International Steel Trading In The Light Of Global Economic Facts. By Gorkem Bolaca / General Manager LN METALS INTERNATIONAL LTD

Transcription

1 International Steel Trading In The Light Of Global Economic Facts Milan, SEPTEMBER 2011 By Gorkem Bolaca / General Manager LN METALS INTERNATIONAL LTD

2 AGENDA Economic Growth and International Trade Raw Materials China Turkey The Future

3 Current picture and upcoming months Global finished steel demand will rise 6% Raw Material prices are decreasing in Q4? Chinese steel mills are not competitive for most parts of the world ( except S. America and Asia) Steel mills still have little room to cut the export price of hot-rolled band because of high costs Economic outlook + Sentiment + Raw Material cost = Finished steel price

4 Source IMF Debt vs GDP

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6 ECONOMIC GROWTH & DEMOGRAPHY FACTOR *Countries have grown fastest when their median age lies between 22 and 37 AGE China Turkey India Germany France Italy UK 15< %19 %28 %32 %14 %18 %14 % %73 %66 %63 %66 %65 %66 % %8 %6 %5 %20 %17 %20 %16 Median Age

7 Iron Ore 107 million tonnes estimated increase in iron ore usage Next 2 years 278 million tonnes capacity addition is expected

8 Is price decline on the way for iron ore? Additional iron ore capacities will outpace the increase in iron ore demand Chinese iron ore traders have big stocks and pay more interest to finance their business (1.5% month). They don t have confidence for Q4 and will be lowering their stocks. Approximately 12% increase in Chinese iron ore production capacity Several blast furnaces were already shut down or planned to decrease output in Europe ( about 9 million tonnes)

9 Destination for coking coal price If Global steel production in 2012 raises approx. 80 million tonnes then steel industry will need to use additional 32 Million tonnes coking coal. We expect 60 million tonnes increase in supply versus additional demand of 32 million tonnes due to new capacities that are coming from Mongolia and China plus resumption of coking coal production in Australia As a conclusion, it wouldn t come as a surprise if we see price fall for coking coal starting from fourth quarter

10 What about scrap prices? If iron ore and coking coal prices start to decrease then integrated steel mills surely will prefer using pig iron instead of steel scrap for BOF steel making furnaces.

11 World Steel Trade Flow

12 CHINA

13 Chinese regional distribution of the income Population ; % 35 Urban % 65 Rural

14 China

15 The Share of Giant Chinese Mills in total steel production

16 Chinese Steel Demand Breakdown By Sector 2009

17 Chinese steel export divided by products

18 Source: CISA, Ministry of Environmental protection Chinese and EU Integrated mills Cost Comparison COSTS (2008) China EU Iron Ore & Transportation 39% 31% SCRAP 17% 16% COAL 21% 26% Other Ing. 6% 9% Gas, Energy,Water 3% 3% Operational and other costs 14% 15% TOTAL 100% 100%

19 Obstacles to Chinese steel Industry Fragmented steel industry structure makes consolidation almost impossible. ( Top 5 steel producers of China account for only % of the total steel production) Speculation (Approximately %50-60 of Chinese steel product deliveries made to steel traders) Low Productivity Chinese industry depends on imported Iron ore and coal. (Baosteel and Wuhan import 70% of iron ore )

20 TURKEY

21 TURKEY; THE NEW NET FLAT STEEL EXPORTER

22 Steel Consumption Divided By Sectors

23 Turkish steel facts Turkey s crude steel production is expected to reach around 33.5 million tons level in Increasing EAF weighted capacity will continue to support Turkey s scrap consumption and Turkey will stay among the largest scrap importers of the world. Through new flat steel investments, Turkey is now becoming one of the major flat steel exporter in the region. CIS and EU mills are already facing with fierce competition through Turkish flat steel prices. Eurofer is monitoring the issue very closely. Economic growth in Turkey twice as much as any EU country. Economic growth brings positive sentiment and confidence that helps Turkish steel market to grow faster.

24 Strengths of the Turkish Steel Market Majority of the producers are private mills. Mills are very agressive ( as much as raw material cost allows them to be). Quick decision making ( specially for re rollers) and short production time brings huge advantage comparing to competitors. Turkey is close to Middle East, EU and Northern Africa. This also brings strategic and logistic advantage. High capacity utilization Strong and growing domestic demand

25 Turkish Steel - Challenges Steel Industry is highly dependent on raw material import. Producers are facing with higher raw material cost. Lower profit ( comes with higher input costs) Steel mills are not yet as efficient as EU mills in order to response to claim and quality issues. Very poor usage of instruments such Hedging the risk

26 Some numbers 8.8 % Turkey s Q Growth Rate 3.25 billion; A number of people globally who earns less than 2 usd per day. 60% of China s steel product deliveries made to steel traders. 40% ; 40% of total steel production of the world is being traded internationally. 18 days; The distance between China (Chong Ging ) and Roterdam by train.

27 What Future Holds? Oversupply Big corellation between iron ore and hot rolled coil prices Hedging the Risk The competition on supplier side will get more complicated and those who can set customer oriented approach policy will be one step ahead in the competition. M&A (Specially China will be more aggressive )

28 LN METALS INTERNATIONAL LTD Established in Supplier of Ferrous, non ferrous and minor metals Majority of the shares owned by First Rand Bank. Head Quarters in London and offices in China, Brazil, and in Poland. Main Markets; EU, Far East, CIS, South. America. We generated 62 million Euro credit line for our customers in EU and S. America recently. Extensive sourcing capability mainly from Far East and Turkey.

29 THANK YOU