Credit Suisse
Global Steel and Mining Conference Karri Kaitue, Deputy CEO www.outokumpu.com
Global stainless steel market development Outokumpu’s strategy and implementation Outokumpu’s key strengths
2| September 25, 2008 | Karri Kaitue
Stainless steel – fastest growing metal by demand Index 400
CAGR +5.0%
350
Stainless steel
300
Copper
250
OECD industrial production Aluminium
200 150
Carbon steel
100 50 0 80
85
90
95
00
05 Including 2007
3| September 25, 2008 | Karri Kaitue
Growth in world stainless capacity mainly in standard grades Global cold rolled capacity additions 2006
Utilization rates for global stainless steel under pressure in the coming years 95
8.3%
90 2007
11.8%
85 2008
9.2%
2009
80
9%
2010
75
8.1%
2011
70 65
4.8%
CR utilizn. (actual) CR utilizn. (projection 10.9% 5%) CR utilizn. (projection 7%)
2012
60
3.8%
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Source: Outokumpu, CRU, ISSF, SMR. 2008-2012 projections based on 5% / 7% growth per year in shipments/production assumption. All capacity Additional Capacity (’000tpy) additions include a ramp-up period. Capacities used are average annual nameplate capacities, therefore in practice changes in grade mix, Source: Outokumpu, CRU, ISSF, SMR. Data refers to flat products only. production stoppages or changes in working patterns (e.g. shifts) mean that 100% capacity utilization is not achievable.
0
500
1000
4| September 25, 2008 | Karri Kaitue
1500
2000
Production to be led by cost-efficient integrates in all key trade blocks ? Europe
North America
Russia
? China
? ? India and Rest of Asia South America KEY CHARACTERISTICS • Limited stainless trade flows between the regions, unless large price differences • Integrated cost-efficient producers leading in each region • Stainless distribution as a business with unique characteristics in each region 5| September 25, 2008 | Karri Kaitue
European growth will be mostly found from sub-markets Ferritics
Special grades
Growing customer segments
European growth lower than global growth, main growth areas being Emerging Markets Standard grades market in Europe expected to be challenging in the near future
6| September 25, 2008 | Karri Kaitue
Nickel and Ferrochrome – prices forecast to remain high in the future Nickel LME Cash USD/t 40 000
USD/t
High carbon ferrochrome price USc/Ib 250
(Yearly averages)
35 000 200
30 000
Contract Spot
25 000
150
20 000 100
15 000
Forecasts
Forecasts
10 000 50 5 000 0
0 1997 1999 2001 2003 2005 2007 2009 2011 Source: CRU Nickel Quarterly July 08
7| September 25, 2008 | Karri Kaitue
1998 2000 2002 2004 2006 2008 2010 2012 Prices refer to S. African charge chrome delivered in Europe Source: CRU August 2008
Outokumpu’s strategy aiming for a more stable and profitable business model Challenges
Responses
High High share share of of transactional transactional sales sales
Large Large dependence dependence on on standard standard austenitics austenitics
Eurocentric Eurocentric
Increase Increase end end user user and and project project sales sales
Balance product mix
• Ferritics • Value-added special grades
Grow Grow outside outside Europe Europe
Maintain Maintain cost cost leadership leadership of of standard standard grades grades 8| September 25, 2008 | Karri Kaitue
Major investment decisions have been taken to implement the strategy Balance product mix
• Ferritics • Value-added special grades
Increase Increase end end user user and and project project sales sales
EUR 1.1 billion investments to broaden the product range • high-quality ferritic and bright annealing in Tornio • special grades, mainly duplex, capacity in Avesta • quarto plate capacity, mainly in duplex grades, in Degerfors and Indiana, US EUR 500 million investments to increase service center capacity • service center expansions in Germany, France • acquisition of SoGePar Group in Italy • new service centers in Poland, India and China
Grow Grow outside outside Europe Europe
• new service centers in India and China • Outokumpu Tubular product’s Join Venture in Saudi-Arabia
Maintain Maintain cost cost leadership leadership of of standard standard grades grades
EUR 420 million investment to expand Tornio’s ferrochrome production capacity • to become comfortably self-sufficient for primary chromium needs
9| September 25, 2008 | Karri Kaitue
Rapid growth expected in special grades Global special grades market in 2006-2015e
Global special grades market in 2012e
kt
100% = ~1 000 kt
2 000
1 500
CAGR 2006-2015e
High alloyed Heat resistant
10%
+19% 20%
1 000
500
70% Duplex grades
0 2006 07e 08e 09e 10e 11e 12e 13e 14e 15e Source: Outokumpu 10| September 25, 2008 | Karri Kaitue
Assuming currently served markets
Outokumpu’s vertical integration into ferrochrome - a clear competitive advantage •
Expansion of own ferrochrome production • capex EUR 420 million in 2008-2011 • Outokumpu to become a small net seller
•
Integration brings logistical and energy benefits
•
Sensitivity with expanded ferrochrome capacity in use: The impact of a 5 USc/lb change in the ferrochrome contract price will change from current EUR 10 million to some EUR 20 million on the Group’s annual operating profit
•
At current prices, the expansion is estimated to bring additional annual operating profits in the order of EUR 200 million
11| September 25, 2008 | Karri Kaitue
Outokumpu’s key strengths
•
Fully integrated and globally cost competitive production site in Tornio
•
Leading position in specialty products
•
Strong customer orientation
•
Highly recognized product and process development
•
Focus on continuous improvement and excellence culture
12| September 25, 2008 | Karri Kaitue
