Experiences with Structural Adjustment of the Australian Steel industry Presentation by Dr Bob Every Managing Director and CEO of OneSteel Limited September 9, 2004
Contents Global Industry Landscape Australian Industry Landscape Current Trends and Structural Impacts The Future of Steel Slide 2
Global Steel Industry Landscape
Global Steel Industry Landscape Period from 1970 to 2000 Global Over-capacity 800 million tonnes demand 950 million tonnes capacity Fragmented Industry 95 players produce more than 2 million tonnes p.a Top player only produces 3-4% of world production Since 2000 Some consolidation is occurring China has grown dramatically 25-30% of world demand Mega or niche to succeed Slide 4
Steel in the Global Context $US/capita ($1995) 7000 6500 6000 5500 5000 4500 4000 3500 3000 2500 2000 World Steel Consumption and GDP Per Capita, 1950-2010 Collapse of USSR led to steel consumption collapse in Eastern Europe Post war expansion to 1970 led to predictions of seemingless endless growth 1954 Asian crisis 1961 Phase 1 China takes off! 1994 Phase 3 1997 2002 1989 Phase 2 2005 1983 1979 1975 1973 1971 1970 First and second oil prices and subsequent recessions led to massive light-weighting of steel-containing products 2010 1500 50 55 60 65 70 75 80 85 90 95 100 105 110 115 120 125 130 135 140 145 150 155 160 kg steel/capita Source: Macquarie Research Slide 5
Steel in the Global Context Index, 1990 =100 450 400 350 300 250 200 150 100 50 Industrial Production Growth in the 1990s 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Western Europe Eastern Europe China Japan Other Asia North America Source: Ecowin Slide 6
Steel in the Global Context 900000 World Steel Consumption by Region '000t crude steel 800000 700000 600000 500000 400000 300000 200000 100000 0 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 China Japan Other Asia Western Europe Eastern Europe Form er Soviet Union Middle East Africa Oceania Latin America Canada USA Source: IISI Slide 7
International Steel Production and Prices Slide 8
International Steel Forecast Demand Slide 9
Steel in the Global Context Early signs of a complementary change on the production side Consolidation is occurring - Corus from merger of British Steel and Hoogovens - Arcelor from merger of Usinor, Arbed and Aceralia - JFE Steel from NKK and Kawasaki - U.S. Steel acquired assets of National Steel - Nucor has made four acquisitions over two years Slide 10
Steel in the Global Context So what does this all mean? We may be entering a new period of growth in international steel the first time in three decades It has the potential to change the balance in the industry from over to under supply Slide 11
Australian Steel Industry Landscape
Australian Steel Industry Landscape 1970s One Steel producer BHP (Blast furnace based) 1980s Emergence of Smorgon Steel (Electric Arc furnace) 1990s BHP closes Newcastle steel works (1.5 million tonne facility) 2000s, BHP exits steel BHP spins off OneSteel Limited (long products) BHP Billiton spins off BlueScope Steel (flat products) Slide 13
Australian Steel Industry Landscape Long Product Flat Product Smorgon Steel 900,000 tonnes OneSteel 1.7 million tonnes BlueScope Steel 5 million tonnes Mainly Domestic Export Slide 14
Current Trends and Structural Impacts
$460 $440 $420 $400 $380 $360 $340 $320 $300 $280 $260 $240 $220 $200 $180 $160 $140 $120 $100 $80 Scrap Prices Asian HM1 Scrap Price Jan 1994 to Jul 2004 Slide 16 $/t Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 $US/t $A/t Source : Tex Report
Trends in International Long Product Steel Prices Source : CRU Long Products International Prices Jan 1994 to Jul 2004. (US$) 600 550 500 450 400 350 300 250 200 150 US$/Tonne (c&f into China) ex Non-CIS Jul-04 Jan-04 Jul-03 Jan-03 Jul-02 Jan-02 Jul-01 Jan-01 Jul-00 Jan-00 Jul-99 Jan-99 Jul-98 Jan-98 Jul-97 Jan-97 Jul-96 Jan-96 Jul-95 Jan-95 Jul-94 Jan-94 BEAMS MER.BAR REBARS LC WIRE ROD Slide 17
Imports into Australia 2400 2200 2000 1800 1600 12 mth moving totals Australian Steel Imports - kt 1400 Other 1200 1000 800 600 400 200 Blue Scope Steel Range OneSteel Range 0 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Source: Australian Bureau of Statistics and OST data Slide 18
Import versus International Prices Import versus International Prices - $AUD From January 1999 to June 2004 2.1 1.9 Australian Dollar Appreciation Impact 1.7 Index 1.5 1.3 1.1 0.9 Jan- 99 May- 99 Sep- 99 Jan- 00 May- 00 Sep- 00 Jan- 01 May- 01 Sep- 01 Jan- 02 May- 02 Sep- 02 Jan- 03 May- 03 Sep- 03 Jan- 04 May- 04 Basket of Goods (Rebar, Mebar, Structural) Import Price International Price Source: Australian Bureau of Statistics and OST data Slide 19
Australian Steel Price Index Prices for Steel Construction Materials from 1990-2004 INDEX (1989-90=100) 150 140 130 120 110 CPI Structural steel Decking & cladding Steel in Res Construc 100 90 QUARTERS FROM MARCH 1990 TO JUNE 2004 Rebar & mesh Steel decking and cladding Structural steel Reinforcing steel bar, fabric and mesh Weighted Average of 8 Capital Cities CPI Source: Australian Bureau of Statistics Steel products used in Res construction Slide 20
International Freight Rates Source: Clarkson Research Studies Slide 21
Performance of Australian Steel Companies Share Price Performance of Australian Steel Companies versus All Ordinaries (Indexed at 100 on 21 July 2002) 200 180 160 Australian Steel Companies Index* Index Value 140 120 All Ordinaries Index 100 80 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 * Index of the share prices of BlueScope Steel, OneSteel, Sims and Smorgon Steel (not weighted by market capitalisation) Slide 22
The Future for Steel Steel Consumption is rising, driven by China Less government ownership Consolidation is occurring, at least regionally Slide 23
Conclusion Australian steel industry undergone massive restructuring An exciting decade ahead - supply and demand changing - potential for strong sustainable steel prices Australian steel companies are creating value OneSteel has undergone a process of reinvention I believe we really are seeing the reinvention of steel Slide 24