Is the Storm Over? – Steel Update

1. Is the Storm Over? – Steel Update Clark Hyland SCNZ Manager BE(Civil) BCom CPEng November 2008

2. Overview • Steel prices have peaked and supply has eased • Global credit ‘crunch’ having a big impact • US$ international steel benchmark prices have declined substantially • Declines in NZ$ offsetting decline here at moment • Supply pipeline has a 3 month delay • Prices in NZ may soften from Q1 09 dependent on NZ$

3. What is happening in Asia? • Sudden drop in world demand for steel • Prices peaked in August • Prices have dropped since • Production being cut • Signs of bottoming out

4. What is happening in New Zealand? • International benchmarks for Oct 08 equating to prices for Jan 09 NZ delivery • Sustained NZ$ price levels due to recent declines in NZ$ to US$0.57 • Benchmark prices reflect 3 months of stockholder inventory pipeline • US$ international steel benchmark prices have declined substantially

5. What is the impact of the credit crisis? • In recent weeks NZ$ has declined substantially • The rapid change in foreign exchange and costs of credit have increased the cost of hedging and uncertainty in NZ$ terms • Limitations on the ability to secure letters of credit. • Decline in the US$ purchasing power of credit lines (if established in NZ$) • Inability to open expanded credit lines or significant premiums in doing so. • Likely to result in reduced credit terms being offered on imports • Changing perceptions of risks in dealing with the Australian/New Zealand market • Some insisting on partial (20 to 50%) pre-payment in order to secure order volumes. • Expect overseas manufactures to move from open account relationships, where they exist, to letters of credit (difficult to secure)

6. What will occur medium term for steel price? • In 2009 world steel consumption expected to increase 1.5 – 2.5% or 20 - 40 mt • compared to increases of 50 – 100 mt each year since 2001 • Emerging markets absorb nearly 70% of world’s output, 36% of which is in China • China revised GDP still expected to grow by 6 - 8% for 2009 • Western markets for steel will shrink by 6 -8% • Vale, world’s largest iron ore producer cutting production by 20%, • however continue to implement capital expenditure to lift iron ore production by over 50% in the next 5 – 7 years

7. What will occur long term in steel price? • High GDP growth in Brazil, Russia, India,and China with a large population base • Rapid urbanization of China driving a high steel intensity/$GDP • Significant increase in steel consumption per capita in China with increasing GDP • These are long-term shifts over 20+ year timeframes • China is 8 years in and India has not started

8. Recovery? Steel Price Prediction Yes it is occurring Long term trend Will there be a change in long term trend??

9. Summary • The price storm is over • Steel supply pricing has stopped climbing in NZ$ • US$ international steel benchmark prices have declined substantially in recent months • Recent declines in NZ$ offsetting decline of international steel prices • Softening of prices in 1st or 2nd quarter of 2009 will depend on movements in NZ$. • Medium & long term demand internationally for steel remain strong

10. References • Fithall N., Building Sustainability in Changing Times, Onesteel, Presentation to NZ Metals Industry Conference October 2008 • China Steel Briefing, CBI China, October 17, 2008 • SBs Daily Briefing Global Edition, Steel Business Briefing Ltd, 3rd November 2008 • SBBAnalytics China, Steel Business Briefing Ltd, 3rd November 2008 • SBB’s Weekly World Steel Review, Steel Business Briefing Ltd, 29th October 2008