KeyBanc Capital Markets Basic Materials and Packaging Conference
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KeyBanc Capital Markets Basic Materials and Packaging Conference KeyBanc Capital Markets Basic Materials and Packaging Conference Presentation Transcript

  • United States Steel Corporation KeyBanc Capital Markets Basic Materials and Packaging Conference September 2008 © United States Steel Corporation 2008
  • Forward-Looking Statements This presentation contains forward-looking statements with respect to market conditions, operating costs, shipments, prices and profit-based compensation payments. Some factors, among others, that could affect 2008 market conditions, costs, shipments and prices for both domestic operations and USSE include global product demand, prices and mix; global and company steel production levels; raw materials' availability and prices; plant operating performance; the timing and completion of facility projects; natural gas prices and usage and availability; changes in environmental, tax and other laws; the resumption of operation of steel facilities sold under the bankruptcy laws; employee strikes; power outages; and U.S. and global economic performance and political developments. Domestic steel shipments and prices could be affected by import levels and actions taken by the U.S. Government and its agencies. Political factors in Europe that may affect USSE’s results include, but are not limited to, taxation, nationalization, inflation, currency fluctuations, increased regulation, export quotas, tariffs, and other protectionist measures. The level of income from operations is the primary factor affecting payments under the USWA profit-based plans. In accordance with “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, cautionary statements identifying important factors, but not necessarily all factors, that could cause actual results to differ materially from those set forth in the forward-looking statements have been included in the Form 10-K of U. S. Steel for the year ended December 31, 2007, and in subsequent filings for U. S. Steel. 2
  • United States Steel Corporation To grow responsibly while generating a competitive return on capital and meeting our financial and stakeholder obligations • 5th largest global steel producer – 31.7 mnt* • 2nd Largest North American flat-rolled steel producer – 24 mnt* • 2nd largest Central European flat-rolled steel producer – 7.4 mnt • Largest North American tubular producer – 2.8 mnt • North American raw materials balance • ROCE:** 2007 - 21% 2006 - 29% * Pro-Forma for Stelco acquisition 3 **ROCE = IFO/average(PPE + AR + Inventory – AP) View slide
  • Flat-rolled segment Leading producer of high quality product • LTM 2Q’08 trade shipments – 18.3 million tons* 7 melt locations • Approximately 50% contract, 40% spot & 10% indexed (CRU) • Contract industries include: auto, appliance, tin and electrical • Demands sophisticated metallurgical applications with specialized customer service and technical support • Typical contract term - 1 year • Contract business lessens impact of spot price fluctuations 4 * Pro-Forma for Stelco View slide
  • U. S. Steel Canada Acquisition closed 10/31/07 Created 5th largest global steel company Complementary assets & attributes: Capability to ship approximately 900,000 tons of slabs to U. S. Steel facilities Improve U. S. Steel’s finishing facility utilization Annual synergies estimated to be in excess of $100 million: Sourcing semi-finished product Procurement, best practices and SG&A 5
  • U. S. Steel Canada Overview Raw Steel British Capability Columbia Alberta 4.9 Million Net Labrador Manitoba Tons: Seignelay Hamilton 2.3 Ontario Saskatchewan Quebec Lake Erie 2.6 Wabush Hibbing Raw Materials Minntac/ Tilden Keetac Ownership Hamilton Iron Ore Lake Erie Great Lakes Minority shares of: Gary Hibbing Taconite Mon Valley Tilden Mining Granite City Wabush Mining USSC Integrated Steel Mill Seignelay Reserve USSC Iron Ore Mining U. S. Steel Flat Rolled & Tubular U. S. Steel Iron Ore Mining Fairfield East Texas 66
  • European segment Plants in both Slovakia (5.0 mmt) and Serbia (2.4 mmt) • LTM 2Q’08 shipments – 6.2 million tons • Approximately 70% spot versus 30% contracts • Key industries: construction, service center, packaging and conversion • Dedicated new 386,000 tons automotive/appliance galvanize line in September, 2007 • Strong growth rates and heavy infrastructure investment 7
  • Tubular segment Oil country and Standard & Line pipe • LTM 2Q’08 – 1.8 million tons: Seamless 930,000 tons Welded 905,000 tons • Primarily spot sales • Oil Country 63%, Standard & Line 32%, Specialty Tube 5% • Size ranges (outside diameter): Seamless –1.9” to 26” Welded – 1” to 20” • Shipments: NAFTA 95% International 5% 8
  • Total U.S. Tubular Market Source: Preston Pipe Tons in Millions 20 OCTG USS Tubular Seamless Seamless Line 15 Imports Imports Standard 10 Welded Welded Mechanical Domestic Domestic 5 Structural Pressure Stainless 0 9
  • Improving Industry – Why invest in Steel? • Steel is a good product, provides excellent value • Major regions with increasing consumption rates • Governments mostly out of industry (ex China) • Metallics are tight, flatter cost curve • Low Valuation: 2008 P/E* 40.0x 35.8x 32.0x 24.0x 18.4x 17.3x 14.7x 16.0x 8.5x 8.0x 0.0x s as l r ol te Ca ae od e Se Pp t ti * Source: Bloomberg Uili ar 10 R il
  • Bullish on North America Outlook for North American integrated producers • Melt capacity relatively constrained • High metallic costs (iron ore & scrap) • High carbon costs (coal & coke) • High import transportation costs 11
  • Growing International Demand Emerging markets continues to support strong global production World crude steel production* (million metric tonnes) Share of global steel demand 1600 1200 800 400 0 2 0 0 8 ** 2 0 0 9 ** 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 World China Developing Developed ** IISI Estimate Source: IISI Source: Macquarie 12
  • Strong business climate Selected Price Trends – Through August 2008 $650 $1,175 Shredded scrap composite $/Gross ton Hot rolled $/Net Ton $600 $1,075 $550 $975 $500 $875 $450 $400 $775 $350 $675 $300 $575 $250 $475 $200 $375 $150 $275 $100 $50 $175 O ct M ar J an F eb J une Sept M ay J u ly N ov D ec A p r il Aug J a n -0 2 J u l- 0 2 J a n -0 3 J u l- 0 3 J a n -0 4 J u l- 0 4 J a n -0 5 J u l- 0 5 J a n -0 6 J u l- 0 6 J a n -0 7 J u l- 0 7 J a n -0 8 J u l- 0 8 2002 2003 2004 2005 USA HR German HR East Asian HR 2006 2007 2008 Source: CRU and SBB. 13 Source: D.J. Joseph Company
  • U. S. Steel – North America Raw Materials Integration Control over key raw materials – as of 9/1/08 Estimated annual NA requirements: Percent controlled – Production – Contract (volume & price) • Coking Coal – 10mnt • Coke – 8.8mnt 100 • Iron Ore – 28.9mnt • Second largest NA iron ore producer 80 produced 21 mmnt in 2007 reserves 849 mmnt 60 • Iron ore/coal mines and coke production located close to steel 40 operations or supported by cost competitive transportation facilities 20 • Produced 5.6 mmnt of coke in 2007 0 • International coke and coal prices are 08 09 8 9 08 09 l '0 l '0 e' e' e' e' oa oa Or Or high and volatile k k Co Co C C n n Iro Iro • Exploring additional raw material integration opportunities Contract Own make 14
  • MSCI Flat Rolled Inventory January 2004 – June 2008 11,000 CRU price 1,400 $575 $655 10,000 Sheet Inventory ‘000 tons $510 Sheet Imports ‘000 tons 1,150 $740 $630 $565 9,000 $425 $402 900 $1,065 8,000 $580 $520 $550 650 7,000 6,000 400 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Apr-04 ct-04 Apr-05 ct-05 Apr-06 ct-06 Apr-07 ct-07 April-08 O O O O Sheet Inventory Sheet Imports Source: MSCI, U.S. Dept of Customs and CRU 15
  • Raw Material Cost - Impact on hot rolled band costs Raw material cost inflation has leveled the playing field – HRB cash cost $/ton $700 $608 $592 $600 7% $510 9% 15% 13% $500 17% 11% $400 $270 $300 $190 $204 41% 19% $200 24% 15% 24% 8% $100 66% 78% 52% 78% 51% 72% $0 '02 '08 '08 '02 '08 '02 1Q 2Q 2Q 2Q 1Q 1Q China & other low-labor cost steel US flat-rolled mini-mill steel NA integrated steel producers Producing countries producers Raw Materials Energy Labor Source: J.P. Morgan and company estimate 16
  • Capital Allocation – Building Value To grow responsibly while generating a competitive return on capital and meeting our financial and stakeholder obligations • Maintain strong capital structure • Focused capital spending plan • Responsible capital allocation • Remain shareholder focused Designed to improve shareholder value 17
  • Maintain strong capital structure – Building Value Balanced approach to capital allocation Since LTM 1/1/04 2Q’08 As of ($ in millions) Cash Provided by Operations $6,512 $1,418 Capital Spending $2,964 $782 Voluntary Pension & OPEB Funding $905 $140 Dividends Paid $331 $107 Increased 500% since 1/05* $901 $143 Stock Repurchases** 14.9 1.2 Millions of shares repurchased As of 6/30/08, 5.8 million shares remaining under current repurchase authorization * Dividend increase to $0.30/quarter to be effective with 9/10/08 payment ** Repurchase program initially authorized 7/05 18
  • Maintain strong capital structure – Building Value Key considerations Manageable legacy obligations – 2008 Pension: Pension OPEB Total As of 12/31/07 ($ in millions) • Defined benefit plan closed in 2003 $10,638 $4,089 $14,727 Benefit obligation OPEB: $10,861 $1,166 $12,027 Plan assets • Co-pays ($2,923) ($2,700) $223 Funded status • Inflation cap Pension OPEB Total 2008 Forecast ($ in millions) • Voluntary pension & VEBA $60 $140 $200 Net Periodic Expense contributions $142 $426 $568 Cash Flow* totaling $905 million since 1/1/04 Pension OPEB Key assumptions - 2008 7.94% 8.0% Expected return on assets 5.67% 5.69% Discount rate * Excludes any voluntary contributions 19
  • Capital Spending – Building Value U.S. Steel has spent less 2005 – 2007 Average CapEx per ton shipped than global peers in recent years $130 $119 Will likely incur higher $120 capex during next few $110 years concentrated on $100 Capex per ton infrastructure, but will likely remain below the $90 global average. $80 $70 $59 $60 $50 $40 $32 $30 $18 $20 $10 $0 Ternium Nippon Valin Tenarus MMK Nucor NLMK Arcelor Thysse Wuhan Gerdau Average Evraz CSN AKS USS SSAB Tata- Laiwu Essar JFE Severst Posco Bao Source: Accenture 20
  • Making Steel - World Competitive - Building Value Investment considerations • Strong business climate • Improving industry and relatively low valuation • Favorable North American environment • Building value: Maintain strong capital structure Evaluate growth opportunities Improving infrastructure and product mix Responsible capital allocation Remain shareholder focused 21