Victim of its own success?

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1 China Victim of its own success? Wolfgang Lipp Managing Director SMI - Steel Market Intelligence GmbH Copyright SMI Steel SMI Market Steel Market Intelligence GmbH This data may not be copied, published or disclosed to third parties without the - 0 -permission of SMI GmbH.

2 CONFERENCES 2015 PROJECTS 2014 GROUP / TEAM / LOCATION Austria Enduse Focused Single-Client Stainless & Special Steel Events Multi-Client Studies Market Intelligence for High Value Materials Markus Moll Eveline Pfeifer Ulrich Weirather Sonja Posch Werner Bulla Patricia Moll Ilona Spaltmann Joy Tio Wolfgang Lipp Alina Racu Lisa Reichel Bella Miao Benedikt Blitz Corinna Siebenhüner Oliver Spaltmann Wilfred Lee Dr. Thomas Windberger Robert Messmer Maximilian Forster by Type Multi Client, 20% by Product STS LP, 18% Others, 4% STS FP, 15% Eng. Steels, 17% by Region Others, 10% Asia, 24% Single Client, 70% Conference, 10% Raw Materials, 33% Nickel Alloys, 14% Americas, 12% Europe, 55% in association with Metal Bulletin Events Copyright SMR GmbH ASIA EUROPE AMERICA - 1 -

China s Position in the World 0% 10% 20% 30% 40% 50% 60% 70% Population Industrial Production Exports Population GDP Electricity Consumption Oil Consumption Iron Ore

3 China s Position in the World 0% 10% 20% 30% 40% 50% 60% 70% Population Industrial Production Exports Population GDP Electricity Consumption Oil Consumption Iron Ore Consumption Ni/Cr/Mo Consumption Coke Consumption Stainless Steel Production Stainless Steel Consumption Source: Oxford Economics, SMR Analysis China s share of the World [%]

4 Major Slowdown in China? Chinese Official GDP Growth [GDP, constant prices and exchange rate] 14% 13% 12% 11% 10% 9% Is this the truth??? 8% 7% 6% 5% Source: Oxford Economics

5 The Big Crash? Shanghai Composite Index Index [Aug/09 = 100%] 160% 140% 120% 100% 80% 60% 40% Source: Finanzen.net

6 When Will the Bubble Burst? Chinese Real Estate Prices Index [Q3/09 = 100%] 130% 125% 120% 115% 110% 105% 100% 95% Source: economist.com

7 Debt Explosion Chinese debt have ten-folded since Government Companies Banks Households Total Debt [Trillion USD] 0% 50% 100% 150% 200% 250% 300% Q Source: McKinsey Global Institute Analysis Debt in % of GDP

7% 6% India 5% Other Asia 4% China 3% ROW 2%

8 Future: CAGR Flat Products Historic and Future Growth Rates China and India will continue to be growth drivers (but growth in % will decline). 7% 6% India 5% Other Asia 4% China 3% ROW 2% Americas 1% Europe 0% 0% 2% 4% 6% 8% 10% 12% Historic: CAGR

Global Stainless Steel Crude Production (2000 2014) China is producing more than 50 % of the global output!

9 Global Stainless Steel Crude Production ( ) China is producing more than 50 % of the global output! [in 1,000 tonnes] 45,000 40,000 Growth Rate World: +6% p.a. 35,000 30,000 25,000 Growth Rate in China +29% p.a. 20,000 15,000 10,000 5,000 Growth Rate Outside China 0% p.a. 0

10 [in 1,000 tonnes] How is Chinese Quality? No general answer possible Chinese Stainless Steel Flat Products Production by Quality ( ) 10, ,000 6,000 4,000 2,000 0 Low Medium High

11 Chinese High Quality Producers All Made in Europe

12 Chinese High Quality Producers

13 Chinese Medium Quality Producers

14 Chinese Medium Quality Producers Chinese version of European Equipment

15 Chinese Low Quality Producers

16 Chinese Low Quality Producers

17 Chinese Low Quality Producers

18 Chinese Low Quality Producers

Top 20 Producers of Stainless Steel We have a new

19 Top 20 Producers of Stainless Steel We have a new number 1 producers in terms of production volume. [in 1,000 tonnes] 3,600 3,300 3,000 2,700 2,400 2,100 1,800 1,500 1, of Top 20 are Chinese Long Flat * incl. Fujian Desheng ** incl. Southwest Stainless *** incl. NTK **** incl. 13Cr OCTG

20 Chinese Melt Production in 2015 Chinese production shrinking in 2015? [in 1,000 tonnes] Chinese Stainless Steel Melt Production of Top Players (Jan Sep) 10,000 Jan-Sep 2014 Jan-Sep ,000-4% 6,000-10% 4,000 0% 2, Series 300 Series 400 Series Source: Umetal

21 Chinese Melt Production in 2015 Some mills seem to have major problems! Chinese Stainless Steel Melt Production by Mill 2015 vs (Jan Sep) 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% -60% -70% -80% Total -5% Source: Umetal

22 Chinese Stainless Steel Exports (Jan 2005 July 2015) Is China flooding the world with STS flat products? [ Tonnes ] 220, , , , ,000 Chinese STS Flat Exports Destinations e Y-on-Y Change [ kt ] '14 vs '15e '14 vs '13 NAFTA % 125% Europe % 111% Asia 1, , , , % 35% Others* % 59% TOTAL 1, , , , % 51% *incl. India, Turkey Hot rolled coils Plate Cold rolled coils Welded tube & pipe 120, ,000 80,000 60,000 40,000 20,000 -

23 Capacity Utilization by Region (on Slab Basis) Despite already low capacity utilization rates. [Utilization in %] 100% 90% 80% 70% 60% 50% 40% Europe America China Other Asia ROW WORLD

24 Stainless Steel Slab Capacity Outlook : mill. Tonnes 65% of all new capacities are coming in China! [ 000 tonnes] 2,200 2,000 1,800 1,600 1,400 1,200 1, ,000-1,200-1,400-1,600?

advantage - CNY appreciation - Higher labour cost - Higher electricity costs - Higher environmental costs - Higher transport costs SG&A Costs Factory Labour

25 Stainless Steel Production Cost Comparison 2014 vs. 2023* Chinese producers are losing their cost advantage! [US$ / tonne] 3,000 2,800 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1, Cost Advantage 2014: 485 $/t - Loss of raw material advantage - CNY appreciation - Higher labour cost - Higher electricity costs - Higher environmental costs - Higher transport costs SG&A Costs Factory Labour Costs Other Variable Costs Energy (Electricity, Gases, etc.) Net Raw Material Input China 2014 USA 2014 China 2023 USA 2023 * Based on estimated cost developments and an 13% appreciation of the Yuan / US$ rate

26 SMI Steel Market Intelligence We will provide the missing piece in your market knowledge! BRAND NEW in 2015 China Stainless Steel Update 2015 India Stainless Steel Update 2015 Stainless Steel Flat Products in Turkey

Trends and Outlook for Tube & Pipe

Benedikt Blitz, Senior Market Analyst SMR Steel & Metals Market Research, Austria Benedikt BLITZ, Senior Market Analyst SMR GmbH, Austria Trends and Outlook for Tube & Pipe MARKET RESEARCH SERVICES / CONFERENCES