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American Gear Manufacturers Association Steel Consumption Update

American Gear Manufacturers Association Steel Consumption Update. Cengiz Kurkcu President - Industrial Engineered Steel Solutions The Timken Company March 9, 2011. Agenda. The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development

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American Gear Manufacturers Association Steel Consumption Update

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  1. American Gear Manufacturers AssociationSteel Consumption Update Cengiz Kurkcu President - Industrial Engineered Steel Solutions The Timken Company March 9, 2011

  2. Agenda • The Timken Company • Market Outlook • Current Business Cycle • Business Strategy • New Business Development • Raw Material Trends • Green Trends & Steelmaking • U.S. Manufacturing

  3. The Timken Company Our History • Founded in St. Louis in 1899 by Henry Timken after receiving patents for a tapered roller bearing • Relocated to Canton, Ohio, in 1901 • Began steel production in 1917 • $1 billion in revenue – 1978 • $2.2 billion in revenue – 1995 2010 Total Sales: $4.1 Billion Steel$1.3 Billion Bearings& PowerTransmission$2.8 Billion Excludes intersegment sales

  4. The Timken Company Our Business Structure Steel Group Bearings and Power Transmission Group Process Industries Heavy Industries Industrial Processes Gear Drives Energy Industrial Distribution Alloy Steel & Value-added Solutions Oil & Gas Mobile On-Highway Industrial Mobile Industries Light Vehicle Off Highway Rail Auto Aftermarket Heavy Truck Aerospace & Defense Defense Commercial General Aviation Positioning ControlHealth

  5. Steel Group Oil & Gas Heavyweight Drill Pipe Drill Bits Drill Collars Mud Motors Tool Joints Supply Chain Management Value-Added Machining Mobile On-Highway Passenger Car Light Truck Medium/Heavy Truck IndustrialAgriculture, Bearing Construction Equipment Distribution Industrial Machinery Mining, Rail Power Transmission Wind Energy

  6. Steel Group 2010 Net Sales Market Selection Industrial BearingSteels Mobile On-Highway 35% Rail Passenger Car Industrial 48% IndustrialMachinery Light Truck Heavy Truck Vehicle BearingSteels DrillingEquipment Farm & Mining Equipment Aerospace & Defense Off-Highway & Transportation Oil & Gas 17% ProductionEquipment Wind & PowerGeneration

  7. Steel Group Our Products • 450 grades of carbon and alloy steels • Special bar quality steel • Seamless mechanical steel tubing • Well-boring and finishing products • Precision steel components Steel Group

  8. Agenda • The Timken Company • Market Outlook • Current Business Cycle • Business Strategy • New Business Development • Raw Material Trends • Green Trends & Steelmaking • U.S. Manufacturing

  9. Key Economic Indicators Purchasing Manager’s Index (PMI) Weekly Leading Index (WLI) Industrial Production Index (IPI) • PMI up 0.6 points from February and the highest since May 2004 • WLI up from January • Industrial production highest since August 2008

  10. U.S. Vehicle Sales Rates - SAAR Mid-Month Forecast Sustained recovery with slow growth into 2011 Source: Ward’s Automotive Weekly & IHS (forecast) 10 10 10 10 10 10 10 10 10 10 10 10 10

  11. N.A. Medium & Heavy Truck Production 7% 21% 24% 37% Estimate over 500,000 tons of future SBQ demand

  12. Key Industrial Indicators • Industrial Machinery • Durable Goods • Railroad Equipment • Mining (excluding Oil & Gas) • Construction Machinery • Agricultural Machinery • Utilities 2011 vs. 2010 18% 9% -4% 3% 4% 4% 1%

  13. Global Drilling vs. Timken Steel Supply

  14. Key Oil & Gas Indicators Natural Gas: Henry Hub Crude Oil: WTI Cushing Natural Gas Storage Level US Rigs Drilling for Oil Approaching 50%

  15. Industrial Oil & Gas Mobile On- Highway Market Segment Outlook - 2011 • Sustained market recovery for light vehicle market • 2011 production forecast at 12.9 million vehicles, 9% above 2010 • Initial stage recovery for medium and heavy truck market • Higher oil prices drive 11% world rig count growth • Exploration & Production budgets increase 11% in 2011 • Horizontal Drilling continues to grow • Strong demand expected through 2011 • Customer inventory replenishment continues • Healthy orders in most end-markets & products

  16. Agenda • The Timken Company • Market Outlook • Current Business Cycle • Business Strategy • New Business Development • Raw Material Trends • Green Trends & Steelmaking • U.S. Manufacturing

  17. World Apparent Steel Use New record(2010) Percent Change Growthslowing

  18. NAFTA Apparent Steel Use 2011

  19. U.S. SBQ Apparent Consumption Source: AISI & Timken Data

  20. Bar & Tube Lead-times Weeks • July 2011 • If billets available

  21. Agenda • The Timken Company • Market Outlook • Current Business Cycle • Business Strategy • New Business Development • Raw Material Trends • Green Trends & Steelmaking • U.S. Manufacturing

  22. Steel Group Strategic Focus • Timken Boring Specialties • Daido Steel Collaboration • City Scrap & Salvage • Small bar mill • Custom heat treat • Large bar UT inspection • New high carbonfurnace • Forge press • New products / customers • Value selling • Market plan / market selection • Global oil & gas supply chain • International warehouses / supply chain • Tube finishing line • Lean6Sigma / continuous improvement • Operational improvements • Lay down yard

  23. Strategic Plan • Global diversity & leadership • Differentiated solutions • Attractive, long-term risk-adjusted returns • Effective business cycle management Small Bar Mill Tube Finishing Line In-line Forge Press Large Bar UT

  24. Agenda • The Timken Company • Market Outlook • Current Business Cycle • Business Strategy • New Business Development • Raw Material Trends • Green Trends & Steelmaking • U.S. Manufacturing

  25. Inquiry Turnaround January 2011 80% 74% 72% 70% 70% 60% 50% 41% 40% 38% 30% 20% 18% 17% 16% 12% 10% 9% 10% 7% 5% 5% 4% 2% 0% Industrial Mobile On-Highway Oil & Gas Total 0-2 Days % 2-10 Days % 10-20 Days % Over 20 Days %

  26. New Business Sales Ratio 35% 30% 25% 20% 15% 10% 5% 0% YTD 2010 Jul-11 Apr-11 Sep-11 Jan-11 Mar-11 Jun-11 Oct-11 Feb-11 May-11 Aug-11 Dec-11 Nov-11 2011 Fcst Actual Plan

  27. Decision Agenda Execution Agenda Identify Define Implement Realize Idea Stage 1 Discovery Stage 2 Evaluation Stage 3 Concept Stage 4 Development Stage 5 Validation Stage 6 Launch Stage 7 Control G2 G6 G5 G4 G3 G1 Strategic Alignment Strategic Evaluation Feasibility Analysis Business Case Commercial Development Implement Strategy Product Life Cycle Advanced Program Management Stage-Gate Process • New Equipment Capability • Radial Flow Forming • Grade Development • Iron Aluminum Platform • API-6A Specification • Processing • Non-Ferrous Piercing • Raise Bore Drill Rods PRODUCT DEVELOPMENT COMMERCIAL DEVELOPMENT • New Equipment Capability • In-Line Forge Press (<16”) • Internal Green Machining • Grade Development • FSP Premium High Carbon • Gear Steels • Processing • Large Sound CenterBar (<16”)

  28. Gear Steels • Clean steel • Longer bearing and gear life • Power density • Timken offers over 400 different grades • Common gear grades 43xx (18CrNiMo7-6) and 41xx (42CrMo4) • Demanding gear applications • Rail (locomotive), mining, wind, off-highway vehicles

  29. Developing Local Presence • Role of agents and forwarders • Local sales and service teams • Local operating partners • Ventures and agreements • Need for operating presence • Commitment of customers and suppliers • Investment in plant and warehouse Sales Office Warehouse Plants Value Add SupplierFacilities Sales Agents New Asia collaboration model – high performance regional supply chain

  30. Agenda • The Timken Company • Market Outlook • Current Business Cycle • Business Strategy • New Business Development • Raw Material Trends • Green Trends & Steelmaking • U.S. Manufacturing

  31. World Crude Steel Production 1,413.6 Million Metric Tons (2010) Europe22% China44% North America8% South America 3% Africa 1% Other Asia 19% Middle East 2% Australia / New Zealand 1% Source: worldsteel

  32. Supply Tensions Will Remain China’s Iron Ore Purchases Source: JB Were, First River

  33. 1997-2010 (July) Annual / Monthly ($/ton) China Iron Ore Drives US Scrap Price Monthly Source: Vale, AMM, First River analysis

  34. Timken Metal Recycling Strategy Raw Material Feedstock • Key Approaches • Regional scrap management • Industrial accounts • Scrap consulting & brokerage • Supply agreements Ind. Accts. Auto Wreckers Other Scrap Yards Shredder ObjectivesReliable supply of iron units at a competitive costCapture the return flow of scrap from the customers / suppliers

  35. Agenda • The Timken Company • Market Outlook • Current Business Cycle • Business Strategy • New Business Development • Raw Material Trends • Green Trends & Steelmaking • U.S. Manufacturing

  36. Green Trends & Steelmaking Continuous Improvement Electricity Consumption KWH per Ship Ton Natural Gas Consumption MCF per Ship Ton

  37. Green Trends & Steelmaking • Regenerative burner technology • Waste heat recapture systems • Automated scrap cutting

  38. Agenda • The Timken Company • Market Outlook • Current Business Cycle • Business Strategy • New Business Development • Raw Material Trends • Green Trends & Steelmaking • U.S. Manufacturing

  39. U.S. Manufacturing • American manufacturers start with a non-production cost disadvantage of 18% versus our major trading partners • U.S. steel producers spend 18% more on taxes, energy, benefits, torts, and regulatory compliance than our foreign competitors

  40. U.S. Manufacturing Restoring Balance • Tax Structure • Second highest among all OECD countries • Double-taxing global revenues • R&D tax credits • Regulatory Discipline • EPA regulations • OSHA policies • NLRB directives • Energy Policy • Investment in energy infrastructures • Energy efficiency and conservation • Diverse portfolio of fuel sources

  41. Collaboration – Vital to Future Success

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