Global Cable Market Review

Rob Daniels – Principal Consultant, CRU

Presentation to 6th Arabcab Conference

Beirut, 3 – 4 May 2010
LONDON | BEIJING | PHILADELPHIA | WASHINGTON

31 Mount Pleasant, London WC1X 0AD UK

Tel +44 20 7903 2000 Fax +44 20 7837 0976
www.cruanalysis.com
 Presentation Structure

1 2009 Global Market Dimensions

2 Regional Trends

3 Outturn for 2010 and Beyond

4 Some Thoughts on the Future

 Global Market Fell Sharply in 2009
Growth of just 1.2% in
‘000 tonnes conductor 2008
15000 Fall of 7.7% in 2009
Average growth of 5.3%
over the period 2003-07.

10000

5000 Winding Wire

Communication

Energy
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Data: CRU
 Fibre Optic Cable Market Continued to Grow in 2009
‘000 fkm
170000
160000
150000 Boom in Long Distance Sector Strong Growth Since 2005
140000
130000
120000 Market Collapses in
110000 2002
100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Data: CRU
 Global Insulated Wire & Cable Market Worth Just Over
US$ million
US$122bn in 2009
160000
2008 market on a
par with 2007 due
to little volume
growth and slightly
120000 lower raw material
prices, but 23.6%
fall in 2009 due to
lower raw material
prices and lower
80000 volumes

Winding Wire
40000
Communication
Energy

0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Data: CRU
 US$/tonne
Copper Price Continues its Upward Path
10000
2009 average copper price US$5170/tonne
9000
Copper
8000 Copper price forecast:

7000 2010 US$7,300/tonne

2011 US$7,400/tonne
6000

5000

4000

Aluminium
3000

2000

1000

Data: LME
 World Copper Cable Consumption - Global Market Enters
Recession in Q4 2008
y-o-y % change
12
Global Recession 2004 Sees Very Strong Growth
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12 The End of 23 Quarters
-14 of Continuous Growth
-16
-18

Data: CRU
 LV Energy Cable is the Largest Product Sector by Value

Total Market Value US$122bn

Power Cable
LV Energy 30%
37%

Definitions

LV Energy – Rated below 1kV

Power Cable – Rated 1kV and Above
Telecom - External copper telecom cable
Data – All types of cable for data transmission
Winding Wire – All enamelled wire and Telecom Cable
covered conductors 4%
Fibre Optic – All fibre optic cables
Fibre Optic
6% Data Cable
10%
Winding Wire
13%
Data: CRU
 Power Cable Sector Best Performer After Fibre Optic
20 Year-on-year % change in volume in 2009

15

10

-5

-10

-15

-20

-25
LV Energy Copper Aluminium Telecom Data Winding Fibre Optic
Data: CRU Power Power Wire
 Presentation Structure

1 2009 Global Market Dimensions

2 Regional Trends

3 Outturn for 2010 and Beyond

4 Some Thoughts on the Future

 China has Continued to Grow but Big Falls in the
Developed World
Year-on-year % change in metallic cable consumption volume
15
10
5
0
-5
-10
2006
-15 2007
-20 2008
2009
-25
-30
N. America West Europe East Europe N.E. Asia China Rest of the
World
 China Accounted For Over a Third of Global Metallic Cable
Percentage Output in 2009
35 Shares of Global Production for the Three Largest Producers

30
China USA Japan

25

20

15

10

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Data: CRU
 Indian Cable Market Edges Higher in 2009
‘000 tonnes conductor
800 The Indian metallic
cable market grew
700 by 2.7% in volume
in 2009
600
India could become
the fastest growing
500
major market,
overtaking China,
400 in a few years.

300 Winding Wire

Series3
200 Internal Telecom/Data
External Copper Telecom
100 Aluminium Power Cable
Low Voltage Energy

0
2005 2006 2007 2008 2009
Data: CRU
 Russian Metallic Cable Production Collapses in 2009
‘000 tonne conductor
Winding Wire
450 Internal Telecom/Data
External Copper Telecom
400 Aluminium Power Cable Russian metallic cable
Copper Power Cable production fell by 34.3%
Low Voltage Energy
350 in 2009 to 254,000
tonnes conductor.
300

250

200

150

100

50

0
2004 2005 2006 2007 2008 2009
Data: CRU
 North American Production Continues to Fall
‘000 t conductor
Winding Wire
2,500
Internal Telecom/Data
External Copper
Telecom
2,000 Al Power Cable
Copper Power Cable

1,500 LV Energy

1,000 North American metallic

cable production fell by
22.4% in 2009.
500
Fibre optic cable
production fell by 16.5%
0
2005 2006 2007 2008 2009
Data: CRU
 Presentation Structure

1 2009 Global Market Dimensions

2 Regional Trends

3 Outturn for 2010 and Beyond

4 Some Thoughts on the Future

 Outlook for 2010 and Beyond
• Whilst the recovery from the global recession remains fragile the fact that most
markets have stabilised and some modest growth is starting to be seen means
that for 2010 was are predicting a 5.9% rise in metallic cable consumption.
• We are forecasting that growth in China will slow in 2010 compared to 2009, but
for most other markets 2010 will prove to be a much better year after the sharp
falls in 2009.
• In the fibre optic cable sector a slowdown in China will not quite be offset by
growth in many other markets and as a result global demand is forecast to fall by
2.5%.
• We are forecasting that the winding wire sector will see the strongest growth in
2010, with the power cable sector the second weakest after external copper
telecom cable.
• We are forecasting that global metallic cable market growth will peak in 2011
before moderating in 2012 and 2013. For Europe and North America the metallic
cable market will still not have regained pre-crisis levels even by 2013. The fibre
optic cable market will remain relatively stable in 2012 and 2013.
 Growth Forecast for All Major Regions in 2010

Year-on-year % change in consumption volume

15

10

-5

-10

-15 N. America West Europe

East Europe N.E. Asia
-20
China Rest of the World
-25

-30
2009 2010F
 Presentation Structure

1 2009 Global Market Dimensions

2 Regional Trends

3 Outturn for 2010 and Beyond

4 Some Thoughts on the Future

 Factors that Will Shape Industry Evolution
• The current recession has served to accelerate the rising importance of
Asia within the global metallic cable industry.
• For many parts of the Western World total metallic cable production
volumes are forecast to never regain previous peaks. Thus further
industry rationalisation looks inevitable.
• As the cable industry expands in developing countries, these
manufacturers will look to become more international players as their
home markets mature.
• Increased raw material price volatility is forecast, and so cable
companies will need to be able to cope with this.
• Globalisation amongst customers is also increasing. This is expected to
result in more co-ordinated purchasing by large international companies
which will be looking to take advantage of their purchasing power.
 The Large US and European Cablemakers have been
Outperforming those from N. E. Asia in the Last Three Years
10
9 Average Operating Margin %
8
7
6
5
4
3
2
US/Europe N.E. Asia
1
0
-1 US/Europe data is average of General Cable, CommScope,
-2 Encore, Nexans, Prysmian and Draka.
-3 N.E.Asia data is average of Sumitomo Electric, Furukawa,
-4 Hitachi Cable, Fujikura, Taihan and Pacific Electric.
-5
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1
2002 2003 2004 2005 2006 2007 2008 2009
 How Have Other Regions Dealt with Overcapacity?

• In North America, Western Europe and North East Asia companies have had to face
overcapacity in the face of falling demand.
• In North East Asia the industry has stayed with essentially the same structure but market
discipline has been well maintained.
• Even with this market discipline, as the previous chart showed, profitability has in general
been lower than in Western Europe and North America, so CRU believes that the cable
industry in Asia could learn from what has happened in North America and Western
Europe.
• In Western Europe and North America the industry has consolidated to leave fewer large
players and companies have become more focussed on specific product sectors rather
than trying to compete in all market sectors.
• In Asia there has been little industry consolidation and many of the leading manufacturers
remain generalists with a wide product range.
• This presents a potential opportunity for focused specialists to emerge in developing
countries as these markets become more mature.
Reasons to Be Optimistic About Future Cable Market Growth
As the recovery from the recession gathers pace we believe there are a
number of factors which lead us to be optimistic about future growth in wire
and cable demand. These include:
• Growth in wind energy and other green and nuclear energy generation and other distributed
generation.
• Roll out of smart grids and other investment in ageing grids in the developed world.
• Increased grid interconnections.
• Introduction of energy efficiency regulations, which will typically require more or larger cable
to be used.
• Increased investment in the extraction of oil and other commodities in the face of growing
demand and high prices.
• Growth in construction of high speed rail networks to compete with air travel.
• Increase in the production of electric vehicles
• Strong growth in demand for all types of electrical and electronic equipment and appliances
around the world
• Continued investment in telecom networks.
 Thank You For Your Attention
robert.daniels@crugroup.com
Tel + 44 20 7903 2118

Presentation to 6th Arabcab Conference

Beirut, 3 – 4 May 2010
LONDON | BEIJING | PHILADELPHIA | WASHINGTON

31 Mount Pleasant, London WC1X 0AD UK

Tel +44 20 7903 2000 Fax +44 20 7837 0976
www.cruanalysis.com