Production cuts are gearing up
The scale of production cuts being implemented by steelmakers is growing rapidly, with
some regions (US and Russia) already operating below 50% of capacity. Despite the nearterm
negative impact on producers, the cuts are necessary to allow for pricing stabilisation.
Steel and bulk prices downgraded
We have lowered our steel and bulk price forecasts to reflect the current drop in steel
demand. We now expect steel prices in 1Q09 to be about 45% down from the peaks reached
in 3Q08. The hard coking coal price has fallen 35% yoy from 2Q09 to US$200/tonne, while
we expect the price of lump iron ore to decline 25% yoy to US$94/tonne in 2Q09.
Balance sheet strength is coming into focus
As steelmakers implement sharp production cuts and cash flows fall, balance sheet strength
and liquidity have come into sharp focus. Both ArcelorMittal and ThyssenKrupp may face
asset writedowns and both are implementing plans to conserve cash and pay down debt.
EPS to fall by 57% yoy in 2009, mid-cycle valuations still in focus
We have lowered our estimates for Mittal and TK and expect their EPS to fall by an average
of 57% yoy in 2009. Our new 2009 forecasts are 27-30% below the current Bloomberg
consensus. After the recent share price gains, however, we think the stocks are nearing midcycle
valuation levels.. Mittal still offers 23% upside and remains a Buy, TK has 9% potential
downside, prompting our downgrade to Hold.

Contents
Staying disciplined with production cuts 3
Since the end of October, we have seen sharp production cuts by steelmakers
across most regions. However, despite the supply side discipline, excess
inventories and tight credit continue to restrict a recovery in demand.
3
Threat of Chinese exports lower for now 4
De-stocking in steel – some way to go yet 5
Steel and bulk prices downgraded 8
We have lowered our raw material prices to account for lower demand from the
global steel industry (particularly from China). Steel prices have also continued to
fall further as the global economic slowdown brought demand for steel to a virtual
standstill.
8
Hard coking coal price to fall 34% in 2Q09, to US$200/t 8
Steel prices reduced further on continued demand weakness 9
Long-term prices reduced further as demand remains weak 10
Sharp reduction in 4Q08 longs prices as scrap costs fall 12
EPS forecast to recover from 2Q09 13
We have lowered our EPS forecasts for 2009 by 50% on average. For ArcelorMittal
and ThyssenKrupp, we now expect to see average 2009 EPS decreases of some
57% yoy.
13
Balance sheet strength comes into focus 14
As credit markets continue to be tight, balance sheet quality has become an
important factor. Both TK and Mittal should have sufficient liquidity to cover their
debt servicing requirements, although writedowns may be affect shareholder’s
equity and gearing.
14
Despite writedown risks, gearing remains acceptable 15
TK to Hold, MT remains a Buy 18
We continue focusing on mid-cycle multiples in our valuation of ArcelorMittal and
ThyssenKrupp. Mittal’s still offers 23% potential upside and remains a Buy. TK’s
upside is limited to about 9%, which has prompted us to downgrade our
recommendation to Hold.
18
Company profiles 21
ArcelorMittal 21
ThyssenKrupp 33