[February 11, 2019]

Applied Value Q1 2019 Steel Report Overview

The Steel Report is a quarterly publication that the Applied Value Group provides for existing and prospective clients. The Applied Value Group is not a market analysis firm, but rather a top management consultancy with extensive experience assisting clients in raw-material consuming industries achieve cost and capital efficiency through strategy and operations projects implementing significant ROI.

The Steel Report is a consolidation of market analysis and our viewpoints based on work we are doing with our global clients across many industries from construction to automotive to white goods. Its contents include in-depth analysis and insights on the development of the US, European and Chinese steel markets as well as forward-looking market drivers and a six-month forecast. The report focuses on Flat Steel, but also covers Plate, Stainless, Bar, Wire Rod and Tin Plate market trends. Each report also contains a special section, which deep dives a different key topic each quarter and a stock market section, providing insight into financials of global steel mills.

Q1 2019 Steel Report Overview

NA steel prices continued to plunge in Q4 2018 and have now reached pre-tariff levels, correcting from the inflated run-up during 2018. Chinese and European prices have also seen downward movement, posting 15% and 6% Q4 reductions, rspectively. Overall expectations are for a weak Q1 2019 as global demand & economic uncertainty are continuing to drag prices down. As section 232 tariffs continue in the US, the European Commission has formally ratified (as of January 2019) a 25% safe guard tariff on steel products that exceed import quotas established in the investigation process.

• US Flat prices plummeted 13% in Q4 and have now reached pre-232 price levels as the market continues to correct. US prices are projected to see additional decreases going into 2019 as prices re-align globally and economic uncertainty hits demand.
• EU Flat prices decreased 6% in Q4 2018 as inventories increased and buyers awaited decisions on newly announced safeguard tariffs. Economic driven demand factors will keep EU prices lower in H1 '19 but supply consolidation and safeguard measures will maintain a floor.
• China Flat prices saw a major decline of over 11% in Q4 2018 before leveling off slightly in December. Trade uncertainty coupled with falling demand will likely put pressure on lower Chinese prices in H1 2019.
• Q4 saw an increase for most raw material prices, largely on account of growing uncertainty around Chinese production. 2019 US HR production costs are projected to increase by $13/MT for mini-mills and by $1/MT for integrated mills in the US. EU HR steel integrated production costs are projected to decrease by €18/MT in 2019 due to falling coking coal and iron ore prices.
• Despite the sweeping 25% tariffs imposed by section 232, US total steel imports in 2018 only reduced by 8%, impacting non-EU European countries (mostly Russia) and Asia (mostly Korea). Steel cost increases for buyers in 2018/2019 are a significant impact to company EBIT performance, and these margin swings have forced buyers to react & re-evaluate supply chain flexibility, optimization and buying practices.

About The Applied Value Group

The Applied Value Group combines Management Consulting, Investments, and Social Entrepreneurship. Founded on a combination of entrepreneurship and cost and capital efficiency in 1997 by Bruce Grant and Jan Stenbeck, Applied Value operates out of offices in New York, Stockholm, and Shanghai.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190211005658/en/

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