德银-欧洲-钢材市场-螺纹钢，板材和热镀锌价格随着商品持续走强而进一步上涨-20180228-21页_1mb

Steel Price Trends and Market Analysis (February 2018)

Core Content Summary

The document outlines the recent trends and analysis of steel prices, particularly focusing on Hot Rolled Coil (HRC), Plate, Rebar, Iron Ore, and Coking Coal in key markets such as Northern Europe, Southern Europe, Turkey, USA, and China. It also highlights the Deutsche Bank's valuation approach and investment recommendations for ArcelorMittal (MT.AS), as well as the broader steel industry valuation and risks.

Key Price Trends

Hot Rolled Coil (HRC)

• Northern Europe: Prices increased by E2 to E571 (stable in USD terms at USD704), with a E49 rise over the last three months.
• Southern Europe: Prices increased by E2 to E552 (down in USD terms by USD1 to USD681), with a E49 increase over three months.
• USA: Prices increased by USD3 to USD828, with a USD140 rise over three months.
• Chinese Exports: Prices increased by USD3 to USD588, with a USD141 rise over three months.
• Price Differential: The US-China HRC price differential remained stable at USD240/t.

Plate

• Northern Europe: Prices increased by E2 to E603 (down in USD terms by USD1 to USD743), with a E28 rise over the last month.
• Southern Europe: Prices decreased by E9 to E574 (down in USD terms by USD14 to USD707), with a E51 increase over three months.
• USA: Prices increased by USD27 to USD942, with a USD173 rise over three months.

Rebar

• Northern Europe: Prices increased by E1 to E565, with a E105 rise over three months.
• USA: Prices increased by USD10 to USD686, with a USD91 rise over three months.

Iron Ore

• Fines 62% Fe: Prices increased by USD1 to USD80.
• Fines 58% Fe: Prices increased by USD2 to USD66.
• Premium Coking Coal (Australian Exports): Prices increased by USD3 to USD236, with a E3 increase over three months.

Scrap

• Europe: Prices decreased by USD3 to USD340/t.
• Turkey: Prices increased by USD6 to USD358/t.
• US: Prices remained stable at USD335/t.

Market Analysis and Investment Recommendations

• Steel Price Momentum: Strong steel price momentum is observed, with potential for further margin expansion.
• Commodity Strength: The strength of commodities, along with high global price levels, protectionism, demand, and industry consolidation, is expected to support steel prices.
• Section 232 Impact: The US Government is expected to make a decision by April 11th, which could have a positive impact on US-exposed assets.
• Investment Pick: ArcelorMittal (MT.AS) is highlighted as a top pick due to its strong cash flow (9–11% FCF yield), attractive valuation, and additional upside optionality.
• Valuation Metrics:
  • Target Price: EUR36.00
  • Current Price: EUR28.55
  • P/E (DB): 9.4 (2018E)
  • P/E (Reported): 9.4
  • FCF Yield: 13.5%
  • Dividend Yield: 2.8%
  • EV/EBITDA: 5.3 (2018E)
• Valuation Methodologies:
  • Forward EBITDA: 6.0x 2018E
  • DCF: 7.9% WACC, 2% terminal growth
• Key Risks:
  • Weaker steel prices
  • Lower-than-expected demand
  • Higher raw material and operating costs
  • Political influence in steel trade
  • Expansion project delays
  • M&A risks
  • FX rate fluctuations
  • Commodity price volatility

Recent Price Announcements

Flats

• USS-POSCO Industries (US): Increased HRC base prices by $70/st, and cold-rolled and galvanized sheet base prices by $60/st.
• ArcelorMittal (US): Increased US plate prices by $50/st.
• SSAB (US): Increased US plate prices by $50/st for non-contracted orders.
• Evraz (US): Planned $50/st increase in plate prices.

Longs

• Feng Hsin Iron & Steel (Taiwan): Increased rebar list price by TWD200/mt.
• Icdas (Turkey): Increased rebar selling price by Lira 50 for 12–32mm diameter rebar.
• Nippon Steel & Sumitomo Metal Corp (Japan): Increased H-beam prices by Yen 2,000/mt.
• Gerduu Long Steel (US): Increased wire rod prices by $20/st.

Stainless

• Outokumpu (Finland): Increased March alloy adjustment factor for type 304 flat products by €52/mt and surcharge for type 316 by €112/mt.
• Nippon Steel & Sumikin Stainless (Japan): Increased base price of ferritic CRC by Yen 5,000/mt.
• Daido Steel (Japan): Increased domestic prices of stainless bars and sections by 10%.

Company Profile and Financials

ArcelorMittal

• Global Leader: Operates in five continents with exposure to both flat and long steels.
• Iron Ore Supply: Owns and operates iron ore mines in Kazakhstan, Ukraine, Africa, Latin America, and North America, supplying ~50% of its requirements.
• Financial Highlights:
  • EBITDA Margin: 13.0% (2018E)
  • EBIT Margin: 9.2%
  • ROE: 10.9%
  • Payout Ratio: 20.8%
  • Sales Growth: 14.1% (2018E)
  • Net Profit: USD5,363m (2018E)

Valuation and Risks

• Valuation Method: A combination of forward EBITDA and DCF.
• Key Risks:
  • Global economic growth not meeting expectations.
  • Steel price volatility.
  • Rising raw material costs.
  • Political interference in steel trade.
  • Project delays.
  • M&A risks.
  • FX rate fluctuations.
  • Protectionism potentially disrupting trade flows.

Summary of Key Points

• Steel prices are rising globally, with strong momentum in the US and Northern Europe.
• ArcelorMittal is recommended as a buy due to strong cash flow, attractive valuation, and upside potential.
• Section 232 could benefit US-exposed assets.
• Price differentials between China and Southern Europe are increasing.
• Valuation metrics and financial performance show positive trends for ArcelorMittal.
• Industry risks include economic slowdown, cost increases, and geopolitical factors.