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Steel Success Strategies XXXI

Hernan J. Guajardo, CEO Villacero International

Jun 2016

Steel production and consumption cycles


Effect of China
Crude steel capacity by region, million metric tons
2.400

Slow growth

China boom

2,200

1990-2000

2001-2007

Crisis & Recovery


2008-2013

Idle capacity:
ca. 650m (28%)

2,000
1,800
1,600

GDP%

1,400

(90-13 / 14-15)

1,200

Latam: 3% / 3%

1,000
800

NA:

2% / 2%

CIS:

1% / 1%

600

Europe: 2% / 0%

400

Asia:

200

3% / 3%

China: 10% / 8%

Other
Source: worldsteel

Latin America

North America

CIS

WE

Asia

China

Production of crude steel

Chinese steel production remains at previous years levels,


leading to huge growth of Chinese export volumes
China steel exports
Million metric ton, interregional flows only

110

90
+52%
66
59

58

53

49

47

19
10

Source: worldsteel

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Other

Latam

MENA

Asia

Spare capacity increase from 145m tons


in 2009 (20%) to 350m tons in 2015
(30%)
Chinas exports jumped from 60m to
90m tons in 2014 (+52%). In 2015
amounted to ca. 110m tons

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26

Steel demand in China fell from 730m


to 700m in 2014 (-5%). Expected to
continue falling through 2020

SEA

International steel trade has grown at ~4% p.a.


since 2010 due to growing trade imbalances
Global finished steel market, million metric tons

761 778

2000

01

825

02

885

03

975

04

Overseas trade1

1,045

05

1,145

06

1,224 1,228

07

08

1,307

1,411 1,437

1,532 1,543 1,523

1,148

09

Intraregional supply

10

11

12

132

14 2015

Domestic supply

~30% of global steel demand is satisfied with international supply

Overseas trade has recovered


in absolute terms in 2012 and
as share of total trade in 2015
260 MMT: 21% in 2008 /
18% in 2012
310 MMT: 20% in 2015
Domestic sourcing peaked in
2009 and remained high
830 MMT: 72% in 2009
1,100 MMT: 71% in 2015
Intra regional trade bottomed
in 2009 and stayed low
130 MMT: 11% in 2009
155 MMT: 10% in 2015

1 Approximated by interregional and intraregional trade flows (export statistics as reported by individual countries)
2 Discontinuity in official reporting, leading to an apparent jump in total finished steel demand
Source: worldsteel

Prices not expected to rebound to previous levels


Range of analyst forecasts

Consensus (Mean)

Hot rolled coil price outlook by analysts1, USD/metric ton, nominal terms

Europe

USA

650
600
550
500
450

Forecast

Ineffective global
regulation
resulting in the
implementation
of unilateral
protectionism
barriers that
generate
islands where
prices are higher
than world
average

0
700
650
600
550
500
0
600
500

Asia2

400
0
Q1

Q2

Q3
2015

1 Historical Prices are from MEPS

Source: worldsteel, internal analysis

Q4

Q1

Q2

Q3
2016

Q4

Q1

Q2

Q3

Q4

Q1

2017

2 Historical Asia price is average of China, Japan & South Korea

Q2

Q3
2018

Q4

Global steel market imbalances largely the


result of state-driven Chinese industry

Chinese steel industry

Global effects

State owned Industry

Substantial overcapacity

Supported by governmental
subsidies

Exports at record highs

Activity key to employment


and social stability; production
levels unrelated to domestic
consumption

Accusations of unfair trade


practices
Marginal effect of currencies
exchange rate fluctuations

Companies operating in market economies


suffering disruptions

Villaceros Profile
Overview

Business units overview

Villacero, headquartered in Monterrey, Mexico engages in steel


logistics, production, processing, distribution, warehousing and
trading through its specialised units

Commercial

Focus on the industrial, construction and


infrastructure markets in the NAFTA region and
Central America

Since 1955, Villacero has grown organically and through


acquisitions and strategic alliances to operate today in more
than 30 countries worldwide
Worldwide, Villacero participates in the steel markets mostly
through its 100% subsidiary C&F International

Industrial

Steel processing plants throughout Mexico and


the U.S.:
Welded tubes and pipes in small and large
diameters
Low, medium and high carbon cold-rolled
steel strips as well as zinc-coated strips
Pre-painted galvanised coils and sheets
Wire products

Logistics

Maritime and inland transportation, customs


clearance, port manoeuvres, storage and project
development

Financial
Group

Financial products and services including retail


and corporate banking, insurance, asset
management, leasing, warehousing, forfeiting

International presence

Draft + Confidential

Distribution, transformation and logistics of flat,


long, and tubular steel products