PPT file

Looking over the valleyIs there another BULL market lurking around the corner?

The Goldman Sachs Group, Inc.

Steel Manufacturers Association, Annual Members Conference

The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Customers in the US can receive independent, third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at http://www.independentresearch.gs.com or call 1-866-727-7000.

For Reg AC certification, see the end of the text. Other important disclosures follow the Reg AC certification, or go to www.gs.com/research/hedge.html.

Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the US.

Sal Tharani Goldman, Sachs & Co. 212-357-0695 [email protected]

May 19, 2009

Goldman Sachs Global Investment Research

2

Is there another BULL market lurking around the corner?The US economy appears to be close to bottoming; will recovery be V-shaped?

• Consensus among economists indicates that US economic activity will stabilize later in 2009.

• Most forecasters, both within and outside the government, are leaning towards a V-shaped recovery rather than a U-shaped path.

• The latest budget report shows that the Obama administration expects GDP growth to reach 3.5% by end of 2009, and stay there in 2010.

• The Congressional Budget Office (CBO) estimates 2.9% GDP growth in 2010.

• Most private forecasters, though a bit cautious, are also expecting about 2.7% to 3.0% GDP growth rate beyond 1Q2010.

• Economists could be basing their V-shaped recovery forecast on “Zarnowitz’s Slingshot Rule” that posits that deeper recessions are typically followed by more rapid growth.


3

Is there another BULL market lurking around the corner?US economic recoveries were strong until lately

-6

-3

0

3

6

9

12

15

18

21

-6

-3

0

3

6

9

12

15

18

21

49Q2 54Q1 58Q1 60Q4 70Q4 75Q1 80Q3 82Q3 91Q1 01Q3

Real GDP Growth in First Two Years (not annualized)

Real GDP Growth in First Year

Cumulative Decline in Real GDP

Percent Percent

*

*** The recovery that began in 80Q3 lasted only one year.** Although real GDP hit its low point in 82Q1, it was nearly as low in 82Q3. This is when the dynamics of recovery really set in.

Source: US Commerce Department, US Labor Department, Goldman Sachs Blobal ECS Research.


4

Is there another BULL market lurking around the corner?Forces that have usually helped recovery in the past

Five forces have usually come together in the past to shift the US economy from recession into recovery:

• Stimulative economic policies, both monetary easing and fiscal packages.

• Owner-occupied housing picks up in response to easier credit conditions.

• Consumer spending on durable goods rebounds.

• Companies are usually quick to boost payrolls.

• A sharp swing in inventory cycle—from liquidation to accumulation—turbo-charges recovery in industrial sector.


5

Is there another BULL market lurking around the corner?Cyclical rebounds in Housing and Durable Goods post historical recessions

Source: US Commerce Department, US Labor Department, Goldman Sachs Global ECS Research.

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

49Q2 54Q1 58Q1 60Q4 70Q4 75Q1 80Q3 82Q3 91Q1 01Q3

Residential Investment Consumer Durables

Percentage points Percentage points

Contribution to Real GDP Growth in the First Year of Recovery

**** Although real GDP hit its low point in 82Q1, it was nearly as low in 82Q3. This is when the dynamics of recovery really set in.


6

Is there another BULL market lurking around the corner?Companies start quick re-hiring and industry begins to re-stock post recessions

-1

0

1

2

3

4

5

6

7

-1

0

1

2

3

4

5

6

7

49Q2 54Q1 58Q1 60Q4 70Q4 75Q1 80Q3 82Q3 91Q1 01Q3

Change in Pvt Payrolls in First Year*** (left)

Contribution of Inventories to Real GDPGrowth in First Year (right)

** Although real GDP hit its low point in 82Q1, it was nearly as low in 82Q3. This is when the dynamics of recovery really set in.*** Measured beginning one quarter after the GDP trough..

Percent Percentage points

**



7

Is there another BULL market lurking around the corner?But we do not see a V-shaped recovery this time

We do not see a V-shaped recovery as three of the five growth powering forces are vertically challenged.

• A huge overhang of unoccupied houses prevents cyclical recovery in homebuilding.

• Efforts to lift the savings rate limit consumer spending on durable goods.

• Reluctance to hire in early recovery could prove to be a structural change in corporate behavior.


8

Is there another BULL market lurking around the corner?A large overhang of vacant homes

0.5

1.0

1.5

2.0

2.5

3.0

3.5

56 60 64 68 72 76 80 84 88 92 96 00 04 08

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Percent Percent

1985-2005 average =1.7%

Homeowner Vacancy Rate

0.9 million units above 1985-2005 average

Source: US Department of Commerce.


9

Is there another BULL market lurking around the corner?The savings rate has a long way to go

-2

0

2

4

6

8

10

12

14

-2

0

2

4

6

8

10

12

14

48 52 56 60 64 68 72 76 80 84 88 92 96 00 04 08

Percent Percent

Personal Saving Rate

Source: US Department of Commerce.


10

Is there another BULL market lurking around the corner?Stimulus package and inventory re-stocking should have some positive offsets

Fiscal stimulus is front-loaded. We expect another $250 billion stimulus in 2010-12

There is near-term upside risks from a bigger contribution from Inventories

Public non-residential construction spending makes up about 15% of total steel consumption

A rapid destocking in Q4-2008 has set the stage for a rapid restocking phase in near-term

Auto21%

Industrial/OEM22%

Container5%

Energy5%

Others 12%

Highway4%

Private20%

Other public11%

Construction35%

-3

-2

-1

0

1

2

3

4

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

-3

-2

-1

0

1

2

3

4

Percentage points, annual rate Percentage points, annual rate

Estimated Effect of Stimulus Package on Real GDP Growth

2009 2010

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

65 70 75 80 85 90 95 00 05

Percent of GDP Percent of GDP

Change in Private Inventories

GS Forecast

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

Q12009

Q2 Q3 Q4 Q12010

Q2 Q3 Q4

Percentage pointsPercentage

points



11

Is there another BULL market lurking around the corner?Reaching for the green shoots

35

40

45

50

55

60

65

Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09

PM

I-C

hin

a

-35.00%

-30.00%

-25.00%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

Y-O

-Y (

%)

PMI Y-O-Y (%)

PMI China

Industrial production index China

15.9%

18.0%

16.2%

14.8%

18.2% 18.3% 18.1%17.5%

16.2% 15.9%

13.0%

6.4%

5.1%

7.3%

4%

6%

8%

10%

12%

14%

16%

18%

20%

20

06

Q1

20

06

Q2

20

06

Q3

20

06

Q4

20

07

Q1

20

07

Q2

20

07

Q3

20

07

Q4

20

08

Q1

20

08

Q2

20

08

Q3

20

08

Q4

20

09

Q1

Ap

ril

09

Ind

us

tria

l p

rod

uc

tio

n i

nd

ex

Ch

ina

Y-O

-Y (

%)

China- Fixed assets investment growth

0%

5%

10%

15%

20%

25%

30%

35%

40%

Mar 08 May 08 July 08 Sep 08 Nov 08 Jan 09 Mar 09

Y-O

-Y (

%)

0%

1%

1%

2%

2%

3%

3%

4%

M-O

-M,

se

as

on

all

y a

dju

ste

d (

%)

Y-O-Y (%) M-O-M (%)

US ISM New Orders Index

47.2%

20%

30%

40%

50%

60%

70%

80%

Jan-97 Jan-00 Jan-03 Jan-06 Jan-09

US

ISM

New

Ord

ers

Ind

ex (

%)

Source: Goldman Sachs Global ECS Research.


12

Is there another BULL market lurking around the corner?GS Global leading indicator is trending up

Momentum of GLI

-1.4

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08


GS Global Leading Indicator

88

90

92

94

96

98

100

102

104

106

Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08

GL

I Lev

el

-8%

-6%

-4%

-2%

0%

2%

4%

6%

y-o

-y (

%)

GLI Level Y-O-Y


13

Is there another BULL market lurking around the corner?The drivers of new growth: BRICs

Real GDP Growth Forecasts1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E

United States 2.5% 3.7% 4.5% 4.2% 4.4% 3.7% 0.8% 1.6% 2.5% 3.6% 2.9% 2.8% 2.0% 1.1% -3.0% 1.2%Canada 2.8% 1.6% 4.2% 4.1% 5.5% 5.2% 1.8% 2.9% 1.9% 3.1% 2.9% 3.1% 2.9% 0.5% -1.9% 1.8%

Euroland 2.6% 1.5% 2.6% 2.7% 2.8% 4.0% 1.9% 0.9% 0.8% 1.9% 1.8% 3.0% 2.6% 0.7% -3.7% 0.7%

Germany 2.0% 1.1% 1.9% 1.8% 1.9% 3.5% 1.4% 0.1% -0.2% 0.7% 1.0% 3.2% 2.6% 1.0% -5.2% 0.9%UK 3.0% 2.9% 3.3% 3.6% 3.5% 3.9% 2.5% 2.1% 2.8% 2.8% 2.1% 2.8% 3.0% 0.7% -3.4% 1.9%

BRICS 3.6% 5.5% 6.8% 6.0% 6.4% 7.9% 8.4% 8.2% 9.1% 10.4% 7.5% 4.8% 7.8%

Brazil 4.2% 2.2% 4.3% 1.3% 2.7% 1.1% 5.7% 3.2% 4.0% 5.7% 5.1% -1.5% 3.0%Russia -4.5% -3.6% 1.4% -5.3% 6.4% 10.0% 5.1% 4.7% 7.4% 7.2% 6.3% 7.6% 8.1% 5.6% -5.5% 2.8%India 6.7% 6.4% 4.4% 5.8% 3.8% 8.5% 7.5% 9.5% 9.7% 9.0% 6.4% 5.8% 6.6%China 10.9% 10.0% 9.3% 7.8% 7.6% 8.4% 8.3% 9.1% 10.0% 10.1% 10.4% 11.7% 13.0% 9.0% 8.3% 10.9%

Latin America 5.3% 1.9% -6.1% 4.1% 0.2% 0.5% 1.8% 6.0% 4.4% 5.5% 5.7% 4.2% -1.7% 2.4%

Asia ex Japan 7.6% 6.8% 5.7% 2.3% 6.8% 7.4% 4.9% 6.5% 7.1% 7.9% 8.0% 8.8% 10.0% 6.7% 4.8% 7.9%

Japan 2.0% 2.7% 1.7% -2.0% -0.1% 2.9% 0.2% 0.3% 1.4% 2.7% 1.9% 2.0% 2.4% -0.6% -5.3% 1.1%

World 4.2% 1.5% 2.0% 2.6% 3.8% 3.4% 4.0% 5.0% 2.9% -1.1% 3.2%



14

Is there another BULL market lurking around the corner?Our outlook for steel prices

Source: Steel Business Briefing, Purchasing Magazine, American Metal Market, Goldman Sachs Research estimates.

Rebar price

$295 $288 $293 $302

$469 $475$506

$568

$787

$479 $483 $500

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

Reb

ar (

$ p

er t

on

)

Scrap price

$97

$76$94

$122

$213$195

$216

$256

$354

$191

$213$225

$0

$50

$100

$150

$200

$250

$300

$350

$400

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09E

20

10E

20

11E

#1

HM

Sc

rap

Pri

ce

($

pe

r s

.to

n)

HRC price

$298

$227

$320$282

$605

$541$580

$527

$843

$434

$490$525

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

HR

C P

rice

($

per

s.t

on

)

HRC price

$500

$1,068

$630

$756

$400

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

$1,100

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

HR

C p

rice

($

per

to

n)

$210,Dec 01

$260,May 03

$435, Aug 05

$508, Feb & Aug 07 $400,

June, 09


15

Is there another BULL market lurking around the corner?Domestic demand indicators remain low

Source: Auto news, US Census Bureau, Goldman Sachs Research estimates.

Industrial production index

3%

1% 1%

-4%

0% 0%

2%3%

1%1%

-3%

-12%

-3%

80.0

85.0

90.0

95.0

100.0

105.0

110.0

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

Ind

ust

rial

pro

du

ctio

n i

nd

ex,

1997

=10

0

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

Y-O

-Y (

%)

Auto production (US till Apil 2000, Total NA thereafter)

-1%

8%

24%

0%

6%

-3%

0% 1%

-3% -2%

-17%

-24%

20%

7% 6%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9E

201

0E

201

1E

201

2E

Au

to p

rod

uct

ion

(00

0 u

nit

s)

-30%

-20%

-10%

0%

10%

20%

30%Y

-O-Y

(%

)

Auto sales (000 units)

2%

7%

1%

-2%

-4%

-2%

1%0%

-5%

-3%

-20%

-15%

7% 7% 7%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

E

20

10

E

20

11

E

20

12

E

Au

to s

ale

s (

00

0 u

nit

s o

f li

gh

t v

eh

icle

s)

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

Y-O

-Y (

%)

New Privately Owned Housing Units Starts

10%

1%

-4%

2%

6%8%

6% 6%

-13%

-25%

-33% -34%

22%

0

500

1,000

1,500

2,000

2,500

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

E

20

10

E

New

Pri

vate

ly O

wn

ed H

ou

sin

g U

nit

s S

tart

ed

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Y-O

-Y (

%)


16

Is there another BULL market lurking around the corner?Non-residential construction

Source: US Census Bureau, Goldman Sachs Research estimates.

Non residential construction spending

9%

4%

-2% -2%

3%

7%

13%

16%

11%

-22%

-5%

10%

-11%

0

100

200

300

400

500

600

700

800

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E

No

n r

esid

enti

al c

on

stru

ctio

n s

pen

din

g (

$ in

b

illi

on

)

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Y-O

-Y %

ch

ang

e

0

50

100

150

200

250

300

350

400

450

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E

No

n r

esid

enti

al c

on

stru

ctio

n s

pen

din

g (

$ in

bill

ion

)

Private spending flat ytd

0

50

100

150

200

250

300

350

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E

No

n r

esid

enti

al c

on

stru

ctio

n s

pen

din

g (

$ in

bil

lio

n) Public spending up 4.3% ytd

Highway construction spending

1%

8%

3%

-1%

3%

9%

12%

6%

4%

3%

5%

2%

10%

0

20

40

60

80

100

120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E

Hig

hw

ay c

on

stru

ctio

n s

pen

din

g (

$ in

bill

ion

)

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Y-O

-Y %

ch

ang

e


17

Is there another BULL market lurking around the corner?Build America Bonds; further boost to infrastructure spending

The Build America Bond allows for tax-exemption for issuance in 2009 and 2010, attracting demand from US retail investors, property & casualty insurance companies, and US-domiciled banks and broker-dealers

First week starting April 24, the bond raised $7.5 billion, and there is an opportunity of extension if it is successful

If the proceeds of the issue are to be used for capital expenditures, the Issuer can elect to receive a federal subsidy of 35% of the total interest expense

There are other bonds like Qualified School Construction ($ 22 billion), and Recovery Zone Bonds ($25 billion) that could further increase infrastructure spending

Build America Bonds

State DescriptionCUSIP/Deal size ($

million) Dated date Coupon Maturity RatingsIndicative yield

VA University of Virginia 250 22-Apr-09 6.20% 1-Sep-39 Aaa/AAA/AAA 5.92%NJ New Jersey Turnpike Authority 1,375 28-Apr-09 7.41% 1-Jan-40 A3/A+/A 7.03%MN University of Minnesota 37 5-May-09 6.30% 1-Dec-28 Aa2/AA/NR N/ACA State of california 2,000 30-Apr-09 7.50% 1-Apr-34 A1/A/A+ 7.16%CA State of california 3,000 30-Apr-09 7.55% 1-Apr-39 A1/A/A+ 7.15%MI Milan Area School District 14 4-May-09 7.10% 1-May-34 NR/AA-/NR N/ANY Metropolitan Transportation Authority 750 30-Apr-09 7.34% 15-Nov-39 A2/A/A 7.02%

Total 7.426 billion

Source: American Recovery and Reinvestment Act, Bloomberg Data Service


18

Is there another BULL market lurking around the corner?Mills have tried to match production to shipment levels

Source: Goldman Sachs Research estimates, American Steel Institute, World Steel Association

Domestic mills production (million tons)

4%

-11%

2% 2%

6%

-5%

4%

0%

-7%

-30%

20%

8%

60.0

70.0

80.0

90.0

100.0

110.0

120.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E

Ste

el m

ills

pro

du

cti

on

(m

illio

n t

on

s)

(40.0%)

(30.0%)

(20.0%)

(10.0%)

0.0%

10.0%

20.0%

30.0%

Y-O

-Y (

%)

Domestic mills shipments

5%

(9%)

0%

6%

8%

(9%)

5%

(2%)

(8%)

(26%)

11%

5%

60.0

70.0

80.0

90.0

100.0

110.0

120.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E

Ste

el m

ills

sh

ipm

en

t (m

illio

n t

on

s)

(30.0%)

(25.0%)

(20.0%)

(15.0%)

(10.0%)

(5.0%)

0.0%

5.0%

10.0%

15.0%

Y-O

-Y (

%)

Domestic mills utilization rate

86%82%

85%

78%

89%

83%

93%

86% 88% 87%

81%

55%

65%70%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

Do

mes

tic

mill

s u

tiliz

atio

n r

ate

(%

)

Domestic mill shipment and production trends3 month average of sequential decline

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09

3 per. Mov. Avg. (Shipments) 3 per. Mov. Avg. (Production)


19

Is there another BULL market lurking around the corner? Global steel demand and supply

Source: Goldman Sachs Research estimates, World Steel Association.

14%

20%

13%

17%

10%

13%

4%

6% 6%

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

2001 2002 2003 2004 2005 2006 2007 2008E 2009E 2010E

Co

nsu

mp

tio

n o

f st

eel

(m

illio

n t

on

nes

)

0%

5%

10%

15%

20%

25%

Brazil Russia India China Y-O-Y (%)

Apparent consumption of steel

8%

6%

11%

14%

15%

21%

18%

15%

13%

2%

0%

9%

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008E 2009E 2010E

Pro

du

cti

on

of

stee

l (m

illio

n t

on

ne

s)

0%

5%

10%

15%

20%

25%

Brazil Russia India China Y-O-Y (%)

Production of steel

Global production of steel

4%

7%

13%

7%

10%

7%

-1%

10%

-9%

0

200

400

600

800

1,000

1,200

1,400

1,600

2001 2002 2003 2004 2005 2006 2007 2008E 2009E 2010E

Pro

du

ctio

n o

f st

eel

(mill

ion

to

nn

es)

-15%

-10%

-5%

0%

5%

10%

15%

Y-O

-Y (

%)

Global consumption of steel

7% 7%

10%

6%

9%

7%

2%

-4%

4%

0

200

400

600

800

1,000

1,200

1,400

2001 2002 2003 2004 2005 2006 2007 2008E 2009E 2010E

Co

nsu

mp

tio

n o

f st

eel (

mill

ion

to

nn

es)

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Y-O

-Y (

%)


20

Is there another BULL market lurking around the corner?All eyes on China

10.4%

11.6%

6.1%

10.6%11.2%

12.5%

11.4%

12.0%12.0%

10.0%

5.1%

13.0%

14.8%

18.0%

15.9%

18.2%

16.2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

200

6Q1

200

6Q2

200

6Q3

200

6Q4

200

7Q1

200

7Q2

200

7Q3

200

7Q4

200

8Q1

200

8Q2

200

8Q3

200

8Q4

200

9Q1

200

9Q2

E

200

9Q3

E

200

9Q4

E

201

0Q1

E

201

0Q2

E

201

0Q3

E

201

0Q4

E

China: Real GDP - yoy China: Industrial Production - yoy

Source: GS Global ECS Research, Bloomberg, Goldman Sachs Research estimates, World Steel Association.

Apparent consumption of finished steel in China

21%

26%

15%

20%

9%

13%

4%

3%

9%

0

100

200

300

400

500

600

2001 2002 2003 2004 2005 2006 2007 2008E 2009E 2010E

Ap

par

ent

co

ns

um

pti

on

of

fin

ish

ed s

tee

l in

Ch

ina

(m

illio

n

ton

nes

)

0%

5%

10%

15%

20%

25%

30%Y

-O-Y

(%

) China Y-O-Y (%)

PMI China

38.8

53.5

35

40

45

50

55

60

Jan-0

5

Mar

-05

May

-05

Jul-0

5

Sep-0

5

Nov-05

Jan-0

6

Mar

-06

May

-06

Jul-0

6

Sep-0

6

Nov-06

Jan-0

7

Mar

-07

May

-07

Jul-0

7

Sep-0

7

Nov-07

Jan-0

8

Mar

-08

May

-08

Jul-0

8

Sep-0

8

Nov-08

Jan-0

9

Mar

-09

PM

I Ch

ina

Crude steel production and finished steel apparent consumption (y-o-y change)

8%10%6%

18%

5%

26%

13%

-16%

-14%

5%

19%

13%

21%

9%

16%

15%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Jan

-07

Fe

b-0

7

Ma

r-0

7

Ap

r-07

Ma

y-07

Jun

-07

Jul-

07

Au

g-07

Se

p-07

Oct

-07

No

v-07

De

c-07

Jan

-08

Fe

b-0

8

Ma

r-0

8

Ap

r-08

Ma

y-08

Jun

-08

Jul-

08

Au

g-08

Se

p-08

Oct

-08

Crude steel production yoy % Finished steel apparent consumption yoy %


21

Is there another BULL market lurking around the corner?Valuations have recovered from lows, still more upside

$60

$70

$80

$90

$100

$110

$120

2-Jan 17-Jan 1-Feb 16-Feb 3-Mar 18-Mar 2-Apr 17-Apr 2-May

GS

Ste

el In

de

x

$650

$700

$750

$800

$850

$900

$950

S&

P 5

00 In

dex

GS Steel Index S&P 500

1Q09 earnings season

Source: Company data, Factset, Goldman Sachs Research estimates, Bloomberg.

8.9X

15.1X

12.2X

10.7X

5.7X

7.6X

4.8X

7.4X

2.0X

4.0X

6.0X

8.0X

10.0X

12.0X

14.0X

16.0X

Jan

-00

May-0

0

Sep

-00

Jan

-01

May-0

1

Sep

-01

Jan

-02

May-0

2

Sep

-02

Jan

-03

May-0

3

Sep

-03

Jan

-04

May-0

4

Sep

-04

Jan

-05

May-0

5

Sep

-05

Jan

-06

May-0

6

Sep

-06

Jan

-07

May-0

7

Sep

-07

Jan

-08

May-0

8

Sep

-08

Jan

-09

May-0

9

EV

/EB

ITD

A (

12-m

on

ths f

orw

ard

)

Steel price fell by 42%

by 19% by 9%Expected drop by 63%

49% decline

39% decline

41% decline

28.4X

9.7X

4.9X

12.0X

10.0X

14.7X

46.1X

0.0X

4.0X

8.0X

12.0X

16.0X

20.0X

24.0X

28.0X

32.0X

36.0X

40.0X

44.0X

48.0X

Ja

n-0

0

Ju

l-0

0

Ja

n-0

1

Ju

l-0

1

Ja

n-0

2

Ju

l-0

2

Ja

n-0

3

Ju

l-0

3

Ja

n-0

4

Ju

l-0

4

Ja

n-0

5

Ju

l-0

5

Ja

n-0

6

Ju

l-0

6

Ja

n-0

7

Ju

l-0

7

Ja

n-0

8

Ju

l-0

8

Ja

n-0

9

P/E

(12

-mo

nth

s fo

rwar

d)

Steel price fell by 42% by 19% by 9%

P/E fell by 55%

P/E fellby 48%

P/E fell by 38%

Expected drop by 63%

$900

$364

$466$517

$371$342 $311$327

EV/ton 2007: $570

$100

$300

$500

$700

$900

$1,100

$1,300

$1,500

$1,700

$1,900

Ja

n-9

0

Ja

n-9

1

Ja

n-9

2

Ja

n-9

3

Ja

n-9

4

Ja

n-9

5

Ja

n-9

6

Ja

n-9

7

Ja

n-9

8

Ja

n-9

9

Ja

n-0

0

Ja

n-0

1

Ja

n-0

2

Ja

n-0

3

Ja

n-0

4

Ja

n-0

5

Ja

n-0

6

Ja

n-0

7

Ja

n-0

8

Ja

n-0

9

EV

/to

n s

hip

ped

($/

ton

)


22

Reg AC Analyst Certification

I, Sal Tharani, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

DisclosuresMay 18, 2009


24

Disclosures

Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global coverage universe

Rating Distribution Investment Banking Relationships

Global

Buy Hold Sell

25% 53% 22%

Buy Hold Sell

54% 51% 43%

As of April 1, 2009, Goldman Sachs Global Investment Research had investment ratings on 2,718 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and view s and related definitions' below .

Coverage group(s) of stocks by primary analyst(s)

Compendium report: please see disclosures at http://www.gs.com/research.hedge.html

Company-specific regulatory disclosures

Compendium report: please see disclosures at http://www.gs.com/research.hedge.html


25

Disclosures

Regulatory disclosures

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26

Disclosures

Ratings, coverage groups and views and related definitions

Buy (B), Neutral (N), Sell (S) – Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List is determined by a stock’s return potential relative to its coverage group as described below. Any stock not assigned as a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review Committee manages various regional Investment Lists to a global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular coverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment recommendations focused on either the size of the potential return or the likelihood of the realization of the return.

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Our rating system requires that analysts rank order the stocks in their coverage groups and assign one of three investment ratings (see definitions below) within a ratings distribution guideline of no more than 25% of the stocks should be rated Outperform and no fewer than 10% rated Underperform. The analyst assigns one of three coverage views (see definitions below), which represents the analyst’s investment outlook on the coverage group relative to the group’s historical fundamentals and valuation. Each coverage group, listing all stocks covered in that group, is available by primary analyst, stock and coverage group at http://www.gs.com/research/hedge.html.

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27

Disclosures

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