31 Mount Pleasant, London WC1X 0AD UK Tel Fax LONDON | BEIJING | PHILADELPHIA | WASHINGTON Global steel market outlook Prepared for: CUSteel Conference Shanghai, September 23rd th, 2005 Prepared by: John Johnson Chief Representative, CRU Beijing 1821 Tower 2, Bright China Chang An Building, 7 Jianguomennei Avenue, Beijing , China Tel: ,

2 Presentation plan Recent global steel price trends –CRUspi –Regional Prices –Flats versus Longs Discussion of latest market developments –Focusing firstly on the global slowdown in the rate of growth in consumption, reduced production levels and the current global rebound in prices Discussion of CRUs outlook –Outlining the reasons why prices should trend downwards again from 2006 Points to watch

3 In the last few month CRUspi has recovered some of losses after losing 60% of the gains made in Is this the start of a global recovery in steel prices? Global CRU steel price index (CRUspi), April 1994 = 100 Data:

4 Regional prices do broadly move in similar directions, with a few exceptions, due to trade acting as a great leveller between markets CRU regional steel price index (CRUspi) for main steel products, April 1994 = 100 Data:

5 But flat products and long products can diverge, as they did in 2004, though even these markets seem to converge eventually CRU steel price index (CRUspi) for sheet products, April 1994 = 100 Data:

6 During the first and second quarters of 2005, year-on-year growth in world sheet consumption fell below 3% - the last time growth was this slow was three years ago… Year-on-year changes in world apparent sheet consumption, % Data: CRU Analysis. Note: e estimate

7 The slowdown in the rate of growth in consumption has been most keenly felt in North America, followed by Europe (in Asia it has actually risen)… Year-on-year changes in apparent sheet consumption by country/region, % Data: CRU Analysis.

8 Mills have responded to the slowdown in their orders by reducing operating rates, bringing forward planned maintenance and/or idling production facilities… Year-on-year changes in sheet production by country/region, % Data: CRU Analysis.

9 However, the final quarter of this year is likely to see an acceleration in the rate of growth in demand, primarily owing to renewed buying from stockists and service centres… Year-on-year changes in world apparent sheet consumption, % Data: CRU Analysis. Note: e estimate, f forecast Growth is expected to accelerate from Q4 2005, as buyers return to the market

10 North American sheet inventories have been drawn down sharply in recent months, and have now bottomed-out… Service centre inventories of carbon flat-rolled products*, m s.tons Data: MSCI, CRU Analysis Note: * held at US & Canadian service centres

11 Demand has rebounded on a quarter-on-quarter basis for the first time in over a year (by over 1m s.tons from Q2)… North American apparent sheet consumption, qtr-on-qtr changes, m s.tons Data: CRU Analysis

12 With inventories and imports at low levels, and numerous blast furnaces still off-line… Us imports of steel sheet (3-mth-avg), m s.tons Data: AISI, CRU Analysis

13 The demand/supply balance has tightened significantly, and a price spike has occurred US Midwest sheet prices, fob mill, US$/s.ton Data: CRU Analysis

14 As as result, the price premium that the US market attracts over others is likely to rise in the near term… Difference between average sheet price in the USA and elsewhere, US$/tonne Data: CRU Analysis

15 High prices will also encourage local mills to bring blast furnaces back on-line and to increase output… North American steel sheet production (seasonally adjusted), m s.tons Data: CRU Analysis

16 As such, we forecast a fairly sharp downward price correction to commence at the end of the year US Midwest sheet prices, fob mill, US$/s.ton Data: CRU Analysis

17 There has been little change to the modest performance of the West European economy… Year-on-year changes in industrial production Data: CRU Analysis, OEF

18 An overhang of sheet inventories accumulated in the first half of 2005… German stockholder inventories of sheet, 000 tonnes Data: BDS, CRU Analysis

19 After a moderate rebound in late 2005, European sheet prices are expected to trend downwards German domestic sheet prices, parity point, /tonne Data: CRU Analysis

20 In 2006 and 2007, the rate of growth in world industrial production is expected to slow slightly… Year-on-year changes in world industrial production, % Data: CRU Analysis. Note: e estimate, f forecast.

21 Meanwhile, cost pressures - which were a major factor behind the surge in prices last year - are expected to progressively ease… Key raw materials prices, indexed, 2001 = 100 Data: CRUs Steelmaking Raw Materials Team. Note: f forecast. The easing of raw materials markets is reflected in our forecasts of lower prices

22 And with global sheet making capacity set to increase significantly during the coming years… Expansions to effective world sheet making capacity, m tpy Data: CRU Analysis. Note: f forecast. Total: 36.7m tpy Total: 48.5m tpy Total: 36.1m tpy

23 But Chinese capacity is set to increase significantly during the coming years… Expansions to effective world sheet making capacity, m tpy Data: CRU Analysis. Note: f forecast.

24 Chinese net trade has been transformed China, net imports of steel products Data: Trade Data 000 tonnes

25 And this is likely to mean that output growth will continue to outstrip demand Chinese apparent sheet consumption and production, year-on-year changes Data: CRUs Steel Sheet Quarterly Service. Note: f forecast.

26 We believe that the ability to satisfy demand will increase faster than demand itself, and that sheet prices will - from the first quarter of come under downward pressure… HR coil base prices, US$/tonne Data: CRU Analysis

27 Which is likely to bottom out in 2007, when the expected low point in the demand cycle coincides with significant capacity expansions and reduced cost-push pressures HR coil base prices, US$/tonne Data: CRU Analysis. Note: f forecast.

28 Points to watch

29 We provide a CRUcial presence around the globe… London, Beijing, Singapore, Washington, Seattle, Philadelphia, Raleigh, Sydney, Rio de Janeiro

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31 Please address questions or comments relating to this presentation to: John Johnson, Chief Representative CRU International Ltd Beijing Representative Office 1821, Tower 2, Bright China Chang An Building 7, Jianguomennei Avenue, Beijing , China Tel.: Fax.: