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EGS COMMODITY REVIEW February 26, 2007 Steven Call Commodities Steel Non-Ferris Metals Stampings

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EGS COMMODITY REVIEW February 26, 2007 Steven Call Commodities Steel Non-Ferris Metals Stampings. Steel Market Update. USA Market Current Q1 prices down 17% from 2006 Q4 high Inventories have increased with automotive and housing markets soft Capacity at 84%

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EGS COMMODITY REVIEW

February 26, 2007

Steven Call

Commodities

Steel

Non-Ferris Metals

Stampings

steel market update
Steel Market Update

USA Market

  • Current Q1 prices down 17% from 2006 Q4 high
    • Inventories have increased with automotive and housing markets soft
    • Capacity at 84%
  • Industry consolidation continues
    • The big four, Mittal-Arcelor, US Steel, Nucor & AK, controls 80% of the market
  • New business model seen recently
    • Esmark – a distributor – working to purchase two mills and a galvanizer
  • Future forecast uncertain – steel producers trying to reduce capacity to retain pricing
  • US government continues to be protective with imported steel

Miscellaneous 20%

Mittal 32%

AK 9%

Nucor 16%

US Steel 23%

Top 4 Suppliers Control 80% of Market

steel market update1
Steel Market Update

Global Market

  • General
    • Global consolidation continues
      • Mittal (Europe): MMK (Russia) / Sicartsa (Mexico) / Worthington (US)
      • Tata (India) : Corus (EU)
      • Nucor (US): Harris (Canada)
  • China
    • China manufacturers advantage to US price for Cold Roll Galvanized Steel
      • 2004-2006 20%
      • 2007-2009 12%
    • Pricing has increased 1Q07 with higher value added tax and iron ore costs
    • China is rolling back incentives to export steel as consumption is coming closer to equaling supply
  • Mexico
    • Maintains US pricing
    • Net importer of steel – only 3 manufacturers within Mexico
  • Europe
    • Now a price leader pulling in imports
steel market update2
Steel Market Update

Forecast

  • Global steel demand increasing
    • 3.7% five year growth forecast
  • Production increasing in developing regions
    • Brazil, China, Eastern Europe and India are expanding production
  • Consolidations to continue
  • Potential destabilizing effects exist
    • China
      • Supply / demand balance
      • Raw material costs
      • Inflation
    • USA
      • Weakening currency
    • Eastern Europe
      • Oil & Gas Market

15% Demand Growth next 5 years

CIS, Brazil & India Will be the Dominant Low-Cost Source of Steel

China’s Demand Growth Expected to Balance Supply Expansion

lamination duo core market update
Lamination/Duo-Core Market Update

Energy Star Transformer – Duo-Core Launch

  • Three suppliers
    • Lakeview / Electro-core / Tempel
  • Cores consist of a material blend of
    • M-4 GO $2.23 / lb 6 Month Lead Time
    • M-12 NGO $1.22 / lb 4 Month Lead Time
  • Material Status
    • M-4
      • 12 Suppliers worldwide – limited spot tons available
      • AK & Allegany – North America – sold out until 2009
    • M-12
      • About 15 suppliers worldwide – very limited spot tons available
      • AK & Allegany – sold out until 2009
steel commodity overview
Steel Commodity Overview
  • Market Opportunities
    • Leverage global sourcing options
    • Use long term agreements for price stabilization
    • Align stamping moves to Mexico with the steel team to ensure flat roll supply
    • Improve overall logistics costs through supply chain management
steel supplier overview
Steel Supplier Overview
  • Opportunities
    • US Steel – 220 tons/week - renegotiate if market drops below contract
      • Current contract at $696/ton - February market price is $710/ton
    • All distributor costs - evaluate for more cost effective ways to manage the buy
      • Review utilizing long term agreements or purchasing direct from mills
    • Sorrel and Busheling
      • Review if logistic costs can be reduced
    • Inventory
      • Review current inventory and sell excessive stock to distributors
steel projects
Steel Projects
  • Distributor Steel – Purchase price savings
    • Resource distributor steel direct from the mill – US Steel
      • US Steel will maintain the galvanizing and shipping adders that are part of the current contract
      • Low volume steel will be included in the next long term agreement
  • Sorel -– Logistics and purchase price savings
    • New supplier to ship FOB South Milwaukee with a cost reduction
      • Savings includes
        • Purchase Price -$5K
        • Shipping -$28K
base metals commodity overview
Base Metals Commodity Overview
  • Opportunities
    • Continue hedging program for zinc, aluminum and copper
    • Review contracts for long term opportunities
raw material supplier overview
Raw Material Supplier Overview
  • Issues
    • Limited domestic supply base
    • Payment terms not at 5th 3rd prox across all suppliers
    • 2 suppliers for aluminum
      • Wabash Alloys, Custom Alloy Light Metals
    • 4 suppliers for zinc can service EGS
      • Allied Metals, Ritchey, Imperial Zinc, Eastern Alloys
  • Opportunities
    • Extend payment terms for all suppliers
stamping commodity overview
Stamping Commodity Overview
  • 992 different part numbers purchased FY06
  • 146 Suppliers
    • 113 suppliers below $40K / year
  • Atizapan, MX
    • Only 8 out of 42 suppliers are located in Mexico
      • A total of $ 1,127K in spend comes from outside of Mexico
  • Stamping supplier consolidation becomes a prime focus this year
stamping supplier overview
Stamping Supplier Overview
  • Opportunities
    • Reduce number of suppliers
      • 113 suppliers under 40K spend
    • Improve supply chain costs – transportation, duty, inventory and manufacturing costs
      • Review global options
    • Improving ordering process
      • Utilize blanket orders and forecasting methods
stamping projects
Stamping Projects
  • Electrical Gang Boxes and Covers
    • Re-sourcing the manufacture and packaging to UMI located in China
      • Stephenville currently purchases from a competitor and repackages
    • Timing
      • To complete final agreement and issue purchase order early March 2007

Parts to start arriving May 2007

stamping projects1
Stamping Projects
  • Electrical Box Knockouts – Delivery and Logistics Savings
    • Current supplier delivery at 40% on time.
    • Re-sourcing to Apple Industries in India.
    • Total savings $25K per year

Labor & packaging -$10K Logistics -$6K Part Cost -$4K Timing

      • To issue purchase order February 2007, Parts to arrive May 2007
stamping projects2
Stamping Projects
  • Ferrules - Duty and Transportation Savings
    • Current supplier is located in China – shipping to Atizapan, MX
      • Total savings:

Duty savings on completed assemblies -$116K

Logistics -$5K

    • Assuming no piece part savings
    • Timing
      • Submitting information for April E-souring event
stamping projects3

Accurate Metal Prod.

Connector Mfg Co.

Cookson Group

Deringer-Ney

Gilbert Spring

Griffiths Corp

Line Tool & Stamp

Manor Tool & Mfg

Nu-way Ind.

Stanley Spring

Clampco

Jones Metal

Progressive Die

Auto-form

Gem Mfg

Hessels

Howard Eng

Taco

Platt Brothers

Dex M Corp

Wire Products

A.L.P Lighting

NC Automated

Rummel Ind.

Topco

Blazer Mfg

Chief Ind.

Superior Metal

Mohrmann Tool

Deaver

Artmark

Dayton Rogers

Atizapan

Stamping Projects
  • Mexico Product Relocation
    • To review the current $1,127K buy outside of Mexico
      • Logistics, inventory and DPO opportunities
  • Timing
    • Will plan on reviewing projects and having multiple E-Sourcing events.
      • May and July 2007
    • Will work with Mechanical Components team to combine like parts with other Emerson E-Sourcing events
stamping projects4
Stamping Projects
  • Potential supplies to be identified
    • Emerson divisions have had success using Monterey, Mexico based suppliers
  • To review total supply chain costs
    • Review any additional value add that may be appropriate
    • Transportation - enclosures are low density / high logistics costs
      • Mode product is being shipped from Wisconsin to Alabama
  • Determine strategy for sourcing
    • Monitoring current conditions that could be detrimental to e-sourcing event
      • Steel prices will be a major driver for the success of the event
  • Timing
    • Plan for June E-sourcing event
      • E-sourcing event planned for
        • Mode Industries - $686K
          • June’07 E-source event – Sept’07 Completion
        • MPC – $1,472K
          • Sept’07 E-source event – Dec’07 Completion
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