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Steel Industry Overview

Steel Industry Overview. Régulo Salinas Cancún, México October 2007. Production Volume (Million tons). Compound Annual Growth Rate (Average % for 5 year periods). Production per Capita (Kg / Capita). 1400. 12. 200. 1,244. 191. 1200. 10. 180. 1000. 8. 160. 800. 6. 140. 600.

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Steel Industry Overview

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  1. Steel Industry Overview Régulo Salinas Cancún, México October 2007

  2. Production Volume (Million tons) Compound Annual Growth Rate (Average % for 5 year periods) Production per Capita (Kg / Capita) 1400 12 200 1,244 191 1200 10 180 1000 8 160 800 6 140 600 4 120 400 2 100 200 0 80 0 -2 60 50 55 60 65 70 75 80 85 90 95 00 05 06 50 55 60 65 70 75 80 85 90 95 00 05 06* 50 55 60 65 70 75 80 85 90 95 00 05 06 * 2006/2005 Global Steel Industry Resumed its Growth After Decades of Stagnation and Low Profitability World Crude Steel Production Sources: IISI, World Steel in Figures 2007; Geographic Information Systems

  3. China has Been the Main Driver Behind Growth, Changing the Industry Structure World Crude Steel Production 1975 2006 North America Other North America Other Central & South America Central &South America 13% 11% 11% 3% 19% CIS 4% 10% Western Europe 9% 16% 23% Japan EU 25 22% USSR 3% 1% 5% 16% 34% India India China China Japan 1,244 Million Tonnes 644 Million Tonnes Source: IISI, World Steel in Figures 1976, 2007

  4. The Other Driver Behind Growth & Profitability has been Industry Consolidation Number of Steel Industry M & A’s Amount (US$ Billions) 73 71 68 53 28 24 2004 2005 2006 2004 2005 2006 Source: Bloomberg, Completed Deals

  5. 07 06 05 04 03 02 01 00 99 98 97 96 95 94 93 92 91 90 89 Global Steel Price Cycle Shows Two Eras Supply Driven Privatization Cost Based Demand Driven Consolidation Price Based US$ / ton 900 900 China + Global GDP 800 800 Sep ’07 = 573 (USA) 700 700 Asian Crisis 600 600 Steel Crisis 500 500 US$ / ton 400 400 384 370 300 300 ** 200 200 Russian Crisis 208 100 100 0 0 China HRC Estimated Costs (w/o General Expenses) HRC US* HRC Europe* HRC CIS* * Constant dollars (July 2007) ** 2006 cost plus iron-ore price increase (9.5% abril 07) Source: CRU / WSD

  6. Total CIS 113 Total Europe 166 Total US / Canada 110 * Total China 349 Total Others Asia 105 Total Latin America 63 Total Japan 112 Growing Regional Steel Concentration Top 5 producer’s share in 2006 production * Million tonnes per year Source: IISI

  7. Global Concentration Lagging Behind Other Metals, Suppliers and Key Customers Industry Concentration, Top 5 Producers (%) 81% 72% 66% Top 7 49% 40% 38% 28% 20% Iron Ore Nickel Alumina Aluminum Copper Zinc Steel Automotive Sources: Morgan Stanley Research, 16 Feb 2007 IISI, World Steel in Figures 2006 JD Power

  8. Scale economies and synergies Better balanced steel inventories Optimization of Cost / Production / Logistics Global production / Local customer service Optimal plant location Optimal use of resources — capital, physical, labor Faster response to market volatility and trends Better balance with suppliers and customers Increased competition among large, efficient producers Impact Of Industry Consolidation will Become More Apparent in Coming Years Tactical Level Strategic Level

  9. Mexico’s Steel Demand Mexico’s Apparent Steel Consumtion (MM tons) 22 20 Imports Imports / ASC 23% 18 16 14 Apparent Steel Consumption 12 10 CAGR*: ’96-’07e: 6.4% 8 6 4 Production 2 0 07e** 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 * Compound Average Growth Rate Source: Canacero ** 2007: Jan-July annualized

  10. Mexican Steel Imports Steel Products Imports (Million tons) 6.0 5.0 Total 4.0 Long Products 3.0 2.0 1.0 Flat Products 0.0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07* * 2007: Jan-July annualized Source: Canacero

  11. Mexican Market Structure Steel Products Demand in Mexico 2007* (%) Other ** 13% 50% Flat Products Long Products 37% * Seamless pipe, structural shapes, rails, Etc. ** January – July annualized

  12. Raw Steel Production in Mexico 2006 Raw Steel Production Ternium Hylsa Other 20% 24% Tamsa 6% Sicartsa(Mittal) 5% 21% 24% Ahmsa Mittal Steel Lazaro Cardenas 16.3 million tons Source: Canacero

  13. Mexican Commercial Market Structure Industrial Consumers Service Centers Steel Mills • Automotive • Domestic appliances • Motors • Containers • Metallic furniture • Machinery & equipment • Other Traders / Retailers Imports Construction Agriculture and others

  14. WSD 2006 World Cost Curve (Hot Rolled Band Operating Costs before overhead) Source: World Steel Dynamics Efficient, low cost operations

  15. U.S. Forecasted Price Upturn to be Reflected in Mexico US HRC Price US$ / ton 900 Forecast 800 700 GFMS 600 CRU 500 400 300 200 E A J O E A J O E A J O E A J O E A J O E A J 03 04 05 06 07 08 Projections: CRU Quarterly Oct 07 Actual: CRU September 07 GFMS September 07

  16. Positive Domestic Economic Perspectives Source: Harbor Intelligence, August 2007

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