUPEMENT DES MARCHANDS

DE FER DE BELGIQUE

CZECH REPUBLIC

FRANCE

FÉDÉRATION FRANÇAISE DE DISTRIBUTION DES MÉTAUX

AUSTRIA

PORTUGAL

ASSOCIAÇÃO PORTUGUESA

DOS GROSSISTAS DE AÇOS

METAIS E FERRAMENTES

HUNGARY

ASSOCIATION OF HUNGARIANSTEEL- AND METALTRADERS (MAFE)

ROMANIA

ASOCIATIA ROMANA

A DISTRIBUITOTOLOR DE METAL

SWITZERLAND

SLOVENIA

SPAIN

ITALY

ASSOFERMET

UNIÓN DE ALMACENISTAS

DE HIERROS DE ESPAÑA

BULGARIA

GREECE

ASOCIACION ESPAÑOLA

DE TRANSFORMADORES DE PRODUCTOS PLANOS SIDERURGICOS


Eurometal organigramme

NATIONAL ASSOCIATIONS OF STEEL, TUBE AND METALS DISTRIBUTION

COMMON

RESOURCES

COMMON

INTERESTS

STUDY GROUP OF DISTRIBUTORS OF STEEL, TUBES AND METALS

EUROPEAN ASSOCIATION OF STEEL SERVICE CENTERS

INTERNATIONAL STEELTRADE ASSOCIATION

EUROMETAL - THE VOICE OF EUROPEAN STEEL DISTRIBUTION

EUROMETAL ORGANIGRAMME


Obviously the steel party has come to an end

WHO IS GOING TO STOP THE FREE FALL OF THE MARKETS ?

OBVIOUSLY THE STEEL PARTY HAS COME TO AN END . . . . . .

. . . . . . AFTER FOUR YEARS ON A VERY HIGH LEVEL

OUR POLITICAL LEADERS ?

WHO IS GOING TO STOP THE FREE FALL

OF THE MARKETS?

AND IT IS NOT A SOFT LANDING BUT A VERY UGLY RECESSION!

. . . . AND WHAT PRICE ARE THEY WILLING TO PAY ?


Recession some basic indicators in the euro zone

RECESSION: A BASIC BUT IMPORTANT LESSON

INDUSTRIAL MARKET

MARKET PRICES

LABOUR MARKET

INDUSTRIAL CONFIDENCE

PRODUCER PRICES

UNEMPLOYMENT

INDUSTRIAL PRODUCTION

CONSUMER PRICES

EMPLOYMENT

INDUSTRIAL BUSINESS ACTIVITY AND PRICES

ARE DOWNDIVING WITH AN UNPRECEDENTED DIMENSION AND SPEED

UNEMPLOYMENT IS EXPLODING WITH COMPARABLE DYNAMICS

RECESSION: SOME BASIC INDICATORS IN THE EURO-ZONE

IN MATURE AND SATURATED ECONOMIES

THE UPSWINGS AND DOWNSWINGS OF THE MACROECONOMIC CYCLE

SLOW DOWN OR SPEED UP CONTINUOUS STRUCTURAL CHANGE

ECONOMIC CYCLE

STRUCTURAL CHANGE

A MACROECONOMIC RECESSION

INTENSIFIES STRUCTURAL CHANGE OF INDUSTRIAL PRODUCTION

HARDLY EVER AGAIN REACHING THE FORMER LEVEL


What does this mean for the steel sector

The EU steel market is severely impacted by the recession and will be facing an unprecedented downturn this year. In the first half of 2009 the double-digit y-o-y decline in real consumption registered in Q4’08 and a further stock correction in distribution and at the end-user level will continue: apparent consumption will drop by 29%% y-o-y in Q1'09 and by a further 23% y-o-y in Q2'09; it will continue to decline in the remainder of 2009, albeit at a less dramatic rate; Q4’09 is expected to see some growth compared with the very low Q4’08 level. Following the 15% drop in 2009, some growth in apparent consumption is foreseen for 2010, owing to the absence of a huge stock reduction as seen in 2009.

The significant deterioration in economic fundamentals has fully hit the EU steel using industries; the first half of this year will see output falling by 10% y-o-y. The second half is expected to see a gradual easing of the downward trend, but on balance production in the steel using sectors will still fall 7-8% in 2009. Particularly the automotive sector is badly affected by the recession, but also construction, steel tubes and the engineering sectors cannot escape a sharply downward trend. Most sectors will see a mild improvement in 2010.

WHAT DOES THIS MEAN FOR THE STEEL SECTOR?

BASICALLY BAD NEWS!

EUROFER MARKET REPORT JANUARY 2009


Unprecedented steel production cuts

IN % Y-O-Y and will be facing an unprecedented downturn this year. In the first half of 2009 the double-digit y-o-y decline in real consumption registered in Q4’08 and a further stock correction in distribution and at the end-user level will continue: apparent consumption will drop by 29%% y-o-y in Q1'09 and by a further 23% y-o-y in Q2'09; it will continue to decline in the remainder of 2009, albeit at a less dramatic rate; Q4’09 is expected to see some growth compared with the very low Q4’08 level. Following the 15% drop in 2009, some growth in apparent consumption is foreseen for 2010, owing to the absence of a huge stock reduction as seen in 2009.

2008

Q4/2008

JAN/2009

GLOBAL PRODUCTION = 1.330 KTO

UNPRECEDENTED STEEL PRODUCTION CUTS

ALBEIT NOT PREVENTING STEEL PRICES DOWNDIVING


An extremely volatile price cycle on a global scale

USD/MT and will be facing an unprecedented downturn this year. In the first half of 2009 the double-digit y-o-y decline in real consumption registered in Q4’08 and a further stock correction in distribution and at the end-user level will continue: apparent consumption will drop by 29%% y-o-y in Q1'09 and by a further 23% y-o-y in Q2'09; it will continue to decline in the remainder of 2009, albeit at a less dramatic rate; Q4’09 is expected to see some growth compared with the very low Q4’08 level. Following the 15% drop in 2009, some growth in apparent consumption is foreseen for 2010, owing to the absence of a huge stock reduction as seen in 2009.

1250

1050

850

650

450

250

USD/MT

1250

1050

850

650

450

250

USD/MT

1250

1050

850

650

450

250

USD/MT

1250

1050

850

650

450

250

USD/MT

1250

1050

850

650

450

250

USD/MT

1250

1050

850

650

450

250

06 Q1 Q2 Q3 Q4 07 Q1 Q2 Q3 Q4 08 Q1 Q1 Q2 Q2 JUNE JULY SEPT OCT NOV DEC 09 JAN FEB

EARLY END EARLY END

06 Q1 Q2 Q3 Q4 07 Q1 Q2 Q3 Q4 08 Q1 Q1 Q2 Q2 JUNE JULY SEPT OCT NOV DEC 09 JAN FEB

EARLY END EARLY END

06 Q1 Q2 Q3 Q4 07 Q1 Q2 Q3 Q4 08 Q1 Q1 Q2 Q2 JUNE JULY SEPT OCT NOV DEC 09 JAN FEB

EARLY END EARLY END

06 Q1 Q2 Q3 Q4 07 Q1 Q2 Q3 Q4 08 Q1 Q1 Q2 Q2 JUNE JULY SEPT OCT NOV DEC 09 JAN FEB

EARLY END EARLY END

06 Q1 Q2 Q3 Q4 07 Q1 Q2 Q3 Q4 08 Q1 Q1 Q2 Q2 JUNE JULY SEPT OCT NOV DEC 09 JAN FEB

EARLY END EARLY END

06 Q1 Q2 Q3 Q4 07 Q1 Q2 Q3 Q4 08 Q1 Q1 Q2 Q2 JUNE JULY SEPT OCT NOV DEC 09 JAN FEB

EARLY END EARLY END

AN EXTREMELY VOLATILE PRICE CYCLE ON A GLOBAL SCALE

HAVE WE ALREADY REACHED THE BOTTOM ?

HOT ROLLED COIL DOMESTIC PRICE EX MILL

RUSSIA

USA

BRAZIL

EU 27

CHINA


Eu 27 impact on distribution business

DEMAND and will be facing an unprecedented downturn this year. In the first half of 2009 the double-digit y-o-y decline in real consumption registered in Q4’08 and a further stock correction in distribution and at the end-user level will continue: apparent consumption will drop by 29%% y-o-y in Q1'09 and by a further 23% y-o-y in Q2'09; it will continue to decline in the remainder of 2009, albeit at a less dramatic rate; Q4’09 is expected to see some growth compared with the very low Q4’08 level. Following the 15% drop in 2009, some growth in apparent consumption is foreseen for 2010, owing to the absence of a huge stock reduction as seen in 2009.

DEMAND

2008

2008

2009

2009

PRICE

PRICE

EU 27: IMPACT ON DISTRIBUTION BUSINESS

QUARTER 1/2009 COMPARED TO QUARTER 1/2008

STEEL FOR GENERAL USE(PROXIMITY BUSINESS)

STEEL FOR INDUSTRIAL USE(SUPPLY CHAIN BUSINESS)

- 30%

- 200 USD

- 55%

BUT DON'T FORGET:

QUARTER 1/2008 WAS A VERY GOOD ONE !

- 500 USD


As a consequence already since 2007

+ 4,4 % and will be facing an unprecedented downturn this year. In the first half of 2009 the double-digit y-o-y decline in real consumption registered in Q4’08 and a further stock correction in distribution and at the end-user level will continue: apparent consumption will drop by 29%% y-o-y in Q1'09 and by a further 23% y-o-y in Q2'09; it will continue to decline in the remainder of 2009, albeit at a less dramatic rate; Q4’09 is expected to see some growth compared with the very low Q4’08 level. Following the 15% drop in 2009, some growth in apparent consumption is foreseen for 2010, owing to the absence of a huge stock reduction as seen in 2009.

+ 4,0%

2007 ESTIMATE 2008 FORECAST 2009

- 3,2%

-7,2%

- 8,2%

- 15,2%

AS A CONSEQUENCE, ALREADY SINCE 2007

GROWTH RATES OF EUROPEAN REAL STEEL CONSUMPTION ARE NEGATIVE

= APPARENT CONSUMPTION

= REAL CONSUMPTION

IN THE AFTERMATH OF THE 2008 DEVELOPMENTSREAL STEEL CONSUMPTION MIGHT TURN DOWN EVEN FURTHER IN 2009


The financial crisis killing the steel markets
THE FINANCIAL CRISIS: KILLING THE STEEL MARKETS ? and will be facing an unprecedented downturn this year. In the first half of 2009 the double-digit y-o-y decline in real consumption registered in Q4’08 and a further stock correction in distribution and at the end-user level will continue: apparent consumption will drop by 29%% y-o-y in Q1'09 and by a further 23% y-o-y in Q2'09; it will continue to decline in the remainder of 2009, albeit at a less dramatic rate; Q4’09 is expected to see some growth compared with the very low Q4’08 level. Following the 15% drop in 2009, some growth in apparent consumption is foreseen for 2010, owing to the absence of a huge stock reduction as seen in 2009.

A CENTURY'S MISTAKE . . . HOPEFULLY THE LAST ONE . . .

AFTER 9-11 ANOTHER TRAUMA


But what really happened in 2008
BUT WHAT REALLY HAPPENED IN 2008? and will be facing an unprecedented downturn this year. In the first half of 2009 the double-digit y-o-y decline in real consumption registered in Q4’08 and a further stock correction in distribution and at the end-user level will continue: apparent consumption will drop by 29%% y-o-y in Q1'09 and by a further 23% y-o-y in Q2'09; it will continue to decline in the remainder of 2009, albeit at a less dramatic rate; Q4’09 is expected to see some growth compared with the very low Q4’08 level. Following the 15% drop in 2009, some growth in apparent consumption is foreseen for 2010, owing to the absence of a huge stock reduction as seen in 2009.

EVERYBODY SEEMS TO NAME THE FINANCIAL CRISIS

AS THE MAIN REASON FOR THE TURMOIL IN THE STEEL MARKETS

THIS IS LARGELY AN ALIBI ARGUMENT!

ACTUALLY WE SAW FOUR PROCESSES AFFECTING THE STEEL MARKET:

TWO MACROECONOMIC PROCESSES:

A GLOBAL ECONOMIC DOWNTURN INTO A RECESSION

A FINANCIAL CRISIS INCLUDING A CREDIT CRUNCH

TWO STEEL SPECIFIC PROCESSES:

AN EXTREMELY VOLATILE STEEL PRICE CYCLE

A STOCK MANAGEMENT TO REDUCE WORKING CAPITAL


Recession challenge and chance management options

What do do? and will be facing an unprecedented downturn this year. In the first half of 2009 the double-digit y-o-y decline in real consumption registered in Q4’08 and a further stock correction in distribution and at the end-user level will continue: apparent consumption will drop by 29%% y-o-y in Q1'09 and by a further 23% y-o-y in Q2'09; it will continue to decline in the remainder of 2009, albeit at a less dramatic rate; Q4’09 is expected to see some growth compared with the very low Q4’08 level. Following the 15% drop in 2009, some growth in apparent consumption is foreseen for 2010, owing to the absence of a huge stock reduction as seen in 2009.

. . . .

. . . .

. . . .

. . . .

. . . .

RECESSION: CHALLENGE AND CHANCE - MANAGEMENT OPTIONS

The market will not give credit

for yesterday’s success

The experiences of the past

are not necessarily

the solutions for tomorrow

He who does not move in time

will be removed in time


Recession challenge and chance management options1

What do do? and will be facing an unprecedented downturn this year. In the first half of 2009 the double-digit y-o-y decline in real consumption registered in Q4’08 and a further stock correction in distribution and at the end-user level will continue: apparent consumption will drop by 29%% y-o-y in Q1'09 and by a further 23% y-o-y in Q2'09; it will continue to decline in the remainder of 2009, albeit at a less dramatic rate; Q4’09 is expected to see some growth compared with the very low Q4’08 level. Following the 15% drop in 2009, some growth in apparent consumption is foreseen for 2010, owing to the absence of a huge stock reduction as seen in 2009.

. . . .

. . . .

. . . .

. . . .

. . . .

RECESSION: CHALLENGE AND CHANCE - MANAGEMENT OPTIONS

Macroeconomic trends affect different sectors differently

Given the heterogeneous sectors

general recommendations

are very limited

But there are some basic

crash management rules . . . .


The recession has reversed the management paradigma

MANAGEMENT and will be facing an unprecedented downturn this year. In the first half of 2009 the double-digit y-o-y decline in real consumption registered in Q4’08 and a further stock correction in distribution and at the end-user level will continue: apparent consumption will drop by 29%% y-o-y in Q1'09 and by a further 23% y-o-y in Q2'09; it will continue to decline in the remainder of 2009, albeit at a less dramatic rate; Q4’09 is expected to see some growth compared with the very low Q4’08 level. Following the 15% drop in 2009, some growth in apparent consumption is foreseen for 2010, owing to the absence of a huge stock reduction as seen in 2009.

DECISIONS

VALUE CREATION

LEVERS

CASH FLOW

SOURCING

VALUING

FREE CASH FLOWS

  • SALES GROWTH

  • EBITDA / EBIT / PBT

  • WORKING CAPITAL

CASH FLOWS

FROM BUSINESS

OPERATION

FREE CASH

FLOWS

  • CAPITAL EMPLOYED

  • INVEST DECISIONS

  • TIME HORIZON

CAPEX CASH OUT

DIVESTURES CASH IN

.

ENTERPRISE

VALUE

  • FINANCIAL DEBT .

  • GEARING RATIO

  • COST OF CAPITAL

WEIGHTED

AVERAGE COST OF

CAPITAL = WACC

DISCOUNTING

RATE

THE RECESSION HAS REVERSED THE MANAGEMENT PARADIGMA

SEEKING ENTERPRISE VALUE INSTEAD OF SHAREHOLDER VALUE !

OPERATIONAL

MANAGEMENT

ASSETS

MANAGEMENT

FINANCIAL

MANAGEMENT

THE FINANCIAL DEBT PARADOX: HAVING BANKERS LENDING YOU MONEY TODAY

IS NO MORE CONSIDERED AS A LIABILITY BUT AS AN ASSET FOR COMPANIES


The recession high stakes cash game

COST = LOSS and will be facing an unprecedented downturn this year. In the first half of 2009 the double-digit y-o-y decline in real consumption registered in Q4’08 and a further stock correction in distribution and at the end-user level will continue: apparent consumption will drop by 29%% y-o-y in Q1'09 and by a further 23% y-o-y in Q2'09; it will continue to decline in the remainder of 2009, albeit at a less dramatic rate; Q4’09 is expected to see some growth compared with the very low Q4’08 level. Following the 15% drop in 2009, some growth in apparent consumption is foreseen for 2010, owing to the absence of a huge stock reduction as seen in 2009.

INVESTMENT = RISK

NO RISK = FUN

DEBT = DEATH

BUSINESS = DANGER

LESS = MORE

CUT

COSTS

  • REDUCE

  • WCR

ADAPT

PORTFOLIO

LIMIT

CAPEX

NO COST = PROFIT

CASH = LIFE

NEEDED TIME

THE RECESSION HIGH STAKES CASH GAME

THE STEEL BARONS OF THE GLORIOUS PAST ARE ABOUT TO GO

PLAYING AT FOUR TABLES SIMULTANEOUSLY


Eurometal position

1967: ALL YOU NEED and will be facing an unprecedented downturn this year. In the first half of 2009 the double-digit y-o-y decline in real consumption registered in Q4’08 and a further stock correction in distribution and at the end-user level will continue: apparent consumption will drop by 29%% y-o-y in Q1'09 and by a further 23% y-o-y in Q2'09; it will continue to decline in the remainder of 2009, albeit at a less dramatic rate; Q4’09 is expected to see some growth compared with the very low Q4’08 level. Following the 15% drop in 2009, some growth in apparent consumption is foreseen for 2010, owing to the absence of a huge stock reduction as seen in 2009.

2009: ALL YOU NEED

IS LOVE

IS CASH

MANAGING FOR FREE CASH FLOWS

IN STEEL, TUBES AND METALS DISTRIBUTION & TRADING

GENERAL ASSEMBLY FEBRUARY 2009

EUROMETAL POSITION


2008 2009 lessons to be finally learned

DON'T START A PRICE CYCLE WHEN FUNDAMENTAL ECONOMIC INDICATORS SHOW A DOWNWARD TREND!

AND DON'T START RENEGOTIATIONS OF YEARLY CONTRACTS IN SUCH A NEGATIVE ECONOMIC SCENARIO!

STEEL PRODUCTION IS A BASE INDUSTRY AND ONLY EXCEPTIONALLY TRIGGERS THE USE OF STEEL!

REGULARLY STEEL PRODUCTION IS FULLY DEPENDENT ON THE UPS AND DOWNS OF THE STEEL CONSUMING INDUSTRIES

POOR GDP GROWTH = POOR INDUSTRIAL PRODUCTION

POOR GDP GROWTH = POOR INDUSTRIAL PRODUCTION

POOR INDUSTRIAL PRODUCTION = POOR STEEL CONSUMPTION

POOR GDP GROWTH = POOR INDUSTRIAL PRODUCTION

POOR INDUSTRIAL PRODUCTION = POOR STEEL CONSUMPTION

POOR STEEL CONSUMPTION = POOR STEEL PRODUCTION

2008 / 2009: LESSONS TO BE FINALLY LEARNED?

STEEL PRODUCTION (AND STEEL DISTRIBUTION) ARE A DERIVATIVE BUSINESS!


Market supply structures

STEEL PRODUCTION INDICATORS SHOW A DOWNWARD TREND!

STEEL PRODUCTION

- EXPORT

EXPORT

IMPORT

+ IMPORT

MARKET SUPPLY

STEEL CONSUMING INDUSTRIES

STEEL CONSUMING INDUSTRIES

STEEL DISTRIBUTION

STEEL DISTRIBUTION

STEEL MARKET

STEEL MARKET

THE NECESSARY BOTTOM UP PERCEPTION !

MARKET SUPPLY STRUCTURES

MARKET SUPPLY = SUPPLY OF THE STEEL CONSUMING INDUSTRIES !

MARKET SUPPLY = STEEL PRODUCTION - EXPORTS + IMPORTS ?

MARKET ------------------------- SUPPLY

MARKET SUPPLY

A CLASSICAL TOP DOWN PERCEPTION !


The survival of the fittest

AND MOST IMPORTANT - MOVE FAST! INDICATORS SHOW A DOWNWARD TREND!

Juergen Nusser

VICE PRESIDENT

The Survival of the Fittest

Steel Markets 2009

PRESIDENT

THE SURVIVAL OF THE FITTEST

DON'T HOPE TO SURVIVE, BUT TRAIN FOR IT!

DON'T BE A SITTING DUCK!


17 april 20091

17 APRIL 2009 INDICATORS SHOW A DOWNWARD TREND!

THANK YOU FOR YOUR INTEREST AND ATTENTION

www.eassc.org

www.eurometal.net


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