Steel Stockholding in Poland

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• Steel Stockholding in Poland

October 2008
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STEEL STOCKHOLDING IN POLANDAGENDA

• The steel industry
• Polish market
• The SSC sector
• Overview industry structure top players
• Growth
• Foreign competition
• SSC weaknesses
• Some ideas

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STEEL STOCKHOLDING IN POLAND

THE STEEL INDUSTRY
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THE INDUSTRYPOLISH STEEL MARKET - Overview

• The Polish steel market in 2006 amounted to 10.3
  mt finished steel products
• The Polish steel market is therefore just a
  little smaller than the steel market in the UK
  2006 apparent demand 12.9 mt although the
  Polish population is significantly smaller
• Poland 38.1 million
• UK 60.5 million
• Recently, Polish steel demand is growing fast
• 2006 demand was 28 up on 2005
• 2007 demand based on H1 2007 data is estimated
  at 12mt
• 2007 consumption will be 17 up on 2006

Source IISI
Source Population Reference Bureau, mid-2006
estimates
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THE INDUSTRYPOLISH STEEL MARKET - Statistics
Consumption CAGR 1997-2006 amounted to 6 per
annum
Net production includes correction for
double-counting of downstream use. Tube data
includes closed hollow sections. For more
detailed 2006 or later market appraisal, contact
MCI see page 14
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THE INDUSTRYPOLISH STEEL MARKET Geography of
demand

• Analysis based on Customs Excise purchase
  declarations covering 64 of demand only
• Analysis shows end use demand (irrespective of
  purchase intermediaries)
• The full analysis by product and region is shown
  in Appendix 2

Stockholder purchases e.g. in Slask sold on to
an end-user e.g. in Malopole are thus reflected
above as demand in Malopole
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THE INDUSTRYPOLISH STEEL MARKET Routes to
market
Analysis is shown for full year 2006 data
Imported production 5396 kt
Domestic production 4875 kt
Intermediaries 1875 kt
Direct 3000 kt
Intermediaries 2167 kt
Direct 3229 kt
Total finished steel purchases in Polish
marketplace 10271 kt of which 4042 kt pass
through intermediaries
Of this volume, 1598 kt was flat products,
311 kt was long and 258 kt was tube. Semis
route to market (mostly MSP Dabrowa Gornicza) is
almost completely 100 direct.
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STEEL STOCKHOLDING IN POLAND

SSC SECTOR
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SSC SECTOROVERVIEW - Industry structure

• Currently 100 players with gradually
  diminishing distinction between the stockholder
  and the service centre
• Across the 100 firms, multiple sites especially
  for larger sites mean that across Poland as a
  whole there are perhaps 250 locations where
  customers may purchase steel / get access to
  simple mechanical services such as cutting

Tier 1 Top 5
Avg 325 kt/yr
Sales 1.6 mt
Tier 2 Next 10
Avg 140 kt/yr
Sales 1.4 mt
Tier 3 Other 85
Avg 9 kt/yr
Sales 1mt
Total 100 firms with sales 4 mt/yr
All figures are MCI estimates. In terms of
approx. number of locations, broad MCI assessment
is that Tier 1 firms have 80 depots Grupa
Polska Stal dominating with 44, Tier 2 firms
have 70 depots incl Stalexport, Stalprodukt
with 15 each and Tier 3 firms 100 depots.
Figures of 100 and 250 are estimates covering
PUDS member firms only. A handful of non-PUDS
members may also exist, with another 10 depots
(possibly more) these other firms are however
excluded from analysis above.
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SSC SECTOROVERVIEW - Top Players
By steel tonnage
Source PUDS 2006 rankings Polska Unia
Dystrybutorow Stali www.puds.pl . Note that
estimates above may contain some degree of double
counting (possibly 5-10 or even more in the
case of Grupa Polska Stal) because of
inter-company sales and reprocessing of processed
material. Figures above also include exports
where these arise.
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SSC SECTORGROWTH PROSPECTS Market demand

• Polish steel market has been growing fast. MCI
  assess that a pause in growth will be probable in
  2008, but that subsequent moderate demand growth
  will continue
• Current West European steel demand is 412
  kg/capita. In Poland it amounts to 270 kg/capita
• If half this difference was eliminated in 5
  years, Polish demand intensity would increase to
  340 kg/capita, predicting overall steel demand
  of 12.8mt by 2012
• With steel deliveries via intermediaries
  maintained at 40, total SSC mediated sales
  would rise from 4mt in 2006 to 5.1mt in 2012

MCI predict Polish SSC sector growth of 4 per
annum to 2012
This is probably a conservative estimate. EU
structural funds driving construction sector
growth, plus continuing foreign investment in
steel consuming sectors / applications could
means much higher steel demand in the medium term
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SSC SECTORCOMPETITION Recent events summary

• Events of last three years can be summarised in
  terms of
• The move away from the highly fragmented industry
  structure
• of the late 1990s
• Merger and consolidation, with Zlomrex leading
  the field
• Much foreign investment even by traditionally
  very risk averse firms
• In sectors/applications including auto, white
  goods, construction,
• roofing
• In high value steels including alloy, stainless
• In product specific SSCs heavy plate, coated
  steels, rebar
• Broadly, in keeping up with needs of Western
  investors
• Since 2005, we are witnessing much reorientation
  of the typical
• Polish steel depot as follows

From competition back to oligopoly?
Growing competition?
Stockholder
Service Centre
Stockholder
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SSC SECTORWEAKNESSES MCI appraisal

• Number of players at 250 suggests that high
  competition, poor margins and small average size
  sales under 10kt/year are likely to be key
  weaknesses
• Know-how in terms of sophisticated add-on
  services / advanced customer needs is also judged
  by MCI to often be problematical
• Market understanding also is likely to be
• Often limited
• Typically highly local
• Typically lacking broader / international
  perspective
• Access to capital considered to be a significant
  weakness for many smaller operators

These matters potentially define quite a strong
opportunity for industry investors
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SSC SECTORSOME IDEAS

• Can MCI help you develop your presence in the
  Polish steel sector?
• Can we provide an update of the slides above?
• Further detailed or regional analysis?
• Polish customer assessments?
• Review or optimisation of your entry strategy?
• Some introductions?

Please contact Andrzej M Kotas, Managing
Director, MCI Email mci_at_steelonthenet.com Mobile
44 (0) 775 149 0885