Mill Rolls Industry Research Report

May 2008

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This report has been prepared by Boston Strategies International at the request of CLIENT for the purpose of establishing its operating strategies. It may not be appropriate for other purposes or audiences. This report contains forward-looking statements and projections with respect to anticipated future performance of CLIENT, suppliers, customers, and/or general or specific economic conditions and factors that are based on Boston Strategies Internationals analysis of market trends and external data. Forward-looking statements and projections are not guarantees of future performance and involve significant business, economic and competitive risks, contingencies and uncertainties, which are difficult to predict. Accordingly, these projections and forward-looking statements may not be realized and actual results may vary up or down. This report may not be reproduced or distributed without express written approval from Boston Strategies International.

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Contents
Highlights Demand Top S T Suppliers li

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Highlights

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Mill roll suppliers had record sales in 2007

The major suppliers posted strong sale increases in 2007: Sinosteel Xingtai Machinery& Mill Roll Co., up 35% Ak Akers, up 20% ESW, up 21% Aos Villares up 20% The top five suppliers for mill rolls continue to account for over 50% of the market. Akers remains the leader with an estimated 15% market share. Sinosteel Xingtai Machinery replaced Union Electric/Davy as #2. g y p y Backlogs are high in the industry 2-3 years.
Top Suppliers and Market Shares
Rank 1 2 3 4 5
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Name AKERS National Roll Co. Sinosteel Xingtai Machinery& Mill Roll Co., Ltd Union Electric Steel / Davy Roll Company Sidenor / Acos Villares SA WHEMCO
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Mill Roll Market Share 15% 11% 10% 8% 7%

Demand

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Steel production will increase, but at a slower rate of growth

Mill Roll demand is driven by the steel industry. Global steel consumption is set to increase in 2008 and 2009, but the rate of increase will decline from 8% in 2007 to 6% for 2008 2010 and 2008-2010, 4% until 2014. Demand for steel would have stagnated if not for demand in China and emerging markets. g g
Iron & Steel Production

2.5 2.0
Billions of Metric Tonnes 1.5

1.0 0.5 0.0 2007 2008 2009 2010 2011 Year 2012 2013 2014

Source: Boston Logistics analysis of IISI data

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Asian markets will continue to drive demand for steel

Chinese steel consumption is expected to grow by 11.5% in 2008 and 10.0% in 2009, accounting for 35% and 37% of world total by in 2008 and 2009 respectively driven primarily by infrastructure projects in this 2009, respectively, region. Actual steel production in the US is forecast to be flat from 2008-2010, primarily due to a slowdown in auto and construction.
Iron and Steel Production Index (Index, 1997=100))
1,000 900 800 700 Production 600 Index (1997=100)) 500 400 300 200 100 0 2008 2009 2010 US
Source: Boston Logistics analysis of Global Insight and IISI data

2011
Years

2012 China

2013

2014

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Suppliers will nearly double investments in iron and steel production capacity in Asia by 2012
In 2008, Asia comprises nearly three quarters of the total capital expenditures for the global Iron & Steel industry and will grow at nearly 20% during 2008 while North America does not grow at all all. Chinese investment is over 40% of GDP and will remain at about that level for the next five years.
Iron and Steel Capital Investment Trend
700 600 500
Iron&Steel CapitalFormation 400 Index (Europe 300 2008=100)

200 100 0 2008

Asia

2009

2010

2011

2012

2013

2014
Europe

Latin&CentralAmerica

NorthAmerica

Source: Boston Logistics analysis of Global Insight data Boston Strategies International, Inc Page 8

Demand for mill rolls continues strong

For all types of rolls, Asia leads the demand for rolls, followed by Europe, CIS and the Americas. New mills coming out in China and India will keep demand for new rolls high. Demand for mill rolls demand will increase at 12-15% per year through 2012. This represents an increase in demand from our p p previous forecast of 1012% due primarily to higher forecasts for capital expenditures for the iron and steel industry
Demand for Mill Rolls Worldwide
$7,000 $6,000 $5,000 Millions $4,000 of US Dollars per Year $3,000 $2,000 $1,000 $0 2008
Americas CIS Europe Asia

2009

2010

2011 Year

2012

2013

2014

Source: Boston Logistics analysis

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Asian demand for cast and forged rolls will triple by 2014

Demand for Cast Work Rolls

1,400 1,200 1,000
Americas

Demand for Forged Work Rolls

1,600 1,400 1,200
Europe CIS Asia

Millions of 800 US Dollars 600 400 200 2008 2009 2010 2011 Year 2012 2013 2014

1,000 Millions of US Dollars 800 600 400 200 2008 2009 2010 2011 Year 2012 2013 2014

Americas Europe CIS Asia

Source: Boston Logistics analysis

Source: Boston Logistics analysis

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As for work rolls, demand for backup rolls in Asia will drive the market
Demand for Backup Rolls

2,500

2,000

1,500 Millions of US Dollars 1,000

Americas Europe CIS Asia

500

2008 2009 2010 2011 Year 2012 2013 2014

Source: Boston Logistics analysis Boston Strategies International, Inc Page 11

Top Suppliers

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Top Mill Roll Suppliers

Rank Name Home Country Sweden, Slovenia China USA Brazil, Spain USA Ukraine Austria Germany UK Japan Japan Australia India Germany USA USA India India USA + S Af i S. Africa Sales (2007) (000's $US) 477,802 330,000 277,000 1,023,781 330,625 230,260 98,109 146,200 276,516 67,903 57,143 2,620,970 50,500 49,600 49 600 38,800 74,500 36,600 39,122 27,965 27 965 Rolls as a % of Sales 83% 90% 100% 21% 60% 50% 100% 50% 25% 100% 100% 2% 100% 100% 100% 50% 100% 72% 100% 2007 Mill Rolls Revenues (M$US) 398 297 277 215 198 115 98 73 69 68 57 52 51 50 39 37 37 28 28 547 2,734 Mill Roll Market Share 15% 11% 10% 8% 7% 4% 4% 3% 3% 2% 2% 2% 2% 2% 1% 1% 1% 1% 1% 20% 100% Tons of Mil Roll Capacity (000) 92 140 55 45 65 29 24 22 16 15 18 13 15 15 8 9 11 11 9 153 763

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

AKERS National Roll Co. Sinosteel Xingtai Machinery& Mill Roll Co., Ltd Union Electric Steel / Davy Roll Company Sidenor / Acos Villares SA WHEMCO NKMZ - Novokramatorsky Mashinostroitelny Zavod Joint Stock Company ESW Gontermann-Peipers Gmbh Sheffield Forgemasters Nippon Steel & Sumikin Rolls Corp Bao Steel Hitachi Rolls Smorgon Steel Heavy Engineering Corporation (HEC) Steinhoff GmbH & Cie OHG Cie. Superior Forge and Steel Xtek Inc Gontermann-Peipers India Limited Tayo Rolls Limited United Foundries / SARCO U it d F di Others Total

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Global Supply Chain Economists

Boston Strategies International, a global supply chain economic research firm founded in 1998, helps executives make strategic supply chain decisions that involve investment and risk by providing industry research, commodity analysis, and supply chain consulting. The firm helps investors, policy makers, financial analysts, and operations decision-makers to establish competitive advantage and strategically valuable revenue growth through dynamic global supply chains. Our products and services include: Industry Research that helps investors and policy makers identify emerging issues that affect their supply chains, and quantify the impact that they will have Cost and Price Analysis that helps financial and operational managers plan and budget by providing benchmark, best p practice, and forecast data tailored to their companies' supply chains p pp y Supply Chain Consulting services that help supply chain leaders make high-stakes decisions related to mergers & acquisitions, market entry, capital investments, outsourcing, off-shoring, and make-or-buy

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