Vesuvius plc Prospectus

Vesuvius also supplies the steel industry and other hot process industries with advanced refractory
materials used for lining vessels such as blast furnaces, ladles and tundishes to enable them to
withstand high temperatures and/or corrosive attack. These refractory lining materials may be
supplied in the form of powder mixes, which are spray applied onto the vessels to be lined
(“monolithics”) or in pre-formed shapes, bricks or castings.
As both flow control and linings products are consumables, steel production volumes and, in
particular, production of higher quality steels made using the enclosed continuous casting process is
the critical driver of demand for Vesuvius steel-related products. Further, steel producers are
continually striving to improve the enclosed continuous casting process in order to improve
production through less downtime and reduced labour costs, increased steel quality, reduced
reworking through thinner slab casting and reduced energy usage.
According to the World Steel Association (“WSA”), global steel production in the first half of 2012
was approximately 1 per cent. higher than the first half of 2011 (unchanged for the world excluding
China), with the EU (27 countries) approximately 5 per cent. lower, NAFTA approximately
7 per cent. higher, and China approximately 2 per cent. higher. Average monthly steel production
volumes in July and August 2012 (according to the WSA) declined by some 3 per cent. for the world
excluding China when compared to the average monthly run rate in the first half of the year. Most
notably the EU (27 countries) was 11 per cent. lower and the US 3 per cent. lower, both slightly
more pronounced than the normal seasonal downturn. In September, rather than the normal seasonal
strengthening, there were signs of some further weakening in steel production trends, particularly in
the US, Europe and Brazil. The first 9 months of 2012 reflected a continuation of the generally
weaker trends seen in the latter months of 2011, particularly in Europe and China. Global steel
production was approximately 1,527 million tonnes in 2011, a 6.8 per cent. increase compared to
2010, representing a record level of global steel production. On 11 October 2012 the WSA published
its forecast for world steel demand to grow by 3.2% in 2013.
Market trends outside of China are more significant for Vesuvius in the short-term, as China
accounted for only around 12 per cent. of Vesuvius’ steel-related revenue in 2011. Around two thirds
of steel production in China is not yet based on the enclosed continuous casting process, which is the
predominant technology in the rest of the world and which uses Vesuvius’ steel-related flow control
refractory products.
The use of the enclosed continuous casting process for manufacturing steel is expected to increase
over time as the Chinese steel industry continues to modernise and demand for higher grade “flat”
steel product increases. In November 2011, the Chinese government announced a new five-year plan
(2011 to 2015) for the steel industry which targets higher production levels of better quality, more
value-added steel products to be produced in a more environmentally conscious way.
Steel consumption is expected to increase significantly in developing markets such as the BRIC
countries as GDP per capita increases. Furthermore, the proportion of flat steel products (typically
used in the white goods and automotive industries) is expected to increase relative to long steel
products (typically used in the construction industry), in particular in developing markets, as their
economies become more consumer, rather than infrastructure, focused.
This growth in the addressable market presents a significant opportunity for Vesuvius’ business
going forward.
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