2. For the last 40 years, the minimill steel industry
has been on the offensive
• Steel is made either from virgin iron ore and coking coal in large integrated
plants or from recycled scrap in smaller minimills.
• The minimills have won the competition due to :
• Better social relationships in human sized mills, small community bound, non union workers
• Higher flexibility to adapt to market fluctuations
• Much lower capital cost
• Usually lower operating cost especially in time of low demand
• Most importantly, the minimills have pioneered new technologies, in
metallurgy, in continuous casting and in precision rolling, which has allowed
their penetration in increasingly sophisticated product segments.
• Having captured nearly all long and tubular products, minimills are now
attacking the flat product segment and will accelerate their success in the US
thanks to low price shale gas.
• With a few notable exceptions, integrated mills have been unable to switch to
the new processes and have retreated ever since, with recurrent
controversies and government interventions, leading to a poor industry
perception, especially in the media (except of course the good ones)
2
3. For many decades, the share of EAF steel
has grown steadily in Europe and NAFTA
EAF share in crude steel production, by region (%)
3
Source : WorldSteel, Laplace Conseil analysis
70%
60%
50%
40%
30%
20%
10%
0%
NAFTA
EU-27, TK, Nw, Sw
1961 1971 1981 1991 2001 2011
60%
50%
4. The share of EAF steel is very different by country
Share of EAF steel by country in 2011 (%)
4
Source : Worldsteel Laplace Conseil analysis
5. The environmental advantages of scrap recycling
over traditional BF/BOF smelting are important
Environmental comparison of minimills and integrated mills in OECD countries*
GJ/t CO2 t/t Virgin material/t
21- 25
8 - 11
Electricity sources : 25% nuclear, 50 % thermal, 25% hydro and/or renewable
5
• Source : Industry data, Laplace Conseil estimates
2.1 - 2.5
Scrap
Minimill
2.8 - 3.0
0.4 - 0.7
0.2 -0.3
Conventional
Integrated mill
Scrap
Minimill
Conventional
Integrated mill
Scrap
Minimill
Conventional
Integrated mill
6. In EU and US, production costs of BOF are usually
above EAF, particularly when steel demand is low
Cost comparison BOF and EAF crude steel in Europe and USA (€/t)
600
500
400
300
200
100
6
600
500
400
300
100
0
BOF
EAF
200
Scrap prices are moving in sync with iron ore and coal price
So as to also capture the benefits of global steel growth
Source : SBB, Eurostat, EIA, Steel on the net, Laplace Conseil analysis
BOF
EAF
0
2004 2006 2008 2010 2004 2006 2008 2010
7. US and EU are large net exporter of scrap,
primarily to Turkey; OECD is a small net importer
Breakdown of OECD scrap net imports/exports, Mt
7
Source : WorldSteel, Laplace Conseil analyses
10
5
0
-5
-10
-15
EU JKAN NAFTA
Net OECD
Turkey
8. The EU and US scrap “mines” each have
a “proven and probable” reserve of 3 billion tonnes
Size of the scrap “mine”, proven, probable and inferred, Mt*
* Computed as the difference between steel consumption (including indirect imports)
and scrap collection. An estimate is made for unrecoverable scrap due to current use
rust or uneconomic recovery
8
Source : Worldsteel, Laplace Conseil analysis & estimates
3 500
3 000
2 500
2 000
1 500
1 000
500
0
EU 27
US
1950 1960 1970 1980 1990 2000 2010
9. Shale gas is redefining the US energy
landscape: prices are at the lowest since 2002
Evolution of natural gas prices accross OECD countries (US$/MBTU)
9
18
16
14
12
10
8
6
4
2
0
Japan LNG Cif
Germany
average
import price
UK Heren
NBP Index
US
Henry Hub
1996 1998 2000 2002 2004 2006 2008 2010 2012
Source : EIA, BP, Laplace Conseil Analysis
10. US mills are located over huge shale gas plays
* Pittsburg-Cleveland area: 7 BF/BOF plants + 22 EAF plants (cap. 21Mtpy)
** Chicago area: 4 BF/BOF plants + 4 EAF plants (cap. 24Mtpy)
*** Ontario Area: 3 BF/BOF plants + 4 EAF plants (cap. 10Mtpy)
Areas further detailed (see regional maps)
10
**
Source: EIA, AISI, USGS, Laplace Conseil analysis
Main shale gas reserves
Iron Ore deposits
EAF plants flats
EAF plants others
BOF plants
Canada
Location of US steel mills and shale gas plays
11. In 2012, natural gas prices provide a competitive
advantage to DRI compared to scrap, over $100/t
Maintenance 289
Oxygen Electricity
Natural Gas
Transport
Source: SBB, EIA, Steelonthenet, UBS, Nucor, Laplace Conseil analysis
11
500
400
300
200
100
0
DRI US HM#1 Scrap Solid Pig Iron
(Brazil imports)
Pellets
Labour
406
484
Cost comparison, DRI, Scrap, Pig Iron and Hot Metal
Average cost Q2 2012, United States, $/t
Note: Yield, carbon value and copper penalty are not included
476
Liquid pig iron
(average US integrated
12. Minimill technology drawing on DRI, EAF and TSC
costs one fourth of the same integrated mill
Comparison between Integrated and minimill philosophies for investment (Billion US$)
Hot strip mill
Cold rolling Mill
Galv lines
Source : SBB, USGS, Steel on the net, EIA,WSJ, Laplace Conseil analysis
12
6,8
11,8
0,75
3,0
5
0,25
1,0
1,0
12
10
8
6
4
2
0
TK CSA Br
5 Mt
TK Alabama US
4,2 Mt
Total
integrated
DRI
2,5 Mt
Scrap
2,5 Mt
EAF/TSC
5 Mt
Cold & Coat
4 Mt
Total
Minimill
Port and infrastructure
Coke oven HR
Sintering plant
Power plant
2 Blast furnaces
BOF
Slab caster
Transport to US
Comparison of Scrap/DRI/EAF vs iron ore/coal/BF/BOF
Iron ore and scrap : 200 -250% of integrated route
Total Energycost (coal vs nat gas) : 50% of integrated
CO2 emissions : 30% of integrated route (CH4)
Dust and other emissions : 20 - 40% of integrated route
Labor cost : 35 to 40% of integrated route
Maintenance cost : 25% of integrated route
Total transports to client cost : 30 - 50% of integrated route
Financial cost : 20% of integrated route
Total cost comparison : minimill is 20 – 30% lower cost
13. Nucor, already technology leader is the first to
capitalize on the game changing shale/DRI strategy
• Nucor is the world leader in EAF/TSC (thin slab caster) technology for
hot rolled coils production with 6 minimills in operation in the US and a
combined capacity of 12 Mt of hot rolled coils (not including plates).
• Nucor is building a DRI plant in Alabama (2 modules for 5 Mt) in
addition to its 2 Mt plant in Trinidad and has signed a 20 years
contract for shale gas with Encana Oil and Gas Inc. to drill at « cost
plus carried interest » all the gas needed for Nucor operations.
• Nucor flat product expertise coupled with its DRI experience will be
used to enter the automotive sheet market and other high grade steel.
• Nucor has an unbroken record of 156 quarterly dividends, has the best
return of capital employed of the industry and has never lay-off a
“teammate” throughout the steel cycles.
13
14. In Europe, shale gas are apparently abundant
but exploration/exploration is still very prudent
14
Europe non conventional gas resources
Source: Kuuskraa et al
16. Despite the decade long trend toward scrap
recycling, integrated mills have not switched
• Lakshmi Mittal has bought the largest collection of obsolete integrated mills
in Europe, Nafta and ROW (along with a few jewels), but ArcelorMittal has
not yet converted a single plant to modern recycling. The Group is
embroiled in growing controversies with Governments over plant closures.
• Thyssen Krupp has just inaugurated a 5 Mt slab plant in Brazil and an
equally large rolling complex in Alabama at a cost in excess of $12 billions,
only to start selling the business, presumably at a significant loss.
• Ilva has so much underinvested in the maintenance and environment
protection of its Taranto work, Europe largest, that a judge decided to throw
the owner and the management in jail until the mill comply with regulations.
• The common element to these sad mistakes is simple : in a mature market
with plentiful scrap, it is simply too costly to build or even to maintain
integrated plants, while minimills enjoy substantially lower cost.
16
17. Integrated mills have generally have resisted
switching to EAF for multiple reasons
• Quality: Old scrap contains copper that prevent producing deep
drawing steel; Yes but, only tin plate is really in that category and due
to cheaper aluminum competition, that small niche is shrinking fast.
• Not enough scrap in the market : Yes but, EU and US are large net
exporter of scrap, primarily toward Turkey. This could be used at
home.
• Losses of jobs : Unions have usually rejected attempts to replace
blast furnaces with EAF, due to job losses and resistance to change ;
Yes but, the alternative is generally total plant closure.
• Not competitive : Yes but, most minimills owners (Bresciani’s …)
usually can change their Ferrari every other year.
17
18. “Those who doubt the capability of minimills such
as Nucor to produce exposed auto sheet "have not
been alive or awake" over the past 30-some years”
Dan DiMico, CEO Nucor,
commenting Q3 2012 results before announcing
the 156th consecutive quarterly dividend.
18
19. Based on 2012 production level, integrated mills
represent 85% of OECD overcapacity
Share of Capacity and excess capacity by process and region (Mt)
19
2012e Capacity in OECD
Total = 520 Mt
Europe BOF
105
NAFTA BOF
48
Asia BOF
133
NAFTA EAF
75
Asia EAF
54
Europe EAF
105
Source Worldsteel, Laplace Conseil analysis
2012e estimated overcapacity in OECD
Total = 51 Mt
Asia EAF 1
Europe BOF
28
Asia BOF
NAFTA BOF
8
7
20. Most of the current OECD overcapacity is
concentrated in integrated mills in Europe and USA
Rate of overcapacity by process and region (% of installed capacity)
20
Source Worldsteel, Laplace Conseil analysis
20%
10%
0%
Europe BOF NAFTA BOF Asia BOF Europe EAF NAFTA EAF Asia EAF
21. In NAFTA, DRI/EAF production will grow from
9 to 39 Mt, replacing imports and half the BF/BOF
NAFTA market supply by origin (Mt crude steel)
2011, 100% = 130 Mt Forecast 2020, 100% = 139 Mt
BOF / BF
36%
21
Steel net imports
EAF DRI
7%
EAF Scrap
47%
10%
25 / 39
#BF in use / available
Source: WorldSteel, AISI, Midrex, Laplace Conseil analysis
BOF / BF
19%
EAF Scrap
53%
EAF DRI
28%
15 / 21
#BF in use / available
22. With the advent of DRI, nearly half of the NAFTA
integrated mills will be threatened by closure
NAFTA Integrated mills utilization forecast by 2020
NAFTA 100% = 63 Mt crude steel
RG Steel likely closure
22
6 Mt
Top 2 Co’s integrated
possible closures
18 Mt
Other integrated
possible closures
5 Mt
Operating
BOF
34 Mt
Source: Worldsteel, Laplace Conseil analysis
23. In Europe, integrated plants will probably shift to
more EAF production, some DRI could be imported
EU-27 +TK, SWI, NW production , by origin (Mt crude steel)
2011, 100% = 213 Mmt Forecast 2020, 100% = 236 Mmt
BOF / BF
51%
23
EAF Scrap
Source: WorldSteel, AISI, Midrex, Laplace Conseil analysis
48%
EAF DRI 1%
55 / 79
#BF in use / available
BOF / BF
44%
EAF Scrap
50%
EAF DRI 6%
41 / 49
#BF in use / available
24. By 2020, the European integrated capacity
could be reduced by one third
24
Source: Kuuskraa et al, Laplace Conseil analysis
Operating
BOF
103 Mt
Top 3 Co’s integrated
possible closures
29 Mt
Other integrated
possible closures
10 Mt
EU27 + TK 100% = 150 Mt crude steel
Liège + Florange + Carsid closure
8 Mt
25. Thank you for your attention
Metal and mining Consultant
www.laplaceconseil.com
25