6 September 2017 Steel Steel Price Tracker Steel Steel Periodical Europe France Germany Industry Steel Price Tracker Date 6 September 2017 Deutsche Bank Markets Research Big increases in European coil prices Will steel prices still fall or rebound instead? Steel equities continue to be volatile, driven by macro woes and commodity price movements. Although current spot conditions remain strong, we still forecast cost support to fade, and thus, European prices to fall (current spot conditions would imply signifi cant further earnings upgrades across the space). Our top picks: 1) ArcelorMittal, which looks attractive to us, based on strong cash fl ow (7-12% FCF yield), valuation and additional upside optionality; and 2) ThyssenKrupp, on a possibly nearing event catalyst (Tata merger), recovering earnings, and improving CF and sentiment. HRC: Southern European prices up E25 and start closing gap with Northern Europe Figure 1: HRC prices 200 250 300 350 400 450 500 550 600 650 700 750 800 850 900 950 1,000 1,050 Aug 13 Dec 13 Apr 14 Aug 14 Dec 14 Apr 15 Aug 15 Dec 15 Apr 16 Aug 16 Dec 16 Apr 17 Aug 17 Northern EuropeUSAChina exports to Europe USD/t Source: The Steel Index Figure 2: Raw material prices 150 200 250 300 350 400 450 500 550 30 50 70 90 110 130 150 170 190 210 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17 Iron ore Fines 62% Fe, CFR Tianjin, ChinaShredded scrap, US (RHS) USD/t USD/t Source: The Steel Index We value MT and TK using an equal blend of forward EBITDA and DCF and an EV/EBITDA-based SOTP, respectively. Risks: weaker steel prices and demand divergence from our steel sector scenario. Last week, Southern European prices were up E25 to E510 (up USD36 to USD608); Northern European prices were up by E10 to E527 (up USD20 to USD629). Prices have risen E9 in the past three months. US HRC prices up USD3; Chinese exports were stable US HRC prices were up by USD3 to USD689 last week. The price gap with Europe has fallen to USD60/t, while the price diff erential with China rose to USD169/t. Chinese HRC prices were stable at USD520. The spread between Chinese and EU prices has increased to USD88, more than the two-year average spread of USD63, with Chinese prices up E52 (up by USD89) in the past three months. Plate: Northern European prices up E2 US prices were stable N. European prices increased E2 to E597 (up USD10 to USD711). Prices have increased E24 in the past month. S. European prices were stable at E552 (up USD8 to USD658). US prices were stable at USD735 (down E8 to E616). Iron ore: Fines 62% Fe prices up USD2/dmt; coking coal: prices up USD2 The price of 62% Fines rose to USD77/dmt and is up USD2/dmt WoW. Chinese steel output has increased 2.6% WoW to 1.92mt/day in the second ten days of August. Prices of premium coking coal (Australian exports) were up USD2 to USD210 last week. They were also up in euro terms, by E2 to E176. Scrap: European prices stable WoW European prices were stable at USD336/t, while Turkish prices fell USD2 to USD355/t last week. If current prices were to remain stable until end-Q3, the QoQ price increase for European scrap in Q2 would be USD63. UPCOMING EVENTS: DB Metals 2) lower-than-expected steel prices, which could result in an erosion of earnings; 3) higher raw material and other operating costs, which could limit earnings growth; 4) the political infl uence of governments in the steel trade; 5) expansion projects not progressing as expected; and 6) M ( ii) the value of currencies may be aff ected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could aff ect the value of the currency. Investors in securities such as ADRs, whose values are aff ected by the currency of an underlying security, eff ectively assume currency risk. ? Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investors home jurisdiction. Aside from within this report, important confl ict disclosures can also be found at https:/ under the “Disclosures Lookup“ and “Legal“ tabs. Investors are strongly encouraged to review this information before investing. Deutsche Bank (which includes Deutsche Bank AG, its branches and all affi liated companies) is not acting as a fi nancial adviser, consultant or fi duciary to you, any of your agents (collectively, “You“ or “Your“) with respect to any information provided in the materials attached hereto. Deutsche Bank does not provide investment, legal, tax or accounting advice, Deutsche Bank is not acting as Your impartial adviser, and does not express any opinion or recommendation whatsoever as to any strategies, products or any other information presented in the materials. Information contained herein is being provided solely on the basis