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American Gear Manufacturers Association Steel Consumption Update Cengiz Kurkcu President - Industrial Engineered Steel Solutions The Timken Company March.

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Presentation on theme: "American Gear Manufacturers Association Steel Consumption Update Cengiz Kurkcu President - Industrial Engineered Steel Solutions The Timken Company March."— Presentation transcript:

1 American Gear Manufacturers Association Steel Consumption Update Cengiz Kurkcu President - Industrial Engineered Steel Solutions The Timken Company March 9, 2011

2 Agenda The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development Raw Material Trends Green Trends & Steelmaking U.S. Manufacturing 2

3 The Timken Company Founded in St. Louis in 1899 by Henry Timken after receiving patents for a tapered roller bearing Relocated to Canton, Ohio, in 1901 Began steel production in 1917 $1 billion in revenue – 1978 $2.2 billion in revenue – Our History Excludes intersegment sales 2010 Total Sales: $4.1 Billion Steel $1.3 Billion Bearings & Power Transmission $2.8 Billion

4 The Timken Company 4 Alloy Steel & Value-added Solutions Oil & Gas Mobile On-Highway Industrial Steel Group Bearings and Power Transmission Group Mobile Industries Light Vehicle Off Highway Rail Auto Aftermarket Heavy Truck Aerospace & Defense Commercial General Aviation Positioning Control Health Process Industries Heavy Industries Industrial Processes Gear Drives Energy Industrial Distribution Our Business Structure

5 Steel Group 5 Oil & Gas Heavyweight Drill Pipe Drill Bits Drill Collars Mud Motors Tool Joints Supply Chain Management Value-Added Machining Mobile On-Highway Passenger Car Light Truck Medium/Heavy Truck Industrial Agriculture, Bearing Construction Equipment Distribution Industrial Machinery Mining, Rail Power Transmission Wind Energy

6 Steel Group 2010 Net Sales 6 Market Selection Rail Industrial Machinery Passenger Car Light Truck Heavy Truck Vehicle Bearing Steels Drilling Equipment Production Equipment Industrial Bearing Steels Wind & Power Generation Off-Highway & Transportation Aerospace & Defense Farm & Mining Equipment Mobile On-Highway 35% Oil & Gas 17% Industrial 48%

7 Steel Group 450 grades of carbon and alloy steels Special bar quality steel Seamless mechanical steel tubing Well-boring and finishing products Precision steel components 7 Our Products Steel Group

8 Agenda The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development Raw Material Trends Green Trends & Steelmaking U.S. Manufacturing 8

9 Key Economic Indicators 9 Industrial Production Index (IPI) PMI up 0.6 points from February and the highest since May 2004 WLI up from January Industrial production highest since August 2008 Purchasing Managers Index (PMI)Weekly Leading Index (WLI)

10 U.S. Vehicle Sales Rates - SAAR 10 Source: Wards Automotive Weekly & IHS (forecast) Sustained recovery with slow growth into 2011 Mid-Month Forecast

11 N.A. Medium & Heavy Truck Production 11 Estimate over 500,000 tons of future SBQ demand 37% 24% 21% 7%

12 Key Industrial Indicators Industrial Machinery Durable Goods Railroad Equipment Mining (excluding Oil & Gas) Construction Machinery Agricultural Machinery Utilities vs % 9% -4% 3% 4% 1%

13 Global Drilling vs. Timken Steel Supply 13

14 Key Oil & Gas Indicators 14 US Rigs Drilling for Oil Approaching 50% Natural Gas Storage Level Natural Gas: Henry Hub Crude Oil: WTI Cushing

15 Market Segment Outlook Oil & Gas Industrial Mobile On- Highway Sustained market recovery for light vehicle market 2011 production forecast at 12.9 million vehicles, 9% above 2010 Initial stage recovery for medium and heavy truck market Strong demand expected through 2011 Customer inventory replenishment continues Healthy orders in most end-markets & products Higher oil prices drive 11% world rig count growth Exploration & Production budgets increase 11% in 2011 Horizontal Drilling continues to grow

16 Agenda The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development Raw Material Trends Green Trends & Steelmaking U.S. Manufacturing 16

17 World Apparent Steel Use 17 New record (2010) Growth slowing Percent Change

18 NAFTA Apparent Steel Use

19 U.S. SBQ Apparent Consumption 19 Source: AISI & Timken Data

20 Bar & Tube Lead-times Hot Roll BarHot Roll Tube MonthTimkenDomesticTimkenDomestic Jan Mar Apr Jul Mar-11Allocation (1) (2) 20 Weeks (1)July 2011 (2)If billets available

21 Agenda The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development Raw Material Trends Green Trends & Steelmaking U.S. Manufacturing 21

22 Steel Group 22 Strategic Focus Small bar mill Custom heat treat Large bar UT inspection New high carbon furnace Forge press New products / customers Value selling Market plan / market selection Global oil & gas supply chain International warehouses / supply chain Tube finishing line Lean6Sigma / continuous improvement Operational improvements Lay down yard Timken Boring Specialties Daido Steel Collaboration City Scrap & Salvage

23 Strategic Plan Global diversity & leadership Differentiated solutions Attractive, long-term risk-adjusted returns Effective business cycle management 23 In-line Forge PressTube Finishing Line Small Bar Mill Large Bar UT

24 Agenda The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development Raw Material Trends Green Trends & Steelmaking U.S. Manufacturing 24

25 Inquiry Turnaround 25 74% 41% 72% 70% 17% 12% 18% 16% 7% 38% 5% 10% 2% 9% 5% 4% 0% 10% 20% 30% 40% 50% 60% 70% 80% IndustrialMobile On-HighwayOil & GasTotal 0-2 Days %2-10 Days %10-20 Days %Over 20 Days % January 2011

26 New Business Sales Ratio 26 0% 5% 10% 15% 20% 25% 30% 35% 2010 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec Fcst YTD ActualPlan

27 Advanced Program Management 27 Stage-Gate Process Strategic Alignment Strategic Evaluation Feasibility Analysis Business Case Commercial Development Implement Strategy Product Life Cycle Idea Stage 1 Discovery Stage 2 Evaluation Stage 3 Concept Stage 5 Validation Stage 6 Launch G1G2G3G4G5 Stage 7 Control G6 Stage 4 Development DefineImplementRealizeIdentify Decision Agenda Execution Agenda PRODUCT DEVELOPMENTCOMMERCIAL DEVELOPMENT New Equipment Capability –Radial Flow Forming Grade Development –Iron Aluminum Platform –API-6A Specification Processing –Non-Ferrous Piercing –Raise Bore Drill Rods New Equipment Capability –In-Line Forge Press (<16) –Internal Green Machining Grade Development –FSP Premium High Carbon –Gear Steels Processing –Large Sound Center Bar (<16)

28 Gear Steels Clean steel –Longer bearing and gear life –Power density Timken offers over 400 different grades –Common gear grades 43xx (18CrNiMo7-6) and 41xx (42CrMo4) Demanding gear applications –Rail (locomotive), mining, wind, off-highway vehicles 28

29 Developing Local Presence 29 Value Add Supplier Facilities Plants Sales Office Warehouse Role of agents and forwarders Local sales and service teams Local operating partners –Ventures and agreements New Asia collaboration model – high performance regional supply chain Sales Agents Need for operating presence –Commitment of customers and suppliers –Investment in plant and warehouse

30 Agenda The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development Raw Material Trends Green Trends & Steelmaking U.S. Manufacturing 30

31 World Crude Steel Production 31 Source: worldsteel 1,413.6 Million Metric Tons (2010) Europe 22% North America 8% South America 3% Africa 1% Middle East 2% Australia / New Zealand 1% Other Asia 19% China 44%

32 Supply Tensions Will Remain 32 Chinas Iron Ore Purchases Source: JB Were, First River

33 (July) Annual / Monthly ($/ton) 33 China Iron Ore Drives US Scrap Price Monthly Source: Vale, AMM, First River analysis

34 Key Approaches –Regional scrap management –Industrial accounts –Scrap consulting & brokerage –Supply agreements Timken Metal Recycling Strategy 34 Auto Wreckers Ind. Accts. Other Scrap Yards Raw Material Feedstock Shredder Objectives Reliable supply of iron units at a competitive cost Capture the return flow of scrap from the customers / suppliers

35 Agenda The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development Raw Material Trends Green Trends & Steelmaking U.S. Manufacturing 35

36 36 Continuous Improvement Natural Gas Consumption MCF per Ship Ton Electricity Consumption KWH per Ship Ton Green Trends & Steelmaking

37 Regenerative burner technology Waste heat recapture systems Automated scrap cutting 37

38 Agenda The Timken Company Market Outlook Current Business Cycle Business Strategy New Business Development Raw Material Trends Green Trends & Steelmaking U.S. Manufacturing 38

39 U.S. Manufacturing American manufacturers start with a non-production cost disadvantage of 18% versus our major trading partners –U.S. steel producers spend 18% more on taxes, energy, benefits, torts, and regulatory compliance than our foreign competitors 39

40 U.S. Manufacturing Tax Structure –Second highest among all OECD countries –Double-taxing global revenues –R&D tax credits Regulatory Discipline –EPA regulations –OSHA policies –NLRB directives Energy Policy –Investment in energy infrastructures –Energy efficiency and conservation –Diverse portfolio of fuel sources 40 Restoring Balance

41 Collaboration – Vital to Future Success 41

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