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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 Industry consolidation continues The big four Mittal-Arcelor, US Steel, Nucor & AK controls 80% of the market New business model seen recently

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Presentation Transcript
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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

  • 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 – purchased two mills and a galvanizer
  • Current Q1 prices down 17% from 2006 Q4 high
    • Inventories have increased with automotive and housing markets soft
    • Capacity at 84%
  • Future forecast uncertain – steel producers trying to reduce capacity to retain pricing
  • US government continues to be protective with imported steel

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 (USA)
      • Tata (India) : Corus (EU)
      • Nucor (US): Harris (Canada)
  • China
    • Internal steel users see a 39% cost advantage compared to NA manufacturers
    • Pricing and supply have increased 1Q07 with higher iron ore costs
    • Capacity near 100% - China remains a net importer of steel and scrap
  • Mexico
    • Maintains US pricing
    • Net importer of steel
  • Europe
    • Now a price leader pulling in imports
steel market summary
Steel Market Summary

Summary

  • Global steel demand increasing
    • 3.74% CAGR
  • 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 stream management
steel supplier overview
Steel Supplier Overview
  • Opportunities
    • US Steel - renegotiate if spot drops below market
      • Current contract is below market – continue to monitor spot market
    • All distributor costs - evaluate for more cost effective ways to manage the buy
      • Utilize long term agreements or purchasing direct
    • Sorrel and Busheling
      • Review if logistic costs can be reduced
    • Inventory turns
      • Obsolete or 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 .063” contract
      • Steel will be purchased at spot and 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 ($5)
        • Shipping ($28K)
raw metals commodity overview
Raw Metals Commodity Overview
  • Issues
    • Price volatility day-to-day
    • Market volatility driven by Hedge Funds
  • 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 Metal
    • 4 suppliers for zinc can service EGS
      • Allied Metals, Ritchey, Imperial Zinc, Eastern Alloys
  • Opportunities
    • Extend payment terms for all suppliers