Stainless Steel Where Will Stainless Shine in 2013? Jason Kaplan Senior Principal Analyst 27 September 2012

Copyright © 2012 IHS Inc. All Rights Reserved. 2 Stainless Provides No Challenges for 2013 Will supply tighten? Demand: Slow return over 2013 in the United States, not until 2014 in Europe, China losing some momentum Capacity utilization globally at 60-70% – Mills tended to run at 80-90% Specialist grades less available, but prioritised by mills Will prices leap? Base price will remain relatively static at and close to present floor Alloy surcharges: Nickel likely to rise further, chrome supply is a concern Risks Alloying elements have highest risk and largest impact Implications for Buyers

Copyright © 2012 IHS Inc. All Rights Reserved. 3 Crude Stainless Production Has Fallen, Reflecting Poor Global Demand

Copyright © 2012 IHS Inc. All Rights Reserved. 4 Stainless Has Both Consumer and Industrial Applications – Consumer Has Suffered Especially

Copyright © 2012 IHS Inc. All Rights Reserved. 5 Returning Construction Will Lift Demand, but Only From 2014 in the United States and Later in Europe

Copyright © 2012 IHS Inc. All Rights Reserved. 6 Output Approaches Long Run Trend by 2015, But Lost Production Amounts to 33 m Metric Tons

Copyright © 2012 IHS Inc. All Rights Reserved. 7 Overcapacity Will Remain an Issue as Situation is Not Being Adequately Tackled Chinese capacity to grow to 26 m metric tonnes by 2015 Additional capacity coming on-line: POSCO Orissa ThyssenKrupp Mobile Acerinox Johor Baru A few players are working to cut capacity… Outokumpu and Inoxom merger Aparem available …but will stop if market share is hit, without lifting profitability Historic capacity utilization

Copyright © 2012 IHS Inc. All Rights Reserved. 8 Mills’ Margins Have Suffered – Leading to Cost Cutting and, More Recently, to Consolidation

Copyright © 2012 IHS Inc. All Rights Reserved. 9 However, Prices Have Stayed Up – Driven by Non- Base Price Elements…

Copyright © 2012 IHS Inc. All Rights Reserved. 10 …As Alloy Costs See Both Higher Levels and Greater Volatility – Traits Likely to Stay

Copyright © 2012 IHS Inc. All Rights Reserved. 11 Given Weak Fundamentals Prices Rise Principally on Alloy Increases Through 2014

Copyright © 2012 IHS Inc. All Rights Reserved. 12 Risks Are on the Downside From a Buyer’s Perspective, But are Mainly on Cost, Not Supply RiskLikelihood Impact on SupplyPrice Raw material supply issues could push up prices or even stop supply Ferro-chrome from South African Nickel from more problematic laterite ores 30% 20% Medium Low Medium High Low freight costs lift trade, but protectionism isolates markets and produce local price spikes United States, Europe wary of Chinese imports Duties are applied when the material lands 20%LowMedium Reduced inventories through the supply chain could bring short-term supply shortages, if: Demand lifts unexpectedly Shipments drop from a supply disruption 10%Medium

Copyright © 2012 IHS Inc. All Rights Reserved. 13 Stainless Will See Little Shine in 2013, With Just a Few Bright Rays From 2014 Over next 18 months Supply has few issues even with significant consolidation.....while demand remains weak Base prices, dictated by fundamentals, will stay close to cost of production Alloy surcharges expected to stay muted, but rise slowly Given production costs, nickel prices are un-sustainably low Risks stem mainly from raw materials Little way to self-protect from ferrochrome supply issues Nickel price hikes are possible / likely if capacity is disrupted

Copyright © 2012 IHS Inc. All Rights Reserved. 14 Implications for Buyers Consider locking in prices, perhaps later in 2013 Offers protection against price rises or supply difficulties Range bound prices over 2013, makes locking in more attractive for 2014 Beware that severe shortages could be met by force majeure clauses Explore opportunities to move away from austenitic stainless e.g. duplex grades could substitute for 304 and 316 in some applications Discuss material alternatives with suppliers Automotive specific grades are being pushed by mills Implement effective hedging for nickel exposure Prices still close to multi-year lows and can only rise New technology is riskier to implement, so shortages are possible Ferro-chrome and molybdenum hedging on LME is too new

Copyright © 2012 IHS Inc. All Rights Reserved. 15 Thank you! Jason Kaplan Senior Principal Economist