1. latest news : steel prices : market reports : conferences 1 SBB Dubai 3 September 2007 Roger Manser SBB Global Editor China’s Steel Industry: A New World Reality

2. latest news : steel prices : market reports : conferences 2 1. How is China changing? 2. How is China changing the world steel industry? 3. Some conclusions Structure of Presentation

3. latest news : steel prices : market reports : conferences 3 (1) How is China changing? 1.Becoming a manufacturing powerhouse 2.Looking for self-sufficiency 3.Investing in urbanisation/ new infrastructure Consequences in China for steel: 1.Strong growth in production and consumption 2.A growing excess of production over consumption 3.Slow consolidation/continuing fragmentation

4. latest news : steel prices : market reports : conferences 4 China- a new Workshop of the World

5. latest news : steel prices : market reports : conferences 5 Looking to be self-sufficient Three Gorges Dam 3m+ tonnes

6. latest news : steel prices : market reports : conferences 6 Construction takes 200m t/y = 50-60% of China’s consumption

7. latest news : steel prices : market reports : conferences 7 Strong Growth in Production Crude Steel Output 1949 – 2008f 1949-1979 13.3 % p.a. 2000-2008f 19 %/ yr 1980-1999 7.1 % p.a. in Million tonnes

8. latest news : steel prices : market reports : conferences 8 Million tonnes Strong Domestic Consumption 2000-2008f: 16%/ yr

9. latest news : steel prices : market reports : conferences 9 Fragmentation Continues TypicalProduction Chge Output 2005 2006 % Top 10 Mills5-23m 131.1 145.9 +11.3 Top 11-20 Mills 3-5m 56.1 63.9 +14.0 Other Reporting* 1-3m103.9 125.3 +20.6 Non Reporting* <1m 64.7 83.6 +29.2 * Around 75 companies report to CISA Source: CISA, SBB

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

11. latest news : steel prices : market reports : conferences 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. latest news : steel prices : market reports : conferences 12 CHINA’S DEVELOPMENT Commodity Price Impact Commodity Price Impact Steel Trade Impact Steel Trade Impact Financial Impact Financial Impact How China is changing the world Defensive and Other Reactions Investment

13. latest news : steel prices : market reports : conferences 13 Rising iron ore prices $ cent/dmtu Australian iron ore price ex-port fob (SBB)

14. latest news : steel prices : market reports : conferences 14 New steel + ore investment $35bn Source: NBS

15. latest news : steel prices : market reports : conferences 15 New rolling capacities 2007-2009 Source: SBB Total 175m t/y

16. latest news : steel prices : market reports : conferences 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. latest news : steel prices : market reports : conferences 17 Fall in Imports; Rise in Exports Tonnes (m) Source: CISA, SBB

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

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

20. latest news : steel prices : market reports : conferences 20 Demand Prices Profits M+A Finance ArcelorMittal Tata Corus Essar Algoma SSAB Ipsco NLMK Duferco 2001-5: Steel suppliers earn more 2003-6: Global consolidation

21. latest news : steel prices : market reports : conferences 21 Open to Foreign M+A Dislike of Foreign M+A Dislike of Foreign M+A by Companies

22. latest news : steel prices : market reports : conferences 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. latest news : steel prices : market reports : conferences 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. latest news : steel prices : market reports : conferences 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. latest news : steel prices : market reports : conferences 25 THANK YOU Have you got a China steel map yet? US map also available

26. latest news : steel prices : market reports : conferences 26 For a copy of the presentation: e-mail manser@steelbb.com