Damstahl A Guide for Investor

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1 Damstahl Bi-Monthly Stainless Steel Briefing May 2014 Damstahl 2014, Damstahl - a member of the NEUMO-Ehrenberg-Group - 1 -

2 Damstahl Bi-Monthly Stainless Steel Briefing Issue 38, May 2014 Contents Stainless Steel at a Glance European Industry News & Business Climate (PMI) Market Performance: Relevant Issues in Germany Netherlands Denmark Sweden Norway Slovenia Damstahl 2014, Damstahl - a member of the NEUMO-Ehrenberg-Group - 2 -

3 Stainless Steel at a Glance The tide has turned Demand: Nickel and Molybdenum prices have risen by 40% since the beginning of the year which should lead to an re-stocking trend throughout the supply chain all the way to the end user. But so far the industry is surprisingly reluctant to do so. But, also real demand shows signs of improvements in several segments that use stainless steel. Mills: European mills have lost market shares against Asia and India in recent years. Therefore it is important for European mills to stabilize their position in the home market. Especially China became a major supplier to the rest of the world. In 2013, around 12% (2012: 8%) of all Chinese stainless steel exports were delivered to Europe, mainly to Italy and Germany. For the first time in history, Chinese producers melted more than 20 mill. t of stainless steel in 2013 (+17% yoy) and it is expected that Chinese production will grow by another 8% in 2014, keeping the pressure high on European mills limiting the possibility of significant base-price hikes. Prices: Base prices dropped to ~1,000 EUR/t in Q1/14 (lowest level since 2010), but it seems that the price erosion has stopped now. Surprisingly, prices for stainless steel commodity products are lower in Germany and Benelux than in most other European countries. Stocks: There is some re-stocking expected in Q2/14 as mill lead times get longer (exceeding 3 months) and nickel prices are rising further driven by the Indonesian ore export ban. Nevertheless distributors still seem to be hesitant to place bigger orders that exceed their current needs. End Use Segments: Building and Construction: Outlook for 2014 is quite positive. According to ZDB (Zentralverband Deutsches Baugewerbe), the German turnover growth reached +22% in January 2014 (yoy). ZDB forecasts a growth in building activity for residential buildings of 5% in 2014 (yoy), while non residential buildings will grow by only 2.5%. Consumer Goods: ZVEI (Zentralverband Elektrotechnik und Elektronikindustrie), reports on a favourable market situation in the German appliance industry with revenues up by 3.8% in the first two month of 2014 (yoy). Automotive: Consumers buy more cars. Besides German premium cars also brands that suffered for some time (e.g. Peugeot- Citroen). In Q1/14 the German passenger car production increased by 11% to 1,475,200 vehicles. For 2014 a 3-4% growth seems to be realistic. Due to elevated stock levels, material use for exhaust systems will grow below this level. Process Industry: The German Engineering Association (VDMA) expects a production growth of at least 3% in Although, the order intake in the first two months of 2014 was below earlier expectations. Damstahl 2014, Damstahl - a member of the NEUMO-Ehrenberg-Group - 3 -

4 European Industry News Outokumpu melt shop shut-down plans take on concrete shapes In spite of improved Q1/14 results, mills remain somewhat sceptical The European stainless crude steel production was 670,000 t in February 2014 (+2% yoy) compared to 660,000 t in February Damstahl-Countries Slovenia (+32% yoy) and Sweden (+9% yoy) achieved high growth figures while the production in Germany (-17% yoy) has declined after the melt shop closure in Krefeld. Outokumpu Stainless: Negotiations regarding the company s industrial plan have been successfully concluded with the unions in Germany. Key elements of this plan are the closure of the Bochum melt shop in 2015, an investment of 108 mill. EUR at the Krefeld cold rolling center between 2014 and 2016 through the ferritic production optimization (NIFO-project = Nirosta-Ferri-Optimierung), as well as the closure of the Benrath cold rolling mill in 2016 after the production transfer to Krefeld has been completed. These measures which lead to a reduction of 1,000 jobs in Germany, will bring 100 mill. EUR annual savings and thus contribute to the overall cost savings of 450 mill. EUR by the end of Furthermore the closure of the precision strip operations in Kloster by the end of 2014 will result in additional annual savings of 15 mill. EUR. Net sales in Q1/14 amounted to 1,617 mill. EUR (-13% yoy) compared to 1,531 mill. EUR in the previous quarter, while external deliveries reached 676,000 t in Q1/14 (Q1/13: 703,000 t, Q4/13: 620,000 t). For the current quarter Outokumpu expects similar or slightly higher delivery volumes as well as some improvement in base prices, keeping up its cautious optimism about the market sentiment. Acerinox: Q1/14 results show a clear improvement, mainly due to the increase in sales volume and the efficiencies achieved by cost reductions. Net sales in Q1/14 amounted to 1,024 mill. EUR (-1% yoy) reflecting low prices, but sales in tonnes increased by 10% in the same period. EBITDA in Q1/14 was 89 mill. EUR (+30% yoy). The margin on sales of 8.7% is the highest since Q2/11. Net result in Q1/14 was 25 mill. EUR (+64% yoy; and 70% higher than in Q4/13). Acerinox reports that their order book is the highest in the last three years which guarantees a good activity for the coming months, but there is still uncertainty in how quickly Europe is able to exit the crisis and how to deal with overcapacity in the sector. The Group s melt shop production was 617,500 t in Q1/14 (+5.2% yoy) and the highest since Q1/08. North American Stainless has achieved record quarterly production. Cold rolling production amounted to 384,500 t (+5.2% yoy) and hot rolling production was 542,000 t (+5.3% yoy). Schmolz+Bickenbach: The new group CEO Clemens Iller took his position on April 1 st. He held several topmanagement positions in the stainless steel flat products industry recently. Damstahl 2014, Damstahl - a member of the NEUMO-Ehrenberg-Group - 4 -

5 Index of 50 = Break Even Point Where do we stand in the Business Cycle? PMI Status March 2014 Europe and the U.S. confirmed their positive trend China barely in positive territory 65 EU USA China Damstahl 2014, Damstahl - a member of the NEUMO-Ehrenberg-Group - 5 -

6 [metric t] China Monthly Exports February 2014 After peaking out in January 2014, Chinese exports radically went down again to Q3/13 levels and even below for Long Products Flat Products Long Products *excl. internal trade Damstahl 2014, Damstahl - a member of the NEUMO-Ehrenberg-Group - 6 -

7 Relevant Issues in Damstahl-Land Germany, Netherlands Germany: April showed a stable and satisfactory end-user demand. Distributors are placing mainly smaller orders, despite expected price increases in May and June. Easter holidays might be a reason for the subdued demand. Automotive: In March 2014, new registrations of passenger cars in Germany grew by 5% (yoy) to 296,400 units. Exports increased by 7% (yoy) to 374,700 units. Domestic production also continued its gains in March, turning in growth of 10% (yoy) to reach 519,700 passenger cars. VDMA, the German Engineering Association, reported that incoming orders in the mechanical and systems engineering sector in Germany were down by 4% in February 2014 (yoy). Mainly caused by weaker domestic orders (-5%), while international orders stagnated. GEA Group: Revenues rose by 3% (yoy) to 951 mill. EUR in Q1/14 (Q1/13: 924 mill. EUR). Overall order intake fell by 6% in Q1/14 (yoy) to 1,024 mill. EUR (Q1/13: 1,095 mill. EUR) caused by a 24% decline in large orders in the GEA Process Engineering segment. GEA Group will divest its Heat Exchangers (HX) Segment to the German investor Triton for a value of 1.3 bn EUR. With the divestment of HX, GEA Group increases its food processing technology share to over 70% of group revenues. GEA Group intends to use the proceeds from the sale for further reinforcing its core business by means of targeted acquisitions. Bosch und Siemens Hausgeräte GmbH (BSH) increased its annual revenues to over 10 bn EUR for the first time in 2013 (+7% yoy to 10.5 bn EUR). Especially double-digit growth in China and the USA contributed to this recordsetting revenue. EBIT was 500 mill. EUR. Schmolz+Bickenbach started with the selling process of its distribution units in Germany, Belgium, Austria and the Netherlands. The distribution division mainly sells material from third parties, while S+B wants to focus on its own, high-margin products rather than on commodity steel grades. Netherlands: Both market and economic situation in the Netherlands have improved in Q1/14 and companies are growing in turnover although this trend is not visible throughout all branches. Increases of the alloy surcharge and rising base prices of stainless steel products seem to motivate the distributors to refill their stocks. However, in the short term, stock levels are declining due to longer delivery times. The output of the Dutch manufacturing industry shows a considerable growth of 5.2% in February 2014 (yoy). The electrical products and machinery sector grew by 9.3%, and with 6.9% growth output levels in transport equipment were also significantly higher than in early DSM (production of life-science chemicals): The company is opening 3 new R&D facilities in the Netherlands in 2014 (investment around 100 mill. EUR). AkzoNobel: Revenues -2% in Q1/14 (yoy) - net income increased by 45% (yoy) to 129 mill. EUR. Damstahl 2014, Damstahl - a member of the NEUMO-Ehrenberg-Group - 7 -

8 Relevant Issues in Damstahl-Land Denmark, Sweden Denmark: The market is currently rather active and the order horizon lengthened since the beginning of The price development is following the European development of increasing base prices and alloy surcharges. Competition remains however tough due to growing imports from Asia. Danish wholesalers stocks are returning to normal level. Danfoss: In Q1/14 Danfoss revealed plans to enter a strategic partnership with the Germany-based manufacturer of solar inverters SMA Solar Technology. By cooperating with Danfoss, SMA is aiming to regain its competitiveness from previous years after a massive decline in turnover down to 932 mill. EUR (-36% yoy) in Danfoss announced to start moving into its greenfield manufacturing and R&D facility in Oragadam, India, from June 2015 onwards, where the company is also setting up a 1MW solar power plant. Danish Crown: The company s new slaughterhouse located in Holsted (Denmark) started production at the end of Q1/14, and is currently running at two third of its full capacity counting 172 employees. The company expects the facility to be fully operational by summer this year. Grundfos: The company is supplying pumps for HVAC (Heating, Ventilation and Air Conditioning) applications to the new state-of-the-art University Hospital currently being built in Aarhus, Denmark. After completion in 2020 the hospital will become the largest employer in the region with approximately 9,000 employees. Sweden: After demand has improved towards the end of Q1/14, the Swedish market is still in a recovering stage. The increase in alloy surcharge is still supporting activities among end users. However it is so far unclear whether the market has finally turned the corner or if it is only the raw material price increases that are driving the market. Alfa Laval: In Q1/14 the order intake was mill. SEK compared to mill. SEK in the same period last year (+5% yoy). The sequential downturn from mill. SEK in Q4/13 is mainly due to fewer large orders. Four new orders for large projects were reported in Q1/14 at a total value of more than 280 mill. SEK. Net sales in Q1/14 amounted to mill. SEK up by 1% compared to mill. SEK last year. Alfa Laval has acquired the family owned Norwegian company Frank Mohn AS for a total of around 13 bn NOK, on a cash and debt free basis. Frank Mohn AS is a manufacturer of submerged pumping systems to the marine and offshore markets. With this strategic acquisition Alfa Laval aims to strengthen its position in the marine and offshore oil & gas market. BE Group: Q1/14 results show an improvement year on year. Regardless of lower net sales (-3% yoy, to 1 bn SEK) mainly due to a 4% decrease in shipped tonnage in Q1/14, the operating result increased to 12 mill. SEK (from a 17 mill. SEK loss in Q1/13). The Group reported a loss after tax for the continuing operations of 4 mill. SEK (Q1/13: loss of 24 mill. SEK). The Group signed a new credit agreement over 1.25 bn SEK with a duration of three years. Damstahl 2014, Damstahl - a member of the NEUMO-Ehrenberg-Group - 8 -

9 Relevant Issues in Damstahl-Land Norway, Slovenia Norway: The moderate growth in activity experienced in 2013 is expected to continue this year. Nevertheless a clear economic upturn will not be visible before According to Statistics Norway the growth peak for investments in the petroleum industry was reached last year (+19% yoy). For 2014 investments in the petroleum industry will reach a share of 9% of mainland Norway s GDP. The output in the Norwegian machinery and equipment sector rose by 10.2% in February 2014 (yoy). The activity in this sector shows a record-high level highest output generated since mid Output levels in the sector ships, boats and platforms were also considerably higher in January 2014 (+5.9% yoy). Statoil: By April 2014, Statoil started production in the Gudrun O&G field in the North Sea (beginning construction in 2010). Investments for the Gudrun operations exceeded 12 bn NOK. The company expects a recovery of 184 mill. barrels of oil and oil equivalent. Statoil discovered additional O&G resources near the planned Valemon installation and estimates recoverable reserves of roughly 206 mill. barrels of oil equivalents within this project. The fixed platform with rich gas and condensate export is expected to go online in Q4/14. Aker Solutions: The company won a contract worth 14 bn NOK from Total to provide a subsea production system for the Kaombo Block 32 development in Angola, one of the world's largest subsea developments, located 150 km off the coast of Angola. Aker Solutions will deliver 20 subsea manifolds and 65 vertical subsea wellsets. The order also includes associated controls as well as work-over and tie-in systems. First deliveries are scheduled for Q2/15. Aker Solutions and Baker Hughes have agreed on a non-incorporated alliance for the development of more efficient integrated in-well and subsea production solutions at higher recovery rates. The alliance will be based in Houston, Texas. Slovenia: Consumer Confidence: In April 2014, the consumer confidence indicator was 1% lower than in the previous month, indicating more pessimistic estimations of the consumers about the economic situation over the next 12 months. Building and Construction: As already happened in January 2014, the mild winter had also a positive impact on the building activity in February The value of construction put in place was up 33.1% in February 2014 (yoy). As regards buildings it went up by 5.2% and as regards civil engineering by 47.8%. Gorenje: The Slovenian appliance manufacturer wraps up the first quarter with profit. The Gorenje Group reported slightly higher revenues in Q1/14 of mill. EUR (+0.5% yoy). EBITDA amounted to 20.8 mill. EUR (+29% yoy). EBIT shows a strong growth of 79% (yoy) to 10.2 mill. EUR (Q1/13: 5.7 mill. EUR). Net profit in Q1/14 was positive at 1 mill. EUR, representing an increase of 5.2 mill. EUR after a loss of 4.2 mill. EUR in Q1/13. Damstahl 2014, Damstahl - a member of the NEUMO-Ehrenberg-Group - 9 -

10 Report: Stainless Steel in Damstahl-Land, No. 11, March 2012 Damstahl 2012, Damstahl - a member of the NEUMO-Ehrenberg-Group