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Steel Stockholding in Poland

Steel Stockholding in Poland. October 2008. STEEL STOCKHOLDING IN POLAND AGENDA. The steel industry Polish market The SSC sector Overview … industry structure & top players Growth Foreign competition SSC weaknesses Some ideas …. STEEL STOCKHOLDING IN POLAND. THE STEEL INDUSTRY.

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Steel Stockholding in Poland

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  1. Steel Stockholding in Poland October 2008

  2. STEEL STOCKHOLDING IN POLANDAGENDA • The steel industry • Polish market • The SSC sector • Overview … industry structure & top players • Growth • Foreign competition • SSC weaknesses • Some ideas …

  3. STEEL STOCKHOLDING IN POLAND THE STEEL INDUSTRY

  4. THE INDUSTRYPOLISH STEEL MARKET - Overview • The Polish steel market in 2006 amounted to ~10.3 mt finished steel products • The Polish steel market is therefore just a little smaller than the steel market in the UK [2006 apparent demand ~12.9 mt†] although the Polish population is significantly smaller†† • Poland 38.1 million • UK 60.5 million • Recently, Polish steel demand is growing fast • 2006 demand was ~28% up on 2005 • 2007 demand [based on H1 2007 data] is estimated at ~12mt • 2007 consumption will be ~17% up on 2006 †:Source: IISI ††:Source: Population Reference Bureau, mid-2006 estimates

  5. Consumption CAGR 1997-2006 amounted to ~6% per annum THE INDUSTRYPOLISH STEEL MARKET - Statistics† †:Net production includes correction for double-counting of downstream use. Tube data includes closed hollow sections. For more detailed 2006 or later market appraisal, contact MCI [see page 14]

  6. THE INDUSTRYPOLISH STEEL MARKET – Geography of demand • Analysis based on Customs & Excise purchase declarations covering 64% of demand only • Analysis shows end use demand (irrespective of purchase intermediaries†) • The full analysis by product and region is shown in Appendix 2 †:Stockholder purchases e.g. in Slask sold on to an end-user e.g. in Malopole are thus reflected above as demand in Malopole

  7. Analysis is shown for full year 2006 data THE INDUSTRYPOLISH STEEL MARKET – Routes to market Domestic production 4875 kt Imported production 5396 kt Intermediaries 1875 kt Direct 3000 kt Intermediaries 2167 kt † Direct 3229 kt Total finished steel purchases in Polish marketplace ~10271 kt of which ~4042 kt pass through intermediaries †:Of this volume, ~1598 kt was flat products, ~311 kt was long and ~258 kt was tube. Semis route to market (mostly MSP Dabrowa Gornicza) is almost completely 100% direct.

  8. STEEL STOCKHOLDING IN POLAND SSC SECTOR

  9. SSC SECTOROVERVIEW - Industry structure† • Currently ~100 ‘players’ with gradually diminishing distinction between the ‘stockholder’ and the ‘service centre’ • Across the 100 firms, multiple sites [especially for larger sites] mean that across Poland as a whole there are perhaps ~250 locations where customers may purchase steel / get access to simple mechanical services such as cutting † † Tier 1: Top 5 Sales: 1.6 mt Avg: 325 kt/yr Sales: 1.4 mt Tier 2: Next 10 Avg: 140 kt/yr Sales: 1mt Tier 3: Other ~85 Avg: ~9 kt/yr Total: ~100 firms with sales ~4 mt/yr †: All figures are MCI estimates. In terms of approx. number of locations, broad MCI assessment is that Tier 1 firms have ~80 depots [Grupa Polska Stal dominating with ~44], Tier 2 firms have ~70 depots [incl Stalexport, Stalprodukt with 15 each] and Tier 3 firms ~100 depots. ††: Figures of 100 and 250 are estimates covering PUDS member firms only. A handful of non-PUDS members may also exist, with another ~10 depots (possibly more) – these other firms are however excluded from analysis above.

  10. SSC SECTOROVERVIEW - Top Players† By steel tonnage †: Source: PUDS 2006 rankings [Polska Unia Dystrybutorow Stali; www.puds.pl ]. Note that estimates above may contain some degree of double counting (possibly ~5-10% or even more in the case of Grupa Polska Stal) because of inter-company sales and reprocessing of processed material. Figures above also include exports where these arise.

  11. SSC SECTORGROWTH PROSPECTS – Market demand • Polish steel market has been growing fast. MCI assess that a pause in growth will be probable in 2008, but that subsequent moderate demand growth will continue • Current West European steel demand is ~412 kg/capita. In Poland it amounts to ~270 kg/capita • If half this difference was eliminated in 5 years, Polish demand intensity would increase to ~340 kg/capita, predicting overall steel demand of 12.8mt by 2012† • With steel deliveries via intermediaries maintained at ~40%, total SSC mediated sales would rise from ~4mt in 2006 to 5.1mt in 2012 MCI predict Polish SSC sector growth of ~4% per annum to 2012 †: This is probably a conservative estimate. EU structural funds driving construction sector growth, plus continuing foreign investment in steel consuming sectors / applications could means much higher steel demand in the medium term

  12. SSC SECTORCOMPETITION – Recent events summary • Events of last three years can be summarised in terms of • The move away from the highly fragmented industry structure of the late 1990s • Merger and consolidation, with Zlomrex leading the field • Much foreign investment [even by traditionally very risk averse firms] • In sectors/applications: including auto, white goods, construction, roofing • In high value steels including alloy, stainless • In product specific SSCs [heavy plate, coated steels, rebar] • Broadly, in keeping up with needs of Western investors • Since 2005, we are witnessing much reorientation of the typical ‘Polish steel depot’ as follows: From competition back to oligopoly? Growing competition? Stockholder Stockholder + Service Centre

  13. SSC SECTORWEAKNESSES – MCI appraisal • Number of players at 250+ suggests that high competition, poor margins and small average size [sales under 10kt/year] are likely to be key weaknesses • Know-how in terms of sophisticated add-on services / advanced customer needs is also judged by MCI to often be problematical • Market understanding also is likely to be: • Often limited; • Typically highly local; • Typically lacking broader / international perspective • Access to capital considered to be a significant weakness for many smaller operators These matters potentially define quite a strong opportunity for industry investors

  14. SSC SECTORSOME IDEAS … • Can MCI help you develop your presence in the Polish steel sector? • Can we provide an update of the slides above? • Further detailed or regional analysis? • Polish customer assessments? • Review or optimisation of your entry strategy? • Some introductions? Please contact: Andrzej M Kotas, Managing Director, MCI Email: mci@steelonthenet.com Mobile: +44 (0) 775 149 0885

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