Million Link (China) Investment Ltd.

1. Million Link (China) Investment Ltd. China steel and it’s raw materials, today and beyond Lecturer:HillSummer Managingdirector http:/www.millionlink.com hillsummer@millionlink.com

2. Price surges from Feb,2016 until today 01

3. Graphite electrode monster 01

4. Demand increment is still positive 02

5. Supply side reform is the key 02 Buzzwords: Above all, deproductivity is leading target, others are only tools.

6. IF furnace 03 Massive movement is to cut off steel production made with intermedia frequency furnace. 30th June, 2017 was the latest date to cut all it’s productivity to Zero. The productivity was about 120MMT, actual production was 60-80MMT annually. IF uses scrap to produce billet or long steel. Most of facilities has not lab to test and control the quality, products was unqualified according to the government ruling. Infact,fromasearlyasDec,1999,itwaslistedincutofflistissuedNationalEconomicand Trade Committee, called “ List of cut off backward productivity, technology and its products. Consequence: Productitivy of IF had been replaced by EF step by step. Scrap p Scrap price dropped to … at…,as low as RMB/MT , then rebounced to… . Graphite electrode used by EF flied.

7. Mini blast furnace 04 ExitofminiBF was done according to “2017 deproductivity of steel” issued by National Committee of Economic and Trade” In1999, National Committee of Economy and Trade issued a list of exit of backward facility, skill and products” in which mini BF was listed. Since mini BF was defined bigger and bigger. In 2017, NDRC issued “ 2017 steel deproductivity plan” in which mini BF becomes 400M3 BF for steel or pig iron production, RF less than 30MT. In fact, Hebei provincial government defines mini BF 450M3 or less. Consequence: People believe it may significantly reduce steel productivity but not really. In fact, most of mini BF were free of use. But, it accidentally affected rich manganese slag production. Mini BF were mainly used for rich manganese slag production and its ore mining.

8. Solid waste 05 From Sept,2017, 24 kinds of solid waste are prohibited to import. Other solid waste can be imported if both China importer and overseas exporter have AQSIQ certificate. Theoritically, ferro manganese slag, steel slag with vanadium can be imported subject to AQSIQ approval. But we have never seen any approval yet. Consequences: China may need to import more ores and/or metals.

9. Winterseasonproductionquota 06 First time, at 2017-2018 winter season 1st Sept 2017-29th March, 2018,especially 10th Nov,2017-29th March,2018 in the area of 2+26 cities of northern China, main area of steel productivity, limited production quota 30-50% to avoid serious air pollution-fog and haze. Consequences: Steel production decreased heavily At such a long period of time, price may be up and down. But one thing is sure: immediate production up and price down at the end of March while production quota removed.

10. Manganese mining 04 Under pressure of environmental protection policy, manganese ore mining reduced a lot. Year Mn ore import Simn output Y2015 15,760KMT 7,116KMT Y2016 17,050KMT 7,313KMT Y2017 21,260KMT 7,820KMT We don’t have stats about mn ore mining in China. From above mn ore import and simn output, I feel mn ore output reduced 800,000MT at 2016 and 3,2MMT at 2017 respectively. Y2018 H1, mn ore import 12,290MT. Does it mean that at Y2018 H1, mn ore output may reduce 3.5MMT ?

11. Billet EBITDA 07 EBITDA of billet in Tangshan area at 15th Aug, 2018, raised to RMB1124/mt while ex plant RMB4090, as high as 27.5% , keeps at high level of RMB500/mt minimum at last 2 years .

12. China steel showcase under deproductivity 06

13. Nonequalizing of deproductivity 07 Ironoreoutput declined Mnoreoutput declined Coal output declined Coking coal output declined Met coke output declined Fesimn output declined FeSioutputincreased FeCr output increased Pig iron output gain slightly Crude steel output gain slightly superficial but decreased in fact Steel consumption maintains strong Unbalance says a lot.

14. Premium and discount of iron ores 07 Using higher ferrous iron ore makes more steel and more profit if you only have one furnace running. Higher ferrous iron ore wins while lower degree iron ore discards temporarily.

15. What’s next and its consequences ? 07 So far so good for those who are still in the market. Those who were kicked out is out permanently. Sureness or uncertainty next ?

16. Onthenameofenvironmentprotection 06 Production quota management related to water forcast and water forcast becomes permanent tool to adjust production according to pollution level. Environment protection becomes industrial decelerator, most likely anytime, anywhere.

17. 2018-2019winterenvironmental control 06 Winter environmental control becomes Winter-Autumn environmental control which may have 45 days longer than before, and production quota upto 50%

18. Watercooling vs. standard 02

19. HowGB/T1499.2-2018affectsSiMn and Nitrogen V 06 New standard of rebarGB/T 1499.2-2018 replaces old standard GB/T 1499.2-2007 at Nov 2018. Even though it is a standard for reference, not mandatory, but market already started to reduce watercooling productivity. On the name of technology, lower degree products, higher pollution facility will be kicked out.

20. Vanadium price already responsed, then SiMn? 06 Vanadium price rised immediately after GB/T 1499.2-2018 published at Feb, 2018 and rised again and again at last months. How simn follows, and when?

21. Metallurgical coke shortage 07 Ratioofpigironproductionandmetallurgicalcoke 201569141/44778.2=1.5441 201670227/44911.5=1.5640 201771006.5/43142=1.6459 2018H1 32384.11/18042=1.7949 ！ If metallurgical coke usage in other industry has not been changed significantly, we are easy to imagine how much more metallurgical coke may be needed to satisfy pig iron production at 2018H2. And more, coking coal import has been reduced significantly at 2018H1. Does China have enough coking coal to catch up metallurgical coke production? Solution: More import of coking coal Less pig iron production , plus bigger pig iron import ( We state pig iron for pig iron, sponge iron, iron ingot, billet, scrap all together)

22. Coalshortage 07 Assuming coal consumption per GDP does not change too much in short period of time, we predict huge shortage of coal supply at H2 2018 and beyond.

23. Willpigironimportreverse? 07

24. Stainless steel 07 Deproductivity has not affected SS and it’s raw materials ferrochrome output. On contrary, output increased firmly. Y2018 H1 SS/FECR：1226.71/4.303=285.0825 Y2017 SS/FECR：2361.945/7.590=311.1917 Y2016 SS/FECR ： 2469.51/7.015=352.0328 SS/Fecr ratia described why ferro chrome price is so weak at H1 2018.

25. Nickel/Manganese metal 07 RKEF is main furnace to produce ferro nickel pig iron. FeNi production has not been affected too much. Eelectrolytic manganese output at H1 2018 712,400mt, down 2.30% YoY. Tianyuan Manganese owns EM productivity 800,000mt, 50% of China productivity. Recovery of production is the key to EM supply.

26. Exhause and Reverse of deproductivity 07 So far, steel deproductivity target fulfilled 80% Unqualified productivity erased, SME erased Deproductivityand employment Lung or stomach Deminishing marginal utility of deproductivity Advancedproductivityremains and huge, what if rebound?

27. Thanking you

28. 参考文献 07 Moltivated by documents and websites below. Thank those people who contributed insider information. 《淘汰落后生产能力、工艺和产品的目录(第二批)》 《京津冀及周边地区2018-2019年秋冬季大气污染综合治理攻坚行动方案》 <京津冀及周边地区2017-2018年秋冬季大气污染综合治理攻坚行动方案> 《限制进口类可用作原料的固体废物环境保护管理规定》 GB/T 1499.2-2018 Mysteel.com Custeel.com 西南钢铁指数 文华财经随身行 全国锰业技术委员会 全国空气质量实时监测 http://106.37.208.228:8082/ 全国地表水实施监测 http://123.127.175.45:8082/