EFTA01385459.pdf

3 January 2018 HY Corporate Credit HY Multi Sector,Media, Cable & Satellite As shown in Figure 12, U.S. crude oil production continued to increase in 2017 following the market correction that took place from the end of 2014 through late 2016. Rig counts have increased steadily throughout 2017. Metal service center Ryerson Holdings (RYI) recently held its earnings call and management reported the following: "Ryerson experienced quarterly YoY growth in nearly all end markets tin 30171, most notably in commercial ground transportation, oil & gas and construction equipment sectors..." RYI's management team also noted that the Class A truck vehicle market "looks like it's going to finish up 10%, and 2018 looks like another double-digit increase." 'Figure 12: DOE Crude Oil Production Figure 1 'don. Has Construct[orl iFigure 14: SAAR Housing Starts 10,000 20% 30% - 1200 00% 15% • 700,000 € 9,500 20% 1,200 e0% 10% 9.000 5% 10% • 650.000 1,100 40% 0.500 0% 0% 600.000 e 3% a 1.000 20% 8,000 -10% 550.000 -10% 900 0% 7,500 .15% 20% 500,000 x on on M OO . .. . ; ; o N V. W -20% 1.141111111 memo U S. DOE Crude Oil Production gSgSSISSSS NSA Nonresidential Construction (TM) 8.8.8s8<8s8 % Chang, (Y/YI sort:. Housing Starts (SAAR) San• Oweice••• tink tlacntiteg Inw.“P aim Deans S Sloonorp fin& Soon Darn an. Booney h LP Construction is the largest market for the U.S. steel industry. Looking ahead, trends in nonresidential construction should be stable to down slightly after reaching a new peak level of spend of $718bn (NSA) in May 2017. Meanwhile, residential construction (as measured by SAAR housing starts (Figure 14)) had a slight pullback in October likely somewhat attributable to the devastating storm activity around the Gulf Coast. Even so, SAAR housing starts of 1,290 as of October 2017 are below the 40 year average of 1,324 starts and remain 43% below peak starts of 2,273 in January 2006. [Figure 15: Auto Sales vs Jobs Figure 16: ISM Manufacturing PMI [Figure 17: PPI Materials (NSA) zo 240 20% I is 91 60 3 230 15% so ss PI Y Tr111•111. WI" us ≥ zz0 WIMPIPr- 10% 114 ye WM!' 5% liz 4 -10% 200 0% 0 40 IV re e s r s ga ga g-e ga g 42 3 tUal SP aziziz ISO Ittg3 -6% Sol 2 4 2 4 2 4 2 4 2.42 us Auto Sales ....No Unemployment Rata ICOA PlantdacturIng PMI ISA) ntlitti avarars• PPI (145AI 0 Ye Avg 00000%C1tg VeY (Right Axis) Sourer Cads Sank Soomergs Fag* LP Scow Aux** Sint Stambsep LO Sown Llano,* Sink Sbottbirp Minn LP After years of record sales, the automotive market had its worst year in several The Institute for Supply in 2017. While we believe autos are likely to absorb additional volume declines in 2018, we anticipate that stronger GDP and tax reform should help with the Management's PMI, a leading demand side of the equation. Further, the Institute for Supply Management's indicator of the economic PMI, a leading indicator of the economic health of the manufacturing sector, health of the manufacturing recorded its highest reading in September 2017 (60.8) since 2004 pointing to sector, recorded its highest an optimistic manufacturing environment. As displayed in Figure 17, the PPI reading in September 2017 for materials and construction components reached new highs in November (60.8) since 2004 pointing to 2017 as raw material inflation began to creep into manufacturer supply chains. We feel this is a theme that is emerging and will likely continue to play out an optimistic manufacturing over the course of 1H-2018. We believe U.S. manufacturers' ability to environment. overcome rising input costs is dependent on having previously announced price increases stick. Hence, while we do not expect substantial market growth for the steel sector in 2018, demand trends appear to be stable, thus supply will likely play a bigger role in the market's performance in 2018. Deutsche Bank Securities Inc. Page 185 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0086744 CONFIDENTIAL SDNY_GM_00232928 EFTA01385459