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INSTITUTE FOR SUPPLY
MANAGEMENT STEEL FORUM
MAY 5, 2009
John Packard – Steel Market Update
Who is John Packard?



  Why is he here?



 What’s in it for me?
You know what? I think
  I’ll go into the steel
         business
WHO IS JOHN PACKARD?
And what happened to his hair…?
Rolled Steel
                              (1977)

     Novosteel /                                   Innovative
       PN...
Unique Background
   q       g
1.   Rolled Steel Corporation   1.   Hands-on product –
                                   ...
August 2008
STEEL MARKET UPDATE
STEEL MARKET UPDATE                                              www.steelmarketupdate.com
           ...
WHY AM I HERE?
Student of the steel business
AISI Mill Shipments by end user
                                                                        Service
          ...
Flat Rolled Steel Market
1.
1    Construction is 45% of total flat rolled steel
     market. This includes residential whi...
Mill Shipment Reality



      25%
                                    Service Centers
10%                                ...
“MAY YOU LIVE IN INTERESTING
TIMES”




      Chinese Curse
Demand Destruction = Missing Pieces
of the P le
       Puzzle
We haven’t
accepted the
changes to the
market and
we look to...
US Housing Starts
                                           Seasonally Adjusted Annual Rate    Source: US Census



     ...
0
                                           200,000
                                                     400,000
        ...
N. American Auto Production
     January 2008 =                    2008-2009
        1,168,267
1,400,000



1,200,000
1 20...
Axis Title




         0.0
               10.0
                              20.0
                                       ...
Carbon - Flat Rolled
                                          Actual Shipments
                                          ...
Carbon- Flat Rolled
                           Inventory (EOM)
                              2007-2009
                   ...
IN RESPONSE - U S MILLS ARE
              U.S.
TAKING OUT CAPACITY
Whether they want to or not…
North American Blast Furnaces
                                        Running (13)   ?
     AK Steel        Ashland       ...
EAF’s running under 50%
                g
   Running at low 40%

   SDI & Nucor projecting
    continued l rates
       ...
ArcelorMittal Operating Levels
       East Chicago West   30%
       East Chicago East   30%
       Burns Harbor        35...
WHAT GETS LOST IS PRICE
DISCIPLINE…
Can the U.S. mills turn back the tide?
0
              100
                    200
                          300
                                400
            ...
Hot Rolled Coil Pricing 2009
    540



    520



    500



    480



    460



    440



    420



    400




Pric...
Galvanized Pricing 2009

   680


   660


   640


   620


   600


   580


   560


   540


   520


   500


   480
...
We’re Trying to Figure “it” Out
        y g       g

Business has
changed!

Where are
we now and
where do we
go from here?
Apparent Steel Consumption
 pp                  p

                2007                              2008


   Shipments ...
2009 Projected Steel Consumption
        j                  p
   Based on World Steel Association projection
            ...
WHAT DO I DO – AND
WHAT’S IN IT FOR YOU?
    Sentiment, Momentum, Real Time Pricing
          Relevant News & Analysis
it


               News
               N

              Prices



           Trends
Momentum       Missing
              ...
Steel Buyers Sentiment


100.0

 75.0

 50.0

 25.0

   0.0
                                  -65.2
                      ...
Steel Buyers Future Sentiment



100.0

 75.0

 50.0

 25.0

   0.0

 -25.0

 -50.0
                                      ...
Price Momentum
SMU Galvanized Index
     Date       Low     High
                          g    Average
                                 ...
Steel Market Update Index Price Comparison as of
                   May 1, 2009
                     HR      CR     Galvan...
Steel Price Calculator


  Hot Rolled, Cold
  Rolled,
  Rolled Galvanized &
  Galvalume


   Based on SMU
   Average Prime...
Some Keys to Watch
                   y
   MSCI – carbon flat rolled under 2.5 mos
   Mill capacity utilization at, or a...
Thank You for your time as it is truly appreciated
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Ism Presentation

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Presentation to Institute of Supply Management Steel Forum. Graphs Covering: North American Blast Furnaces/US Housing Starts/Seasonally Adjusted Annual Rate/Auto Production since 2000/Architects Billings Index/Carbon - Flat Rolled
Actual Shipments/Flat Rolled
Inventory (EOM)

Published in: Economy & Finance, Business
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  1. 1. INSTITUTE FOR SUPPLY MANAGEMENT STEEL FORUM MAY 5, 2009 John Packard – Steel Market Update
  2. 2. Who is John Packard? Why is he here? What’s in it for me?
  3. 3. You know what? I think I’ll go into the steel business
  4. 4. WHO IS JOHN PACKARD? And what happened to his hair…?
  5. 5. Rolled Steel (1977) Novosteel / Innovative PN Ent Steel (1980) (2003) Winner St l Wi Steel Pacesetter P tt (1997) (1982) Pacesetter Duferco / (1994) Sterling (1991)
  6. 6. Unique Background q g 1. Rolled Steel Corporation 1. Hands-on product – secondary sales – prime exposure. 2. Innovative Steel 2. Creative processing – HVAC – purchasing. 3. Pacesetter Steel 3. Prime sales - service center, HVAC & OEM. , 4. Duferco / Sterling 4. Management, mill purchasing. 5. 5 Winner Steel & Trading 5. 5 Direct Mill, foreign Mill exposure, international travel, business owner.
  7. 7. August 2008
  8. 8. STEEL MARKET UPDATE STEEL MARKET UPDATE www.steelmarketupdate.com www steelmarketupdate com Welcome John Packard Volume 4, #52 Monday, May 4, 2009 IN THIS ISSUE: ArcelorMittal Warns of Need to Shutter Capacity in U.S. Market ISM Index Improves to 40.1 Inventory Write-Downs Hurt California Steel & Olympic Steel March Raw Steel Production Quick Note on China Market U.S. Auto Sales Worse than Expected Chrysler Bankruptcy Facts NYMEX Hot Rolled Futures Contracts What to Watch this Week Final Thoughts
  9. 9. WHY AM I HERE? Student of the steel business
  10. 10. AISI Mill Shipments by end user Service Centers/Processors Construction 29% Automotive 28.7% Energy 15.4% 3% 12.6% 12 6% Containers Exports 9.2% 2.1% Other Other includes non-classified shipments, rail, mining, agricultural, military
  11. 11. Flat Rolled Steel Market 1. 1 Construction is 45% of total flat rolled steel market. This includes residential which represents only 5% of the steel used in the construction sector. y 2. Automotive is 15-20% of the flat rolled market with NAFTA producing 14.8+ units/year. p g /y 3. Pipe & Tube is 15% of the flat rolled market 4. All other = 20% of the remaining market
  12. 12. Mill Shipment Reality 25% Service Centers 10% Toll Processors 65% Direct to OEM's
  13. 13. “MAY YOU LIVE IN INTERESTING TIMES” Chinese Curse
  14. 14. Demand Destruction = Missing Pieces of the P le Puzzle We haven’t accepted the changes to the market and we look to the past for help…
  15. 15. US Housing Starts Seasonally Adjusted Annual Rate Source: US Census 2,500 2005 2,068,000 6 2,000 000 units 1,500 0 1,000 1 000 2008 904,000 2009 New Starts 550M? 500 2000 2001 2002 2003 2004 2005 2006 2007 2008
  16. 16. 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 1/2000 2,000,000 3/2000 5/2000 7/2000 9/2000 11/2000 1/2001 Source: Ward AutoiInfoBank 3/2001 5/2001 7/2001 9/2001 11/2001 1/2002 3/2002 5/2002 7/2002 9/2002 11/2002 1/2003 3/2003 5/2003 7/2003 9/2003 11/2003 1/2004 3/2004 5/2004 7/2004 9/2004 11/2004 1/2005 3/2005 5/2005 7/2005 9/2005 11/2005 1/2006 3/2006 N. American Auto Production since 2000 5/2006 7/2006 9/2006 11/2006 1/2007 3/2007 5/2007 7/2007 9/2007 11/2007 1/2008 3/2008 5/2008 7/2008 9/2008 11/2008 1/2009
  17. 17. N. American Auto Production January 2008 = 2008-2009 1,168,267 1,400,000 1,200,000 1 200 000 1,000,000 800,000 800 000 600,000 400,000 January 2009 = 200,000 435,731 0 Source: Ward AutoiInfoBank
  18. 18. Axis Title 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 Mar-0 00 Jun-0 00 Sep-0 00 Dec-0 00 Mar-0 01 Jun-0 01 Sep-0 01 Dec-0 01 Mar-0 02 Jun-0 02 Sep-0 02 Dec-0 02 Mar-0 03 Jun-0 03 Sep-0 03 Dec-0 03 Mar-0 04 Jun-0 04 Sep-0 04 Dec-0 04 Mar-0 05 Jun-0 05 2000 2009 2000-2009 Sep-0 05 Dec-0 05 Mar-0 06 Architects Billings Index Jun-0 06 Sep-0 06 construction to Dec-0 06 2009 Commercial decline by 8-15% 8 15% Mar-0 07 Jun-0 07 Sep-0 07 Dec-0 07 Mar-0 08 Jun-0 08 Sep-0 08 Dec-0 08 Mar-0 09 Source: American Insititute for Architects Billings Inquiries
  19. 19. Carbon - Flat Rolled Actual Shipments 2007-2009 2007 2009 Source: Metals Serviice Center Institute 3500 3000 2500 211,800 tons ousand of tons 2000 per day Tho 1500 1000 69,500 tons a day 500 0
  20. 20. Carbon- Flat Rolled Inventory (EOM) 2007-2009 2007 2009 Source: Metals Service Center Institute 8000 7000 6000 5000 ousand of Tons 4000 4,228,900 228 900 Tho 3000 tons 2000 1000 0
  21. 21. IN RESPONSE - U S MILLS ARE U.S. TAKING OUT CAPACITY Whether they want to or not…
  22. 22. North American Blast Furnaces Running (13) ? AK Steel Ashland 1 AK Steel Middletown 0 ArcelorMittal Dofasco 2 ArcelorMittal Burns Harbor 1 ArcelorMittal Cleveland 0 ArcelorMittal Indiana Harbor E 1 ArcelorMittal Indiana Harbor W 0 Essar  Essar Algoma 1 Severstal Dearborn 1 Severstal Sparrows Point 1 Severstal Warren 0 US Steel Fairfield 1 US Steel Gary 2 1 US Steel Granite City 0 US Steel Great Lakes 0 US Steel Hamilton 0 US Steel Lake Erie* 0 US Steel Mon Valley 2
  23. 23. EAF’s running under 50% g  Running at low 40%  SDI & Nucor projecting continued l rates i d low  Can h t C shut on & off ff  EAF s EAF’s running intermittently with reduced work weeks
  24. 24. ArcelorMittal Operating Levels East Chicago West 30% East Chicago East 30% Burns Harbor 35% Cleveland 0% Riverdale 18% Coatesville 75% Steelton 80% Conshohocken 35% Weirton 90% Georgetown 0% Source: USW
  25. 25. WHAT GETS LOST IS PRICE DISCIPLINE… Can the U.S. mills turn back the tide?
  26. 26. 0 100 200 300 400 500 600 700 800 900 1000 1100 1200 Apr 00 1300 Jul 00 Oct 00 Jan 01 Apr 01 Jul 01 Oct 01 Jan 02 Apr 02 Jul 02 Oct 02 Jan 03 Apr 03 Jul 03 Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 Jan 05 Apr 05 Jul 05 Oct 05 Jan 06 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Cold Rolled Pricing 2000 2009 2000-2009 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan-09 Apr-09
  27. 27. Hot Rolled Coil Pricing 2009 540 520 500 480 460 440 420 400 Pricing is based on .060 " X 48" Coil G90, CS/Large Coil
  28. 28. Galvanized Pricing 2009 680 660 640 620 600 580 560 540 520 500 480 Pricing is based on .060" X 48" Coil G90, CS/Large Coils
  29. 29. We’re Trying to Figure “it” Out y g g Business has changed! Where are we now and where do we go from here?
  30. 30. Apparent Steel Consumption pp p 2007 2008  Shipments = 106 430 000 106,430,000  Shipments Shi t = 97,846,000 97 846 000  Imports = 33,244,000  Imports = 31,927,000  Semi’s - 6,656,000  Semi’s - 5,971,000  Finished = 26,588,000  Finished = 25,956,000  Exports = 11,154,000  Exports = 13,476,000  Steel Consumption = 121,864,000  Steel Consumption = 110,326,000
  31. 31. 2009 Projected Steel Consumption j p  Based on World Steel Association projection p j  WSA projecting U.S. apparent consumption at 68,000,000 tons for the year (all products)  If foreign has 25% of the market = 51 million domestic tons (all products)  Historically flat rolled runs about 65% of total at 51 mil = 33.15 million tons.  2000 - 2008 average was = 112,777,000 tons with g , , flat rolled about 73.3 million tons  Current run rate @ 43% cap = 52.8 mil tons all products d
  32. 32. WHAT DO I DO – AND WHAT’S IN IT FOR YOU? Sentiment, Momentum, Real Time Pricing Relevant News & Analysis
  33. 33. it News N Prices Trends Momentum Missing info
  34. 34. Steel Buyers Sentiment 100.0 75.0 50.0 25.0 0.0 -65.2 -65 2 -25.0 -50.0 -75.0 -100.0
  35. 35. Steel Buyers Future Sentiment 100.0 75.0 50.0 25.0 0.0 -25.0 -50.0 -14.8 -75.0 -100.0
  36. 36. Price Momentum
  37. 37. SMU Galvanized Index Date Low High g Average g 2/23/2009 $580 $650 $615 3/4/2009 $580 $650 $615 3/9/2009 $570 $655 $610 3/16/2009 $540 $640 $590 3/24/2009 $520 $600 $560 4/1/2009 $520 $600 $560 4/7/2009 $520 $580 $550 4/14/2009 / / 9 $ $520 $ $560 $ $540 4/22/2009 $510 $550 $530 4/29/2009 $500 $540 $520
  38. 38. Steel Market Update Index Price Comparison as of May 1, 2009 HR CR Galvanized Galvalume Steel Market Update $415  Steel Market Update $415 $490  $490 $510  $510 $669‐$779 $669 $779 CRU $402  $485  $557  NA The Steel Index The Steel Index $410  $410 $499  $499 $567  $567 NA SteelBenchmarker $411  $494  NA NA Platts $ $400  $ $470  NA NA
  39. 39. Steel Price Calculator Hot Rolled, Cold Rolled, Rolled Galvanized & Galvalume Based on SMU Average Prime Spot Price Indexes
  40. 40. Some Keys to Watch y  MSCI – carbon flat rolled under 2.5 mos  Mill capacity utilization at, or above, 60%  Reduction in initial jobless claims j  AIA Billings Index over 50.0  Oil over $60 barrel $  SMU Buyers Sentiment in + territory  SMU Market Momentum  SMU Price Indexes stable and then moving higher  Housing inventory and foreclosures decreasing g y g Read my newsletter….
  41. 41. Thank You for your time as it is truly appreciated
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