Published on October 4, 2007
Transforming the stainless steel industry Malay Mukherjee - Member of the GMB 11-13 September 2007 – Investor day – Paris
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Agenda • Stainless industry new challenges • ArcelorMittal Stainless • Targeting leadership 2
Stainless industry new challenges 10/09/2007 Confidential 3
Stainless steel is still a highly attractive market by its growth potential… Stainless a competitive product Stainless worldwide market (mt) • High durability – High resistance to corrosion, extreme atmospheric conditions and changes in pH 24 – Withstand high magnitudes of temperature in both directions, high pressure and highly malleable and ductile material 22 • Diversity of application : from fashion to capital goods giving HR 20 value through its aesthetic, hygienic, corrosion and resistance properties 18 • High recycling products: in Europe 100% of stainless steel is 16 produced from scraps 14 • Stainless, a continuous positive substitution effect thanks to it properties 12 10 Annual average growth 1985-2006 in % p.a. CR 8 World Industrial 2.80% 6 Production 4 4.70% Stainless Steel 2 2.70% 0 Carbon Steel 98 04 06 00 02 97 99 01 03 05 P P E P P Aluminium 3.10% 08 10 07 09 11 19 20 20 20 20 19 19 20 20 20 20 20 20 20 20 Attractive market with strong growth potential Source CRU Stainless Steel Flat Products Quarterly 4
…but rapid expansion of small Asian producers has deteriorated fundamentals Fragmentation of the stainless steel industry Stainless worldwide slab capacity (Million tonnes, capacity utilization in %) 80% 75.5% 40.0 100% 75% 72.5% 71.8% 90% 35.0 70% 80% 64.3% 65% 30.0 Top 10 70% % Global crude capacity producers 25.0 60% 60% 55% 20.0 50% 40% 50% 15.0 30% 45% 10.0 53.5% 20% Top 5 producers: 46.0% -ArcelorMittal 40% 45.0% 5.0 10 Acerinox 39.4% % Posco 35% 0.0 0% Outokumpo 1990 2000 2005 2010 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 ThyssenKrupp Consolidation Period Asian Production Growth Assuming no consolidation The industry needs further consolidation 5 Source: CRU, ArcelorMittal estimates
The increase and extreme volatility of nickel has benefited Ferritics products… Consolidation of the nickel industry and nickel price Impact of Nickel appreciation from 17,000 USD/t to evolution (USD/t) 40,000 USD/t over raw material costs (USD/t) Norilsk 60000 21% Other 50000 Extra 2,100 USD/ton 42% 4500 cost difference 4000 28% CVRD 40000 19% 3500 30000 3000 BHP Xstrata 10% 8% 2500 20000 2000 1500 10000 1000 500 0 0 2001 2002 2003 2004 2005 2006 2007 200 Series 300 Series 400 Series Austenitics Stainless Low Ni Stainless Ferritics Stainless (high nickel) (no nickel) Nickel prices expected to remain high due to recent consolidation of the nickel industry 6 Source: LME, CRU
…and created a significant shift in stainless steel markets Austenitics x Ferritics price difference (base 100) Industry sales mix Ratio austenitics x low/no Ni grades 100% 350 90% 300 28% 80% 57% 59% 70% 64% 65% 250 68% 71% 72% 73% 60% Austenitics Stainless CR304 200 50% (high nickel) CR430 40% 150 30% 43% 41% 20% 100 36% 35% 32% 29% Ferritics Stainless 28% 27% 10% (no nickel) 50 0% 01 02 03 04 05 06 07 08 2002 2005 2007 (01-06) 1994 1997 1999 F F Ferritics and speciality producers appear to be the main winners in the new environment 7 Source: CRU and ArcelorMittal estimates
ArcelorMittal Stainless 8
One of the most global industrial and commercial networks in the industry ArcelorMittal stainless steel network Genk (1mt) Carinox (1mt) Imphy Alloys Uginox Sanayi Arcelor stainless processing Uginox Changzhou Arcelor Stainless Vietnam Kantzen Stainless processing (Malaysia) Timoteo (0.9mt) Melt shop Service centre Sales office Stainless Steel International An industrial leader in Europe and South America benefiting from a global distribution network 9
A high portion of Ferritics and long term contracts answering market needs End-application markets* ArcelorMittal Product mix 2006 Electrical steel Stainless CR Welded tubes (Acesita) Construction and 10% Transport Stainless 14% 14% semis 24% 4% 22% 26% 18% 64% 36% Stainless Catering and HR household Industrial products equipment Relative to the industry, ArcelorMittal has a larger Note that ArcelorMittal Stainless strong presence in the exposure with long term contract to the automotive electrical steel business which is expected to growth by and white goods industries more than 7% per year over for the next 5/10 years Ferritics products represented more than 30% of Group shipments in 2006 and long-term contracts 15% 10 *CRU
One of the most cost competitive industrial networks A focus on Flat Stainless steel Creating the most competitive hot phase in Europe Black coil operating cost* ASI Flat Mercosur Acesita Flat Europe Ugine & Alz Industeel Imphy Alloys IUP Meusienne Matthey ArcelorMittal Stainless In ArcelorMittal Ambition to maintain cost leadership by pursuing aggressive management gains targets ArcelorMittal operates the most profitable plant in the world in Brazil (Acesita) Consolidation remains the most powerful answer to the industry’s new challenges and the most competitive hot phase in Europe (Carinox) 11 *ArcelorMittal estimates
Targeting leadership 10/09/2007 Confidential 12
Targets and strategy Targets Strategy Product Achieving market • Leverage global presence of ArcelorMittal group for leadership stainless activities Geography • Leverage multiregional positioning in Europe and Value Chain South-America Reinforcing product • Build on strong products: ferritics, electrical steel leadership in low Ni Products • Brownfield organic growth plan to support this product and Ferritics stainless strategy in Europe and Brazil • Build up Brazilian assets to grow electrical steel Mastering integration/ • Leverage ArcelorMittal global sourcing capability purchase of raw Value Chain • TCO materials • Leverage group Mining expertise Raw material Capturing value • Distribution and tubes consolidate clear leadership in Value Chain through Distribution core areas (Europe, South-America) leadership in core Distribution geographic markets Leveraging ArcelorMittal strength to outperform industry 13
Growth plan in Ferritics Evolution of Ferritics Mix 2007 Ferritics targets (000t) (%) 48 41 39 37 34 33 High Volume 32 High Volume Ambition >900 Ambition >700 ~600 <500 Jan Feb Mar Apr May Jun Jul 2005 2007F 2008 2010 Share of ferritics in stainless (excl. 30% 35% >40% 50% 30% 35% >40% 50% semis) * Others: include alloys, carbon, stainless semis Industrial • Strong know-how (spec. products, BA…) Industrial development • Increase ferritics and BA capacity to sustain commercial growth development • Commercial development plan: offer products matching consumer needs (430, 409, Commercial Commercial stabilized ferritics) development development • Launch of a ferritic brand KARA Impressive growth in ferritics considering current market circumstances 14
Growth plan in distribution Distribution shipments (ex-SSC) in Europe and South-America (000t) High Volume High Volume Ambition Ambition >1000 >850 >700 ~600 2006 2008 2010 2012 Integrated Integrated • Higher value/service for customers distribution will distribution will • Better access to market and proximity with customers bring bring • Overall contribution to profitability and to growth of our stainless steel activities An ambitious growth plan 15
Growth projects under review China Leveraging North America Europe existing Leveraging partnership with Answering growth existing carbon Hunan Valin demand through facilities brownfield India Leveraging existing carbon projects and/or develop through South America partnership Leading market development Ambition of leadership 16
Transforming the stainless steel industry A low cost stainless steel producer with a global footprint A strategic position in ferritics offering strong growth opportunities An ambition to become a global leader Question 4 Do you believe ArcelorMittal has the basis to become the global reference in stainless steel? 1 – Yes 2 – No 3 – Don’t know Transforming tomorrow 18
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