Belgium Metals Report Q1 2013

BMI's Belgium Metals Report for Q113 examines the long-term effects of the economic crisis on thecountry's steelmaking capacities and warns that the sector will never recover.

The report examines how a collapse in domestic production will impact on the country's structure of steeltrade and explores the ability of exporters to take advantage of the crisis facing the Belgian steel industry.In the first 10 months of 2012, Belgian crude steel output slumped 12.9% y-o-y to 6.11mn tonnes (mnt),one of the worst performances in the EU. This continued a trend begun in Q411 and reverses the gainswitnessed in the early months of 2011 when capacity utilisation rates were returning to near pre-crisislevels. Permanent furnace closures by Duferco and ArcelorMittal mean that Belgium will not return topre-crisis volumes of production even after the market picks up.

A decline in demand growth in export markets has dealt a blow for the Belgian steel industry.

ArcelorMittal's planned permanent closure of two blast furnaces in Liège, which were shuttered in August2011, is now inevitable and as a result the industry will not return to pre-2008 levels of production.

Duferco has permanently closed its Carsid site after talks with potential takeover candidates failed. Thiswill permanently remove the 2.1mntpa of slab capacity that had been taken offline in 2008. It also endedDuferco's crude steelmaking activities in Belgium.

Low domestic consumption growth and a poor export environment combined with idling of blastfurnaces confirms our forecast of a 10% contraction in crude steel output to 7.3mnt in 2012.

BMI believes that it is unlikely that crude steel output will exceed much beyond 8mntpa over thelong-term due to capacity closures, down over a quarter from the pre-2008 levels.

The World Steel Association's (WSA) revised figures for 2010 and 2011 show lower thanestimated levels of consumption, prompting a downward revision in BMI's forecast for 2012from 4.5mnt to 4.2mnt, although we maintain our growth forecast of -10% given the stronglypro-cyclical nature of the Belgian steel market.

BMI believes that it is unlikely that crude steel output will exceed much beyond 8mntpa over thelong-term due to capacity closures, down over a quarter from the pre-2008 levels.