The Metallurgical Industry, Steel marketForecasts for the future

Sanjay SamaddarCEO & Chairman of the Board, ArcelorMittal Poland

Katowice, 18th May 2011

Europe in the scheme of world economics

We live in a “Two Speed World” Real GDP Growth Forecast 2011-2012

Different speed of advanced and emerging & developing economies growth GDP to grow by 2.5% and 6.5% respectively

© IMF April 2011 Source: World Economic Outlook

Percentage Growth

3

BRIC countries GDP… …will continue to grow faster than G7

Source: GS Global ECS Research, 2010

By 2020 it is expected that BRICs to account one third of the global economy (in PPP terms) and contribute about 49% of global GDP Growth*

*Goldman Sachs May 20104

Global annual steel production will grow from 1.4 billion in 2010 to 2.3 billion tonnes in 2020. This growth will entirely be generated outside Europe, most of it in emerging economies, with an increase in CO2 emissions in the range of 2.5 billion tons in the global steel sector.

Post crisis …Europe is the No #2 steel producer in the world

World Steel Production 2010

Steel Production

World: 1, 414 MT

Asia: 898 MT

EU 27: 173 MTSource: World Steel Association

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(Source: EUROFER, 2011)

Challenges for Europe…

The “Global” Challenge

80% Growth in emerging economy

Resources scarce in Europe

21% CO2 reduction versus 2005 needed in

10 years

Oil and Natural Gas depletion in 2050

High productivity ambition

Flexibility and Volatility

Low Inventory

Low Lead Times

Customer oriented products

FOCUS on EXCELLENCE

ATTRACT THE BEST AND BRIGHTEST PEOPLE

McKinsey, 2010

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8

Resources will be scarce in Europe

Pricing of Raw materials no longer driven by

European consumption 8

9

Oil Price Could Limit Economic Growth

“Green” strategy is the only way to preserve growth9

The Climate Change ChallengeSteel industry as part of the global CO2 emission picture

• Today, the steel industry is responsible (directly and indirectly) for 6% of the world’s CO2 emissions and will be 8% in 2030 if no actions are taken.

• Effective abatement policies will lead to huge costs for industry and society.

Emissions 2005 46GtCO2eq/y

16%

14%

18%

18%

15%

6%

6%

5%4%

Source: McKinsey: Pathways to a Low-Carbon Economy

21% of total emissions

Emissions 2030 (BAU) 70GtCO2eq/y

10% 6%

8%

8%

6%

18%

18%

16%

11%CementChemicalsIron & SteelPetroleum & gasTransportBuildingsOtherAgricultureForestry

**

*

*

**

**

*

*

*

* dark part refers to indirect emission

of power generation linked to each

activity

28% of total emissions

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European industrial policy… …requires a strong coordinated appraoch

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Climate ChangeImpact of EU ETS / 2050 Roadmap

EU ETS Benchmarks agreed in December 2010 not

to grant 100% free allocations notwithstanding

carbon leakage status of steel sector

Carbon leakage will be a reality for the steel

sector as allowance shortages will exist in EU

ETS III

EU Commission 2050 Roadmap for Low Carbon Economy suggests higher GHG emission reduction target (80%)

Currently available technologies in the steel sector do not allow further reduction of CO2 emissions the EU ETS system is not an incentivizing but a penalizing system

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Energy market

Need for a market that is capable of delivering competitive prices adapted to steel industry needs 13

Commercial Policy and R & D

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SummarySteel industry faces several challenges

Mitigations•Adequate market intelligence and trading capability need to find value-generating niches

•Implementation of varied sourcing and sales models flexibility:

Raw-material sourcing optimization

Capacity & Inventory management

High level of end-to-end value-chain

•Long term adaptive strategy diversified-capacity networks, resource adaption and lean management, cutback and subsequent use of external services

•Focus on innovation (R&D): improving profitability and fueling growth

•Rigid system quality

Challenges• Unpredictability of the market

• Volatility of raw material prices

• Climate Change responsibility CO2 allowances

• Increasing energy costs

• Shift of consumption and production from traditional to emerging markets

• European competitiveness threatened by lack of level playing field

• Risk of sudden import surge from outside EU

Source: BCG Dec 2010 15

Copyright © ArcelorMittal Sanjay Samaddar 16

Thank you!!!