Outlook for 2008

The outlook for 2008 is positive for the steel and mining industries, particularly for the emerging markets and integrated steel producers.

The global steel market is expected to be robust in most regions. Despite recent problems in the financial sector, the US market will benefit from reduced steel inventories, the weaker US dollar and increased ocean freight rates causing reduction of imports, while rising infrastructure spending and demand for durable goods from the emerging economies will sustain global steel demand growth.

It is likely that European economic expansion will decelerate compared to 2007 given the higher euro exchange rate and the overall slowdown in the global financial sector.

The global steel supply-demand balance is likely to remain tight given the few capacity additions planned for 2008 outside China.

A significant increase in raw materials prices will lead to a sharp rise in steel costs for non-integrated steelmakers. We expect these to rise by more than US$100/tonne compared to 2006. In this environment, global steel prices are expected to rise substantially in 2008.

The key question is whether steel companies will be able to pass all the cost increases on to customers and sustain their own margins. Upstream-integrated steel producers from emerging regions are particularly well placed for 2008 given higher raw materials prices and strong demand from domestic economies.