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SBB Dubai 3 September 2007 Roger Manser SBB Global Editor

China’s Steel Industry: A New World Reality. SBB Dubai 3 September 2007 Roger Manser SBB Global Editor. Structure of Presentation. How is China changing? How is China changing the world steel industry? Some conclusions. (1) How is China changing?.

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SBB Dubai 3 September 2007 Roger Manser SBB Global Editor

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  1. China’s Steel Industry: A New World Reality SBB Dubai 3 September 2007 Roger Manser SBB Global Editor

  2. Structure of Presentation • How is China changing? • How is China changing the world steel industry? • Some conclusions

  3. (1) How is China changing? • Becoming a manufacturing powerhouse • Looking for self-sufficiency • Investing in urbanisation/ new infrastructure • Consequences in China for steel: • Strong growth in production and consumption • A growing excess of production over consumption • Slow consolidation/continuing fragmentation

  4. China- a new Workshop of the World

  5. Looking to be self-sufficient Three Gorges Dam 3m+ tonnes

  6. Construction takes 200m t/y= 50-60% of China’s consumption

  7. 2000-2008f 19 %/ yr in Million tonnes 1980-1999 7.1 % p.a. 1949-1979 13.3 % p.a. Strong Growth in Production Crude Steel Output 1949 – 2008f

  8. Strong Domestic Consumption Million tonnes 2000-2008f: 16%/ yr

  9. Fragmentation Continues Typical Production Chge Output 20052006 % Top 10 Mills 5-23m131.1145.9 +11.3 Top 11-20 Mills 3-5m56.163.9 +14.0 Other Reporting* 1-3m103.9125.3 +20.6 Non Reporting* <1m64.783.6 +29.2 * Around 75 companies report to CISA Source: CISA, SBB

  10. But Some M+A at the Top-End Shougang 11m Tangshan 19m Caofeidian 5m Baosteel 23m Anshan 15m Bayi 4m Benxi 7m Handan 5m Anben Kunming 5m Shagang 15m Wuhan 14m Source:SBB

  11. How is China changing the world steel industry? • Higher raw material prices • New investment, mainly in flats • Import substitution ….. now exports • Financialization, and global M+A • Defensive moves

  12. How China is changing the world CHINA’S DEVELOPMENT Investment Commodity Price Impact Steel Trade Impact Financial Impact Defensive and Other Reactions

  13. Rising iron ore prices $ cent/dmtu Australian iron ore price ex-port fob (SBB)

  14. New steel + ore investment $35bn Source: NBS

  15. New rolling capacities 2007-2009 Total 175m t/y Source: SBB

  16. Import Substitution….now exports HDG Imports are beginning their fall, with low quality HDG being replaced HRC Imports well on their way to being replaced Source: CISA, SBB

  17. Fall in Imports; Rise in Exports Tonnes (m) Source: CISA, SBB

  18. Some reported major plate/HRC investments (t/y): for start-up: 2007/08 Caofeidian +5.5m Anshan+5m Benxi +4m Handan Zongheng +6m Beitai +4m Handan +5.5m Tianjin +3.8m Rizhao +5m Anyang +4m Baosteel +3.7m Maanshan +5m Ningbo +4m Source:SBB

  19. Threat from Chinese Exports SBB estimates Producer-led pricesinc High Strength, Tinplate, HG Flats, HG Pipe, Most Stainless/ Specials Most at threat 13% 27% 10% Producer-influenced pricesinc Other HG Flats, Some Beams, Other Stainless etc Moderate threat 48% Commodity pricesinc Bars, Rods, Most Sections, Other Flats (for construction), Other Pipe Quality: grade, dimension, market etc

  20. Demand Prices Profits M+A Finance 2003-6: Global consolidation 2001-5: Steel suppliers earn more • ArcelorMittal • Tata Corus • Essar Algoma • SSAB Ipsco • NLMK Duferco

  21. Open to Foreign M+A Dislike of Foreign M+A Dislike of Foreign M+A by Companies

  22. SBB’s Conclusions for China: • A slow-down in production and consumption growth • No real restructuring through M+A • Supply side export controls? • Smaller mills may soon face squeeze • BUT • Crude production soon @ 500m t/y • Some decline in exports, in due course

  23. SBB’s Conclusions for China and the World • Demand strongest in emerging markets • Three scenarios: • Insufficient new capacity globally • Growth in CN exports/AD+CVD • Stronger RMB, curbed GDP, licences • Decline in exports • Decline in global GDP growth (CN ) • Prices weaken

  24. Other Pointers for the Future • Higher raw material prices for some time • Growth outside Europe - GHGs • More complex global supply chains • More differentiation in finished qualities • More price volatility/shorter cycles • Reference prices • Global M+A less likely • But more local M+A probable

  25. THANK YOU Have you got a China steel map yet? US map also available

  26. For a copy of the presentation: e-mail manser@steelbb.com

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