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United Kingdom Metals Report Q3 2011 Published on July 2011

Report Summary The UK has the worst performing steel industry in Europe, according to BMI's latest UK Metals Report. In the first four months of 2011, UK crude steel output declined 5.3% year-on-year (y-o-y) to 3.28mn tonnes. This came on top of a 3.5% decline to 9.71mn tonnes in 2010. It looks like there is no chance of a recovery going into H211 with the UK's consistent under-performance unlikely to change over the short term. Output was a third down on pre-recession norms and BMI does not anticipate resurgence amid the currently gloomy economic climate. While we do not expect output to perform much better in H2 than H1, poor performance in H210 will lead to 1% growth in crude output to 9.89mn tonnes, a downward revision from the 1.9% growth we forecast in the previous quarter. The recovery in the sector is now expected to be delayed until 2012. Consumer spending will remain constrained, with fiscal consolidation dealing a further blow. While manufacturing as a whole has performed better, this has not filtered into growth in steel production. This is in stark contrast to the German industrial machine, which is enjoying a renaissance of steel production on the back of surging sales to emerging markets, with production homing in on previous record highs. The industry has bottomed out, but BMI does not forecast a full return to pre-recession rates of output over the medium-term and there are question marks over its future direction. High growth steelmaking countries in Europe have tended to be heavily specialised and a recovery in British steel may focus on adding value rather than volume. This process appears to be driving Tata Steel Europe's restructuring of its British operations. In May 2011, Tata Group announced plans to cut 1,200 jobs out of a total of 4,000 in Scunthorpe after announcing proposals to close or mothball part of its plant there as part of a restructuring of its loss-making long products unit. The firm blamed the cuts on a decline in the market for steel. Steep rises in energy and environmental costs have also been blamed. Like others in the industry, Tata Steel has faced a margin squeeze due to the price of raw materials increases, while demand from long product consuming sectors like construction remain subdued. Tata Steel said refocusing towards high-value markets would involve reducing capacity at Scunthorpe by a quarter. Rising UK energy prices, driven by a 20% rise in oil prices in H111, were another reason for the cutbacks. At the same time, Tata Steel has said it is investing GBP1.2mn in two new high-tech machines at its wire rod rolling mill in Scunthorpe to increase quality and efficiency, and to boost production of the most technically demanding steels. A new size and shape-measuring gauge at the mill will provide machine operators with rapid feedback on rod dimensions during the steel rolling process. Meanwhile, Tata is investing GBP8mn in the expansion of its Clydebridge plant in Glasgow, Scotland to produce 50% more high-strength steel for cranes at the site. The investment includes expanding the plant's two furnaces, installing two new gas-cutting machines and a new stamping and marking machine. It will increase output capacity to 166,000tpa. The expanded capacity will come online in Q212.

Table of Content Executive Summary ..................... 5 SWOT Analysis ...... 6 UK Political SWOT ....... 6 UK Economic SWOT .... 7 UK Business Environment SWOT ........ 8 Global Market Overview............... 9 Steel Forecast ............... 9

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>> Get this Report Now by email! Steel to Average US$580/tonne In 2011...................... 9 BMI Steel Forecasts ...... 9 Steel Prices ................. 10 Cost Push On The Supply Side ........... 10 Few Supply Constraints In Sight, For Now ............... 11 Commodities Forecast ............... 15 Commodity Strategy ' Metals Update 15 Aluminium................... 15 Copper . 16 Gold ..... 17 Lead ..... 18 Nickel ... 19 Tin........ 20 Zinc ...... 21 Regional Overview ..................... 22 Industry Forecast Scenario ........ 27 Table: United Kingdom Metals Industry, 2007-2015 ('000 tonnes unless stated) .... 31 Macroeconomic Outlook .................... 32 United Kingdom ' Economic Activity 35 Competitive Landscape ............. 36 Aluminium................... 36 Steel ..... 37 Company Profiles 40 Tata Steel Europe ....... 40 Rio Tinto Alcan ........... 41 Global Assumptions, Q311........ 42 Table: Global Assumptions, 2009-2015 .................... 42 Table: Global And Regional Real GDP Growth, 2010-2013 (% change y-o-y) ....... 43 Table: Selected Exchange Rates, 2010-2013 (average) ................... 43 Developed States ......... 44 Table: Developed States' GDP Growth, 2010-2013 (% change y-o-y) .................... 44 Emerging Markets ...... 45 Table: Emerging Markets' GDP Growth, 2010-2013 (% change y-o-y) .................. 46 Consensus Forecasts... 47 Table: Bloomberg Consensus GDP Growth Forecasts, 2011-2012 (% change y-o-y) .................... 47 BMI Methodology 48 How We Generate Our Industry Forecasts ............... 48 Cross Checks .............. 48

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United Kingdom Metals Report Q3 2011