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17 APRIL 2009

Juergen Nusser. Juergen Nusser. VICE PRESIDENT. The Survival of the Fittest. The Survival of the Fittest. The Survival of the Fittest. The Survival of the Fittest. Steel Markets 2009. Steel Markets 2009. PRESIDENT. 17 APRIL 2009. The real surrender of the optimists is still to happen.

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17 APRIL 2009

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  1. Juergen Nusser Juergen Nusser VICE PRESIDENT The Survival of the Fittest The Survival of the Fittest The Survival of the Fittest The Survival of the Fittest Steel Markets 2009 Steel Markets 2009 PRESIDENT 17 APRIL 2009 The real surrender of the optimists is still to happen Prawdziwa klêska optymistów dopiero nadchodzi

  2. NETHERLANDS NORWAY STÅL OG METALLGROSSISTENES FORENING SWEDEN STÅL- OCH METALLFÖRENINGEN FINLAND ASSOCIATION OF FINNISH TECHNICAL TRADERS (TKL) GERMANY BUNDESVERBAND DEUTSCHER STAHLHANDEL EDELSTAHLHANDELS-VEREINIGUNG DENMARK UNITED KINGDOM NATIONAL ASSOCIATION OF STEEL STOCKHOLDERS POLAND POLSKA UNIA DYSTRYBUTORÓW STALI BELGIUM GROUPEMENT DES MARCHANDS DE FER DE BELGIQUE CZECH REPUBLIC FRANCE FÉDÉRATION FRANÇAISE DE DISTRIBUTION DES MÉTAUX AUSTRIA PORTUGAL ASSOCIAÇÃO PORTUGUESA DOS GROSSISTAS DE AÇOS METAIS E FERRAMENTES HUNGARY ASSOCIATION OF HUNGARIANSTEEL- AND METALTRADERS (MAFE) ROMANIA ASOCIATIA ROMANA A DISTRIBUITOTOLOR DE METAL SWITZERLAND SLOVENIA SPAIN ITALY ASSOFERMET UNIÓN DE ALMACENISTAS DE HIERROS DE ESPAÑA BULGARIA GREECE ASOCIACION ESPAÑOLA DE TRANSFORMADORES DE PRODUCTOS PLANOS SIDERURGICOS

  3. NATIONAL ASSOCIATIONS OF STEEL, TUBE AND METALS DISTRIBUTION COMMON RESOURCES COMMON INTERESTS STUDY GROUP OF DISTRIBUTORS OF STEEL, TUBES AND METALS EUROPEAN ASSOCIATION OF STEEL SERVICE CENTERS INTERNATIONAL STEELTRADE ASSOCIATION EUROMETAL - THE VOICE OF EUROPEAN STEEL DISTRIBUTION EUROMETAL ORGANIGRAMME

  4. WHO IS GOING TO STOP THE FREE FALL OF THE MARKETS ? OBVIOUSLY THE STEEL PARTY HAS COME TO AN END . . . . . . . . . . . . AFTER FOUR YEARS ON A VERY HIGH LEVEL OUR POLITICAL LEADERS ? WHO IS GOING TO STOP THE FREE FALL OF THE MARKETS? AND IT IS NOT A SOFT LANDING BUT A VERY UGLY RECESSION! . . . . AND WHAT PRICE ARE THEY WILLING TO PAY ?

  5. RECESSION: A BASIC BUT IMPORTANT LESSON INDUSTRIAL MARKET MARKET PRICES LABOUR MARKET INDUSTRIAL CONFIDENCE PRODUCER PRICES UNEMPLOYMENT INDUSTRIAL PRODUCTION CONSUMER PRICES EMPLOYMENT INDUSTRIAL BUSINESS ACTIVITY AND PRICES ARE DOWNDIVING WITH AN UNPRECEDENTED DIMENSION AND SPEED UNEMPLOYMENT IS EXPLODING WITH COMPARABLE DYNAMICS RECESSION: SOME BASIC INDICATORS IN THE EURO-ZONE IN MATURE AND SATURATED ECONOMIES THE UPSWINGS AND DOWNSWINGS OF THE MACROECONOMIC CYCLE SLOW DOWN OR SPEED UP CONTINUOUS STRUCTURAL CHANGE ECONOMIC CYCLE STRUCTURAL CHANGE A MACROECONOMIC RECESSION INTENSIFIES STRUCTURAL CHANGE OF INDUSTRIAL PRODUCTION HARDLY EVER AGAIN REACHING THE FORMER LEVEL

  6. The EU steel market is severely impacted by the recession and will be facing an unprecedented downturn this year. In the first half of 2009 the double-digit y-o-y decline in real consumption registered in Q4’08 and a further stock correction in distribution and at the end-user level will continue: apparent consumption will drop by 29%% y-o-y in Q1'09 and by a further 23% y-o-y in Q2'09; it will continue to decline in the remainder of 2009, albeit at a less dramatic rate; Q4’09 is expected to see some growth compared with the very low Q4’08 level. Following the 15% drop in 2009, some growth in apparent consumption is foreseen for 2010, owing to the absence of a huge stock reduction as seen in 2009. The significant deterioration in economic fundamentals has fully hit the EU steel using industries; the first half of this year will see output falling by 10% y-o-y. The second half is expected to see a gradual easing of the downward trend, but on balance production in the steel using sectors will still fall 7-8% in 2009. Particularly the automotive sector is badly affected by the recession, but also construction, steel tubes and the engineering sectors cannot escape a sharply downward trend. Most sectors will see a mild improvement in 2010. WHAT DOES THIS MEAN FOR THE STEEL SECTOR? BASICALLY BAD NEWS! EUROFER MARKET REPORT JANUARY 2009

  7. IN % Y-O-Y 2008 Q4/2008 JAN/2009 GLOBAL PRODUCTION = 1.330 KTO UNPRECEDENTED STEEL PRODUCTION CUTS ALBEIT NOT PREVENTING STEEL PRICES DOWNDIVING

  8. USD/MT 1250 1050 850 650 450 250 USD/MT 1250 1050 850 650 450 250 USD/MT 1250 1050 850 650 450 250 USD/MT 1250 1050 850 650 450 250 USD/MT 1250 1050 850 650 450 250 USD/MT 1250 1050 850 650 450 250 06 Q1 Q2 Q3 Q4 07 Q1 Q2 Q3 Q4 08 Q1 Q1 Q2 Q2 JUNE JULY SEPT OCT NOV DEC 09 JAN FEB EARLY END EARLY END 06 Q1 Q2 Q3 Q4 07 Q1 Q2 Q3 Q4 08 Q1 Q1 Q2 Q2 JUNE JULY SEPT OCT NOV DEC 09 JAN FEB EARLY END EARLY END 06 Q1 Q2 Q3 Q4 07 Q1 Q2 Q3 Q4 08 Q1 Q1 Q2 Q2 JUNE JULY SEPT OCT NOV DEC 09 JAN FEB EARLY END EARLY END 06 Q1 Q2 Q3 Q4 07 Q1 Q2 Q3 Q4 08 Q1 Q1 Q2 Q2 JUNE JULY SEPT OCT NOV DEC 09 JAN FEB EARLY END EARLY END 06 Q1 Q2 Q3 Q4 07 Q1 Q2 Q3 Q4 08 Q1 Q1 Q2 Q2 JUNE JULY SEPT OCT NOV DEC 09 JAN FEB EARLY END EARLY END 06 Q1 Q2 Q3 Q4 07 Q1 Q2 Q3 Q4 08 Q1 Q1 Q2 Q2 JUNE JULY SEPT OCT NOV DEC 09 JAN FEB EARLY END EARLY END AN EXTREMELY VOLATILE PRICE CYCLE ON A GLOBAL SCALE HAVE WE ALREADY REACHED THE BOTTOM ? HOT ROLLED COIL DOMESTIC PRICE EX MILL RUSSIA USA BRAZIL EU 27 CHINA

  9. DEMAND DEMAND 2008 2008 2009 2009 PRICE PRICE EU 27: IMPACT ON DISTRIBUTION BUSINESS QUARTER 1/2009 COMPARED TO QUARTER 1/2008 STEEL FOR GENERAL USE(PROXIMITY BUSINESS) STEEL FOR INDUSTRIAL USE(SUPPLY CHAIN BUSINESS) - 30% - 200 USD - 55% BUT DON'T FORGET: QUARTER 1/2008 WAS A VERY GOOD ONE ! - 500 USD

  10. + 4,4 % + 4,0% 2007 ESTIMATE 2008 FORECAST 2009 - 3,2% -7,2% - 8,2% - 15,2% AS A CONSEQUENCE, ALREADY SINCE 2007 GROWTH RATES OF EUROPEAN REAL STEEL CONSUMPTION ARE NEGATIVE = APPARENT CONSUMPTION = REAL CONSUMPTION IN THE AFTERMATH OF THE 2008 DEVELOPMENTSREAL STEEL CONSUMPTION MIGHT TURN DOWN EVEN FURTHER IN 2009

  11. THE FINANCIAL CRISIS: KILLING THE STEEL MARKETS ? A CENTURY'S MISTAKE . . . HOPEFULLY THE LAST ONE . . . AFTER 9-11 ANOTHER TRAUMA

  12. BUT WHAT REALLY HAPPENED IN 2008? EVERYBODY SEEMS TO NAME THE FINANCIAL CRISIS AS THE MAIN REASON FOR THE TURMOIL IN THE STEEL MARKETS THIS IS LARGELY AN ALIBI ARGUMENT! ACTUALLY WE SAW FOUR PROCESSES AFFECTING THE STEEL MARKET: TWO MACROECONOMIC PROCESSES: A GLOBAL ECONOMIC DOWNTURN INTO A RECESSION A FINANCIAL CRISIS INCLUDING A CREDIT CRUNCH TWO STEEL SPECIFIC PROCESSES: AN EXTREMELY VOLATILE STEEL PRICE CYCLE A STOCK MANAGEMENT TO REDUCE WORKING CAPITAL

  13. What do do? . . . . . . . . . . . . . . . . . . . . RECESSION: CHALLENGE AND CHANCE - MANAGEMENT OPTIONS The market will not give credit for yesterday’s success The experiences of the past are not necessarily the solutions for tomorrow He who does not move in time will be removed in time

  14. What do do? . . . . . . . . . . . . . . . . . . . . RECESSION: CHALLENGE AND CHANCE - MANAGEMENT OPTIONS Macroeconomic trends affect different sectors differently Given the heterogeneous sectors general recommendations are very limited But there are some basic crash management rules . . . .

  15. MANAGEMENT DECISIONS VALUE CREATION LEVERS CASH FLOW SOURCING VALUING FREE CASH FLOWS • SALES GROWTH • EBITDA / EBIT / PBT • WORKING CAPITAL CASH FLOWS FROM BUSINESS OPERATION FREE CASH FLOWS • CAPITAL EMPLOYED • INVEST DECISIONS • TIME HORIZON CAPEX CASH OUT DIVESTURES CASH IN . ENTERPRISE VALUE • FINANCIAL DEBT . • GEARING RATIO • COST OF CAPITAL WEIGHTED AVERAGE COST OF CAPITAL = WACC DISCOUNTING RATE THE RECESSION HAS REVERSED THE MANAGEMENT PARADIGMA SEEKING ENTERPRISE VALUE INSTEAD OF SHAREHOLDER VALUE ! OPERATIONAL MANAGEMENT ASSETS MANAGEMENT FINANCIAL MANAGEMENT THE FINANCIAL DEBT PARADOX: HAVING BANKERS LENDING YOU MONEY TODAY IS NO MORE CONSIDERED AS A LIABILITY BUT AS AN ASSET FOR COMPANIES

  16. COST = LOSS INVESTMENT = RISK NO RISK = FUN DEBT = DEATH BUSINESS = DANGER LESS = MORE CUT COSTS • REDUCE • WCR ADAPT PORTFOLIO LIMIT CAPEX NO COST = PROFIT CASH = LIFE NEEDED TIME THE RECESSION HIGH STAKES CASH GAME THE STEEL BARONS OF THE GLORIOUS PAST ARE ABOUT TO GO PLAYING AT FOUR TABLES SIMULTANEOUSLY

  17. 1967: ALL YOU NEED 2009: ALL YOU NEED IS LOVE IS CASH MANAGING FOR FREE CASH FLOWS IN STEEL, TUBES AND METALS DISTRIBUTION & TRADING GENERAL ASSEMBLY FEBRUARY 2009 EUROMETAL POSITION

  18. DON'T START A PRICE CYCLE WHEN FUNDAMENTAL ECONOMIC INDICATORS SHOW A DOWNWARD TREND! AND DON'T START RENEGOTIATIONS OF YEARLY CONTRACTS IN SUCH A NEGATIVE ECONOMIC SCENARIO! STEEL PRODUCTION IS A BASE INDUSTRY AND ONLY EXCEPTIONALLY TRIGGERS THE USE OF STEEL! REGULARLY STEEL PRODUCTION IS FULLY DEPENDENT ON THE UPS AND DOWNS OF THE STEEL CONSUMING INDUSTRIES POOR GDP GROWTH = POOR INDUSTRIAL PRODUCTION POOR GDP GROWTH = POOR INDUSTRIAL PRODUCTION POOR INDUSTRIAL PRODUCTION = POOR STEEL CONSUMPTION POOR GDP GROWTH = POOR INDUSTRIAL PRODUCTION POOR INDUSTRIAL PRODUCTION = POOR STEEL CONSUMPTION POOR STEEL CONSUMPTION = POOR STEEL PRODUCTION 2008 / 2009: LESSONS TO BE FINALLY LEARNED? STEEL PRODUCTION (AND STEEL DISTRIBUTION) ARE A DERIVATIVE BUSINESS!

  19. STEEL PRODUCTION STEEL PRODUCTION - EXPORT EXPORT IMPORT + IMPORT MARKET SUPPLY STEEL CONSUMING INDUSTRIES STEEL CONSUMING INDUSTRIES STEEL DISTRIBUTION STEEL DISTRIBUTION STEEL MARKET STEEL MARKET THE NECESSARY BOTTOM UP PERCEPTION ! MARKET SUPPLY STRUCTURES MARKET SUPPLY = SUPPLY OF THE STEEL CONSUMING INDUSTRIES ! MARKET SUPPLY = STEEL PRODUCTION - EXPORTS + IMPORTS ? MARKET ------------------------- SUPPLY MARKET SUPPLY A CLASSICAL TOP DOWN PERCEPTION !

  20. AND MOST IMPORTANT - MOVE FAST! Juergen Nusser VICE PRESIDENT The Survival of the Fittest Steel Markets 2009 PRESIDENT THE SURVIVAL OF THE FITTEST DON'T HOPE TO SURVIVE, BUT TRAIN FOR IT! DON'T BE A SITTING DUCK!

  21. 17 APRIL 2009 THANK YOU FOR YOUR INTEREST AND ATTENTION www.eassc.org www.eurometal.net

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