Steel Stockholding In Poland

Steel Stockholding in Poland October 2008

STEEL STOCKHOLDING IN POLAND AGENDA
The steel industry
Polish market
The SSC sector
Overview … industry structure & top players
Growth
Foreign competition
SSC weaknesses
Some ideas …

STEEL STOCKHOLDING IN POLAND THE STEEL INDUSTRY

THE INDUSTRY POLISH STEEL MARKET - Overview
The Polish steel market in 2006 amounted to ~10.3 mt finished steel products
The Polish steel market is therefore just a little smaller than the steel market in the UK [2006 apparent demand ~12.9 mt † ] although the Polish population is significantly smaller ††
Poland 38.1 million
UK 60.5 million
Recently, Polish steel demand is growing fast
2006 demand was ~28% up on 2005
2007 demand [based on H1 2007 data] is estimated at ~12mt
2007 consumption will be ~17% up on 2006
† : Source: IISI † † : Source: Population Reference Bureau, mid-2006 estimates

THE INDUSTRY POLISH STEEL MARKET - Statistics † † :Net production includes correction for double-counting of downstream use. Tube data includes closed hollow sections. For more detailed 2006 or later market appraisal, contact MCI [see page 14] Consumption CAGR 1997-2006 amounted to ~6% per annum

THE INDUSTRY POLISH STEEL MARKET – Geography of demand
Analysis based on Customs & Excise purchase declarations covering 64% of demand only
Analysis shows end use demand (irrespective of purchase intermediaries † )
The full analysis by product and region is shown in Appendix 2
† :Stockholder purchases e.g. in Slask sold on to an end-user e.g. in Malopole are thus reflected above as demand in Malopole

THE INDUSTRY POLISH STEEL MARKET – Routes to market Imported production 5396 kt Analysis is shown for full year 2006 data Domestic production 4875 kt Intermediaries 1875 kt Direct 3000 kt Intermediaries 2167 kt † Direct 3229 kt Total finished steel purchases in Polish marketplace ~10271 kt of which ~4042 kt pass through intermediaries † :Of this volume, ~1598 kt was flat products, ~311 kt was long and ~258 kt was tube. Semis route to market (mostly MSP Dabrowa Gornicza) is almost completely 100% direct.

STEEL STOCKHOLDING IN POLAND SSC SECTOR

SSC SECTOR OVERVIEW - Industry structure †
Currently ~100 ‘players’ with gradually diminishing distinction between the ‘stockholder’ and the ‘service centre’
Across the 100 firms, multiple sites [especially for larger sites] mean that across Poland as a whole there are perhaps ~250 locations where customers may purchase steel / get access to simple mechanical services such as cutting † †
Tier 1: Top 5 Tier 2: Next 10 Tier 3: Other ~85 Total: ~100 firms with sales ~4 mt/yr Avg: ~9 kt/yr Avg: 140 kt/yr Avg: 325 kt/yr Sales: 1mt Sales: 1.4 mt Sales: 1.6 mt † : All figures are MCI estimates. In terms of approx. number of locations, broad MCI assessment is that Tier 1 firms have ~80 depots [Grupa Polska Stal dominating with ~44], Tier 2 firms have ~70 depots [incl Stalexport, Stalprodukt with 15 each] and Tier 3 firms ~100 depots. †† : Figures of 100 and 250 are estimates covering PUDS member firms only. A handful of non-PUDS members may also exist, with another ~10 depots (possibly more) – these other firms are however excluded from analysis above.

SSC SECTOR OVERVIEW - Top Players † † : Source: PUDS 2006 rankings [Polska Unia Dystrybutorow Stali; www.puds.pl ]. Note that estimates above may contain some degree of double counting (possibly ~5-10% or even more in the case of Grupa Polska Stal) because of inter-company sales and reprocessing of processed material. Figures above also include exports where these arise. By steel tonnage

SSC SECTOR GROWTH PROSPECTS – Market demand
Polish steel market has been growing fast. MCI assess that a pause in growth will be probable in 2008, but that subsequent moderate demand growth will continue
Current West European steel demand is ~412 kg/capita. In Poland it amounts to ~270 kg/capita
If half this difference was eliminated in 5 years, Polish demand intensity would increase to ~340 kg/capita, predicting overall steel demand of 12.8mt by 2012 †
With steel deliveries via intermediaries maintained at ~40%, total SSC mediated sales would rise from ~4mt in 2006 to 5.1mt in 2012
MCI predict Polish SSC sector growth of ~4% per annum to 2012 † : This is probably a conservative estimate. EU structural funds driving construction sector growth, plus continuing foreign investment in steel consuming sectors / applications could means much higher steel demand in the medium term

SSC SECTOR COMPETITION – Recent events summary
Events of last three years can be summarised in terms of
The move away from the highly fragmented industry structure
of the late 1990s
Merger and consolidation, with Zlomrex leading the field
Much foreign investment [even by traditionally very risk averse firms]
In sectors/applications: including auto, white goods, construction,
roofing
In high value steels including alloy, stainless
In product specific SSCs [heavy plate, coated steels, rebar]
Broadly, in keeping up with needs of Western investors
Since 2005, we are witnessing much reorientation of the typical
‘ Polish steel depot’ as follows:
Stockholder Service Centre Stockholder + From competition back to oligopoly? Growing competition?

SSC SECTOR WEAKNESSES – MCI appraisal
Number of players at 250+ suggests that high competition, poor margins and small average size [sales under 10kt/year] are likely to be key weaknesses
Know-how in terms of sophisticated add-on services / advanced customer needs is also judged by MCI to often be problematical
Market understanding also is likely to be:
Often limited;
Typically highly local;
Typically lacking broader / international perspective
Access to capital considered to be a significant weakness for many smaller operators
These matters potentially define quite a strong opportunity for industry investors

SSC SECTOR SOME IDEAS …
Can MCI help you develop your presence in the Polish steel sector?
Can we provide an update of the slides above?
Further detailed or regional analysis?
Polish customer assessments?
Review or optimisation of your entry strategy?
Some introductions?
Please contact: Andrzej M Kotas, Managing Director, MCI Email: [email_address] Mobile: +44 (0) 775 149 0885

SSC SECTOR SOME IDEAS … For more steel information visit us: http:// www.steelonthenet.com

Steel Stockholding In Poland

by Andrzej Kotas on Jun 01, 2009

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