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Steel Industry Overview. Régulo Salinas Cancún, México October 2007. Production Volume (Million tons). Compound Annual Growth Rate (Average % for 5 year periods). Production per Capita (Kg / Capita). 1400. 12. 200. 1,244. 191. 1200. 10. 180. 1000. 8. 160. 800. 6. 140. 600.

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steel industry overview

Steel Industry Overview

Régulo Salinas

Cancún, México

October 2007

global steel industry resumed its growth after decades of stagnation and low profitability

Production Volume

(Million tons)

Compound Annual Growth Rate

(Average % for 5 year periods)

Production per Capita

(Kg / Capita)

1400

12

200

1,244

191

1200

10

180

1000

8

160

800

6

140

600

4

120

400

2

100

200

0

80

0

-2

60

50

55

60

65

70

75

80

85

90

95

00

05

06

50

55

60

65

70

75

80

85

90

95

00

05

06*

50

55

60

65

70

75

80

85

90

95

00

05

06

* 2006/2005

Global Steel Industry Resumed its Growth After Decades of Stagnation and Low Profitability

World Crude Steel Production

Sources: IISI, World Steel in Figures 2007; Geographic Information Systems

china has been the main driver behind growth changing the industry structure
China has Been the Main Driver Behind Growth, Changing the Industry Structure

World Crude Steel Production

1975

2006

North America

Other

North

America

Other

Central & South

America

Central &South

America

13%

11%

11%

3%

19%

CIS

4%

10%

Western

Europe

9%

16%

23%

Japan

EU 25

22%

USSR

3%

1%

5%

16%

34%

India

India

China

China

Japan

1,244 Million Tonnes

644 Million Tonnes

Source: IISI, World Steel in Figures 1976, 2007

the other driver behind growth profitability has been industry consolidation
The Other Driver Behind Growth & Profitability has been Industry Consolidation

Number of Steel Industry M & A’s

Amount (US$ Billions)

73

71

68

53

28

24

2004

2005

2006

2004

2005

2006

Source: Bloomberg, Completed Deals

global steel price cycle shows two eras

07

06

05

04

03

02

01

00

99

98

97

96

95

94

93

92

91

90

89

Global Steel Price Cycle Shows Two Eras

Supply Driven

Privatization

Cost Based

Demand Driven

Consolidation

Price Based

US$ / ton

900

900

China + Global GDP

800

800

Sep ’07 = 573 (USA)

700

700

Asian Crisis

600

600

Steel Crisis

500

500

US$ / ton

400

400

384

370

300

300

**

200

200

Russian Crisis

208

100

100

0

0

China HRC Estimated Costs

(w/o General Expenses)

HRC US*

HRC Europe*

HRC CIS*

* Constant dollars (July 2007)

** 2006 cost plus iron-ore price increase (9.5% abril 07)

Source: CRU / WSD

growing regional steel concentration

Total CIS

113

Total Europe

166

Total US / Canada

110 *

Total China

349

Total Others Asia

105

Total Latin America

63

Total Japan

112

Growing Regional Steel Concentration

Top 5 producer’s share in 2006 production

* Million tonnes per year

Source: IISI

global concentration lagging behind other metals suppliers and key customers
Global Concentration Lagging Behind Other Metals, Suppliers and Key Customers

Industry Concentration, Top 5 Producers

(%)

81%

72%

66%

Top 7

49%

40%

38%

28%

20%

Iron Ore

Nickel

Alumina

Aluminum

Copper

Zinc

Steel

Automotive

Sources: Morgan Stanley Research, 16 Feb 2007 IISI, World Steel in Figures 2006 JD Power

impact of industry consolidation will become more apparent in coming years
Scale economies and synergies

Better balanced steel inventories

Optimization of Cost / Production / Logistics

Global production / Local customer service

Optimal plant location

Optimal use of resources — capital, physical, labor

Faster response to market volatility and trends

Better balance with suppliers and customers

Increased competition among large, efficient producers

Impact Of Industry Consolidation will Become More Apparent in Coming Years

Tactical

Level

Strategic

Level

mexico s steel demand
Mexico’s Steel Demand

Mexico’s Apparent Steel Consumtion

(MM tons)

22

20

Imports

Imports

/ ASC

23%

18

16

14

Apparent Steel Consumption

12

10

CAGR*: ’96-’07e: 6.4%

8

6

4

Production

2

0

07e**

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

* Compound Average Growth Rate

Source: Canacero

** 2007: Jan-July annualized

mexican steel imports
Mexican Steel Imports

Steel Products Imports

(Million tons)

6.0

5.0

Total

4.0

Long Products

3.0

2.0

1.0

Flat Products

0.0

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07*

* 2007: Jan-July annualized

Source: Canacero

mexican market structure
Mexican Market Structure

Steel Products Demand in Mexico 2007*

(%)

Other **

13%

50%

Flat Products

Long Products

37%

* Seamless pipe, structural shapes, rails, Etc.

** January – July annualized

raw steel production in mexico
Raw Steel Production in Mexico

2006 Raw Steel Production

Ternium Hylsa

Other

20%

24%

Tamsa

6%

Sicartsa(Mittal)

5%

21%

24%

Ahmsa

Mittal Steel Lazaro Cardenas

16.3 million tons

Source: Canacero

mexican commercial market structure
Mexican Commercial Market Structure

Industrial

Consumers

Service

Centers

Steel Mills

  • Automotive
  • Domestic appliances
  • Motors
  • Containers
  • Metallic furniture
  • Machinery & equipment
  • Other

Traders /

Retailers

Imports

Construction

Agriculture and others

efficient low cost operations

WSD 2006 World Cost Curve

(Hot Rolled Band Operating Costs before overhead)

Source: World Steel Dynamics

Efficient, low cost operations
u s forecasted price upturn to be reflected in mexico
U.S. Forecasted Price Upturn to be Reflected in Mexico

US HRC Price

US$ / ton

900

Forecast

800

700

GFMS

600

CRU

500

400

300

200

E

A

J

O

E

A

J

O

E

A

J

O

E

A

J

O

E

A

J

O

E

A

J

03

04

05

06

07

08

Projections: CRU Quarterly Oct 07

Actual: CRU September 07

GFMS September 07

positive domestic economic perspectives
Positive Domestic Economic Perspectives

Source: Harbor Intelligence, August 2007