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Black swans in the steel industry: What do they mean?

Black swans in the steel industry: What do they mean?. SMA Annual Member’s Conference First River May 20, 2008. We used to believe all swans are white…. Black swan events are:. Rare (highly improbable) Hard to predict Consequential.

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Black swans in the steel industry: What do they mean?

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  1. Black swans in the steel industry: What do they mean? SMA Annual Member’s Conference First River May 20, 2008

  2. We used to believe all swans are white… First River

  3. Black swan events are: • Rare (highly improbable) • Hard to predict • Consequential First River

  4. …Steel stocks trounce the market for five consecutive years and counting 2004 2005 2006 2007 2008 YTD 2003 First River Source: Cap IQ

  5. Hot band sells for over $1,000 per ton 2008 (Weeks) First River Source: Steel Index

  6. A new blast furnace announced in the US by a mini-mill! (includes coke) First River

  7. What do black swan events mean? • Recalibrate your mental models • Expand your frame of reference • Think bigger, think longer First River

  8. RecalibrateWhat range of prices should we plan for? 2009 & Beyond 2008? 2003 2007 % of Total Observations Spot Hot Band Price ($/Ton) First River Source: First River

  9. RecalibrateHow long is a cycle? Crude Steel Demand 5.9% • Steel grows fasterthan GDP • 4 down years in 33 World GDP 4.7% First River Source: IMF, IISI, First River

  10. Expand your frame of referenceWhy not $1,500 or $2,000 hot band? Energy Metals Steel First River Source: IMF, Purchasing Magazine

  11. Expand your frame of referenceGlobal GDP growth in perspective Average 4.8% Average 4.8% Average 4.5% Average 3.4% First River Source: IMF World Economic Outlook, Angus Maddison

  12. Expand your frame of referenceSteel companies still at low end of valuation range Enterprise Value to EBITDA Multiple First River Source: Capital IQ, First River

  13. Think biggerChina’s steel production – 1 Billion tonnes! Forecast First River Source: IISI, Macquarie Research forecast

  14. Think bigger and longerYour career will end before the industry stops growing World average per capita income 2007 2015 Steel intensity curve Source: IISI, CIA World Fact Book, FirstRiver

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