2016 summary and outlook of the thermal processing and heat treatment industry drivers and their global impact

1. South AmericaRegional Economic Drivers and their Global Impact in the Thermal
Processing Market – South America
Thomas D. Kreuzaler
SECO/WARWICK do Brasil Ltda.
Jundiaí, São Paulo, Brasil

2. The SECO/WARWICK Group

3. History of SECO/WARWICK Brazil
 1986 - Founded as ENGEFOR, São Paulo/SP, Brasil
 1989 – furnaces for PTFE curing
 1990 – License agreement with ABBOTT furnaces, USA
 1991 – First continuous atmosphere sintering furnace
 2000 – Steam blackening service for selected customers
 2008 – construction of new plant with 5.000 m2 in Jundiaí/SP
 2008 – moving 70 km from Sao Paulo City to Jundiaí/SP
 2013 – SECO/WARWICK acquired 100 % of the shares of
ENGEFOR, renamed to SECO/WARWICK do Brasil Ltda.
 Since 2013 – transfer of technology and product
know-how from the Group entities to Brazil

4. Factory in Brasil
SECO/WARWICK do Brasil Ltda. in Jundiai/SP, Brazil

5. South America
Regional Economic Drivers and their Global Impact in the
Thermal Processing Market– South America
 Size of South American Market – General Comments
 Main Driving Industries Thermal Processing in the region
 Business Conditions
 Threads and Opportunities South America
 Summary

6. South America in comparison I
Large Industrial Market Sizes
(USA, EU, China, India, South America w/o Japan)
 Contrary to the others South America is not a
harmonized and homogenous market!
Selected Markets’
GDP in106 US$
IMF
FC2016 / Apr. 15
World Bank
2015
United Nations
2014
USA 18.558.130 18.460.646 17.348.072
European Union 16.477.211 18.460.646 18.518.430
China 11.383.030 10.866.444 10.430.590
India 2.288.720 2.073.543 2.054.941
South America 3.064.982 3.677.952 4.496.299

7. South America in comparison II
Large Industrial Market Sizes
(USA, EU, China, India, South America – without Japan)
Selected Markets’
share in % of
total selection
IMF
FC2016 / Apr. 16
World Bank
2015
United Nations
2014
USA 36% 34% 33%
European Union 32% 34% 35%
China 22% 20% 20%
India 4% 4% 4%
South America 6% 7% 9%

8. South America map

9. South America in detail I
Market sizes South America (GDP in 106 US$)
Country IMF FC2016 World B. 2015 UN 2014
Brazil 1.534.780 1.774.725 2.346.523
Argentina 437.856 548.055 543.490
Chile 235.419 240.216 258.062
Peru 178.643 192.084 201.809
Paraguay 26.804 30.881 30.958
Uruguay 53.145 57.471 57.471
Bolivia 33.983 32.996 32.996
Ecuador 94.014 100.917 100.917
Colombia 253.240 292.080 377.740
Venezuela 185.611 371.337 509.968
Trinidad e Tobago 23.816 28.883 28.069
Guyana 3.335 3.097 3.086
Suriname 4.336 5.210 5.210

10. South America in detail II
Market sizes South America (% GDP of total GDP South America)
Country IMF FC2016 World B. 2015 UN 2014
Brazil 50,1% 48,3% 52,2%
Argentina 14,3% 14,9% 12,1%
Chile 7,7% 6,5% 5,7%
Peru 5,8% 5,2% 4,5%
Paraguay 0,9% 0,8% 0,7%
Uruguay 1,7% 1,6% 1,3%
Bolivia 1,1% 0,9% 0,7%
Ecuador 3,1% 2,7% 2,2%
Colombia 8,3% 7,9% 8,4%
Venezuela 6,1% 10,1% 11,3%
Trinidad e Tobago 0,8% 0,8% 0,6%
Guyana 0,1% 0,1% 0,1%
Suriname 0,1% 0,1% 0,1%
> 70%
> 90% incl.

11. Analysis of the drivers in TP
 Mining and Metallurgy
 Oil & Gas
 Energy
 Cars, Trucks and Automotive
 Agricultural and Construction machinery
 Aerospace & Defense

12. Drivers in TP I
 Mining and Metallurgy Sector (US$/metric ton)
Databases IMF, 2016

13. Drivers in TP II
 Mining and Metallurgy (US$/metric ton)
Databases IMF, 2016

14. Drivers in TP III
Mining & Metallurgy
 Sector is suffering from lower worldwide demand
 South America’s countries are suffering especially from the deteriorated
ore prices in their balance of trade and budget incomes
 Low competitiveness, unfortunate business environment (infrastructure,
political conditions e.g.) and high energy prices are a hurdle for
increased activities in smelting and refining of metals
 Government programs for increased industrial activity have issues with
funds

15. Drivers in TP IV
 Oil and Gas
Databases IMF, 2016

16. Drivers in TP V
Oil & Gas
 Sector is suffering from lower worldwide demand
 Oil prices are partially lower than oil production cost (Brazil pre-sal
deep sea production at max. 70 US$/barrel e.g.)
 High oil price of the past caused creation of various inefficiencies in
South American Companies, which need to be repaired (undergoing)
 Price increase in the future will accelerate the industrial activities quickly
 Government funds are suffering from low budget income

17. Drivers in TP VI
Energy
 Due to reduced industrial activities the total demand has been
decreased and the supply situation has been improved
 High energy cost like in Brazil and Argentina are a hurdle for energy
intense industries
 Most energy programs are government driven (nuclear, solar and wind
energy programs) and suffer from funding
 Private investors will be attracted by changes in business conditions
 Demand of population will increase certainly

18. Drivers in TP VII
 Cars Production
ACEA Worldwide Production 2014/2015
Passenger cars 2014 % of total 2015 % of total
China 17.820.434 24,73% 19.172.731 26,03%
North America 17.723.441 24,60% 18.241.366 24,76%
Europe 13.795.840 19,15% 14.036.608 19,06%
South Asia 12.341.029 17,13% 11.942.164 16,21%
Japan/Korea 5.872.427 8,15% 6.096.689 8,28%
South America 3.041.644 4,22% 2.642.480 3,59%
Middle
East/Africa 1.454.528 2,02% 1.526.183 2,07%
WORLD 72.049.343 100,00% 73.658.221 100,00%

19. Drivers in TP VIII
ACEA Worldwide Production 2014/2015
Commercial
vehicles
2014 % of total 2015 % of total
China 6.335.620 34,26% 5.653.601 31,31%
North America 3.726.981 20,16% 4.016.421 22,25%
Europe 2.919.493 15,79% 3.186.779 17,65%
South Asia 2.309.728 12,49% 2.367.733 13,11%
Japan/Korea 1.732.786 9,37% 1.701.478 9,42%
South America 968.787 5,24% 683.214 3,78%
Middle
East/Africa 497.423 2,69% 445.787 2,47%
WORLD 18.490.818 100,00% 18.055.013 100,00%
 Comercial Vehicles Production

20. Drivers in TP IX
 Car & Trucks Production
OICA Worldwide Production 2014/2015, *FC2016 various sources
2014 2015 FC 2016*
World 89.776.465 90.780.583 91.500.000
ARGENTINA 617.329 533.683 500.000
BRAZIL 3.146.386 2.429.463 2.200.000
COLOMBIA 71.137 78.070 100.000
ECUADOR 5.986 4.800 5.000
VENEZUELA 19.759 18.300 15.000
TOTAL SOUTH AMERICA 3.860.597 3.064.316 2.820.000
% of WORLD 4,30% 3,38% 3,08%

21. Drivers in TP X
Cars & Trucks
 Declining production in Brazil as major producer/market and adaptation
of production capacities radiates to all countries in South America
 Reduced demand due to economic crisis in Brazil, Argentina and
Venezuela
 Expectation, that 2016 bottom line of demand has been hit
 Production nationalizing programs (Autoinovar e.g.) require companies
to invest in local production lines for imported parts
 Slight improvement expected in 2017, middle term the
market will return strongly due to its infrastructure demands

22. Drivers in TP XI
Agricultural & Construction machines
 Agricultural business is growing continuously and will reach new record
in export in 2016
 Demand in agriculture is constantly growing, but smaller companies are
depending on government funding
 Construction business in infrastructure has been reduced due to funding
issues of government
 Construction demand in private sector has lower demand due to crisis
situation
BRAZIL Export 2014 Export 2015 Difference
Agricultural 06.768 mioUS$ 06.863 MioUS$ +1,4%
Other 10.726 mioUS$ 09.920 mioUS -7,5%
Brazilian Agricultural Ministry, 2016

23. Drivers in TP XII
Aerospace & Defense
 EMBRAER introduced new models, FC 2016 positive, but most of the
parts are imported and the company is undergoing now a corruption
investigation (“Board members approved bribes”)
 SAAB Viken fighter program Brazil from 2017 with local content
 Investment and modernization of Defense forces suffer from government
funding
 A lot of smaller companies and suppliers on the path of
internationalization and standardizing. Initiatives launched.
Commercial plane deilveries 2015 2016 FC
Boeing 762 planes 
Airbus 635 planes 
EMBRAER 101 planes 

24. Drivers in TP XIII
Drivers summary
Commercial plane deilveries 2016 2017 2018+
Mining and Metallurgy  () 
Oil & Gas   
Energy  () 
Cars, Trucks and Automotive  () 
Agricultural and Construction
Machinery
  
Aerospace & Defense   

25. Business Conditions I
IMD World Competitiveness Report 2016
 The IMD World Competitiveness Scoreboard presents the
2016 overall rankings for 61 economies and is issued by
the IMD institute in Lausanne/CH (www.imd.org). Criterias:
 Economic performance (83 criteria), What are the
macro-economics of the economy?
 Government efficiency (73 criteria) – Do government
policies are conducive to competitiveness?
 Business efficiency (71 criteria) - Does national
environment encourage companies to perform
innovative, profitable and responsible?
 Infrastructure (115 criteria) - Do basic, technological,
scientific and human resources meet the need of the
business?

26. Business Conditions II
IMD competitiveness report on selected countries
0 20000 40000 60000 80000 100000
61 - Venezuela
57 - Brazil
55 - Argentina
54 - Peru
51 - Colombia
45 - Mexico
41 - India
36 - Chile
26 - Japan
25 China Mainland
12 - Germany
10 - Canada
3 - USA

27. Summary and Outlook
Summary
 South America’s global impact on the thermal processing market is
marginal, this could change if positive signs for 2017/2018 lead to
considerable growths numbers
 Brazil and Argentina will remain for some time the most important
economies and regional motors for the further development
 Political scenarios and the corresponding business ambience are very
important and are improving in the recent past
 In 2016 the share of the big drivers (automotive, mining and metallurgy)
is declining in South America, other (aerospace, agriculture)
are not yet capable of compensating this

28. Outlook
Threads
 Overcapacities, low
competitiveness and “bad
economic culture” will
continuously be a hurdle for
substantial growth
 Politic instability take the industry
and foreign investments at risk
 Only slowly and on a long term
(2020+) the industry will return
to growth
Opportunities
 Political culture changes and
higher commodities prices will
improve the conditions rapidly
 Growing internal demand in the
countries will require fast growing
industrial production
 Investors confidence will increase
investments in infrastructure and
industry
 Export will develop significantly
 Changes are quickly