Steel De-capacity Promotes All-around Upgrading in China Steel Industry. Outlook for Market

Deep Insight into China Steel Industry Steel De-capacity Promotes All-around Upgrading in China Steel Industry Outlook for 218-22 Market Wu Wenzhang, Chairman, SteelHome 6 December 217, Dubai

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XIV Steel Development Strategy Conference XIV Steel Development Strategy Conference, to be held on 13-15 April 218 in Shanghai. Welcome to hear 5+ industry experts voices, network with 1+ delegates, and showcase your products to 15+ steelmakers in China. BJ Zhuang Group Manager Business Develop Peter F Marcus, Managing Partner, Robert Williamson, Executive Consultant Fortescue Metals Group World Steel Dynamics Inc Association of Mining and Exploration Companies Time: 13-15 April 218 (Simultaneous translation will be provided) Venue: International Convention Center, Shanghai, China Who to Attend: Steelmakers, Miners, Buyers, Financial Institutions, Equipment/Technology Suppliers

Steel De-capacity Promotes All-around Upgrading in China Steel Industry CONTENT I Steel De-capacity Promotes All-around Upgrading in China Steel Industry II Outlook for 218-22 China Steel Market

Steel De-capacity Promotes All-around Upgrading in China Steel Industry I Steel De-capacity Promotes All-around Structural Upgrading in China Steel Industry Since end of 215, Chinese government has initiated supply-side structural reform which mainly highlights De-capacity, De-stocking, De-leverage, Cost-reduction and Short-board-filling. China will strictly control newly-added capacity, implement law and industry policy in terms of environmental protection, energy-consuming, quality, safety and technology etc., eliminate backward capacity, establish long-acting mechanism to avoid the re-startup of ditiaogang steel and accelerate M&As amid steel industry on the back of supply-side reform. 1. Target for 22: crude steel output to be within 1. billion tons, capacity utilization rate around 8%, industry concentration (CR1) of top 1 steel enterprises 6%. China in 216-217 totally eliminated 77.99 mln tons of ironmaking capacity, 137.58 mln tons of steelmaking capacity, and dismantled 166.75 mln tons. At present, China s crude steel capacity has fallen to around 1. billion tons. Capacity utilization rate was 85.2% based on annualized crude steel output in October. We need to point out that China s crude steel increase in 217 was caused by CISA-member steelmakers output addition which offsets ditiaogang steel production (for ditiaogang steel, only steel production used to be recorded instead of crude steel). Then production of steel products will basically keep unchanged.

Steel De-capacity Promotes All-around Upgrading in China Steel Industry Target for 22: No More Than 1 Blnt of Crude Steel Capacity and 8% of Utilization Rate 12 1 tons Production Capacity Capacity utilization % 1 1 9 8 8 6 4 7 2 6 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 217 22e 5 Source : SteelHome China bans the newly-added capacity; newly-built capacity should be replaced by existing backward capacity. Target: in 22, China s crude steel capacity will be within 1 billion tons.

Steel De-capacity Promotes All-around Upgrading in China Steel Industry Target for 22: Concentration Rate of Top 1 Steel Enterprises to 6% 9 1 tons Production TOP1 rate,% % 7 8 6 7 6 5 5 4 4 3 3 2 2 1 1 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 1-1. 22e Source : SteelHome Multi-regional or multi-ownership system M&As among China steel industry will be actively introduced. By 22, concentration rate of top 1 mills of the nation will be 6%, a rise of 23.9 percentage pints over Jan-Oct 217.

Steel De-capacity Promotes All-around Upgrading in China Steel Industry Region Iron making China De-capacity in 216-217 (unit in 1,t) 216 217 Steel making Ditiao gang Iron making Steel making Ditiao gang Region Iron making 216 217 Steel making Ditiao gang Iron making Steel making Tianjin 159 37 175 18 161 Hunan 19 123 315 Hebei 182 1554 187 2178 1494 Guangdong 84 28 5 1789 Shanxi 82 255 1 Guangxi 2 185 541 Inner Mongolia 224 6 7 55 243 Chongqing 11 85 432 289 Liaoning 6 21 392 17 Sichuan 198 497 15 62 1253 Jilin 18 8 4 82 Guizhou 257 22 167 Heilongjiang 219 61 65 Yunnan 46 46 31 5 6 Jiangsu 38 2 634 1233 Tibet 4 Zhejiang 11 368 2 219 148 Shaanxi 16 7 561 Anhui 222 281 33 62 64 549 Gansu 16 144 193 Fujian 5 395 535 Qinghai 5 5 Jiangxi 5 433 6 542 Ningxia 2 138 Shandong 28 32 175 527 1255 Xinjiang 9 5 Henan 1 24 8 894 Central enterprises 487 1237 3 295 Hubei 6 754 2 183 Total 5154 8744 1964 2645 514 14711 Ditiao gang Source : SteelHome China in 216-217 totally eliminated 77.99 mln tons of ironmaking capacity, 137.58 mln tons of steelmaking capacity, and dismantled 166.75 mln tons.

Steel De-capacity Promotes All-around Upgrading in China Steel Industry China Steel Capacity Utilization Rate Has Increased in 216-217 12 1 tons Production Capacity Capacity utilization % 1 1 9 8 8 6 4 7 2 6 21 22 23 24 25 26 27 28 Capacity utilization rate in 216 was 77.1%, 5.6 percentage points higher than 215. In October 217, the rate was 85.2%, 8.1 percentage points higher than 216. 29 21 211 212 213 214 215 216 217 Source : SteelHome 5

Steel De-capacity Promotes All-around Upgrading in China Steel Industry Crude Steel Output Jan.-Oct. 217 China Crude Steel and Steel Products Output in Jan-Oct 217 Jan.-Oct. 216 Unit:1 tons Up/Down Up/Down,% 216 215 Up/Down Up/Down,% National 795 66846 414 6.1 8837 79879 959 1.2 CISA Members 55232 51112 412 8.1 63116 62647 469.7 Others 15718 15734-16 -.1 17722 17232 49 2.8 Steel Output Jan.-Oct. 217 Jan.-Oct. 216 Up/Down Up/Down,% 216 215 Up/Down Up/Down,% National 9273 89277 995 1.1 11381 111242 2559 2.3 CISA Members 5344 49331 3712 7.5 6768 6384 384.6 Others 37229 39946-2717 -6.8 5333 5859 2174 4.3 Output Jan.-Oct. 217 Jan.-Oct. 216 Up/Down Up/Down,% 216 215 Up/Down Up/Down,% Ditiaogang Steel (e) 123 552-429 -77.7 6748 83-1552 -18.7 China s crude steel increase in 217 was caused by CISA-member steelmakers output addition which offsets ditiaogang steel production (for ditiaogang steel, only steel production used to be recorded instead of crude steel). Then production of steel products will basically keep unchanged.

Steel De-capacity Promotes All-around Upgrading in China Steel Industry 2. China steel export dives sharply, and international steel production increases In the first ten months of 217, China s steel export was 64.49 mln tons, down 28.14 mln tons or down 3.4%; on year annualized export was 76 mln tons, falling 33.93 mln tons or down 31.6% on year. Longs, seeing the biggest decrement, registered 16.67 mln tons of exports in the ten months, down 24.23 mln tons (86.1% of total decrement), down 59.2% on year. In the first ten months of 217, world crude steel output (excluding China) was 71.3 mln tons, an increment of 34.2 mln tons or up 5.1% on year. During the given time, China s crude steel export decreased by 28.14 mln tons. The contribution rate of export reduction in China against global steel production was 82.7%. Chinese steel export price has increased. November export quotation of rebar and HRC is 54 dollars/t (FOB, China) and 56 dollars/t (FOB, China), up 16.7% and 15.5% compared to December 215.

Steel De-capacity Promotes All-around Upgrading in China Steel Industry China Steel Exports Dived Sharply 12 1 tons Net. 1 tons 12 1 Imports Exports Net.Exports 1 8 8 6 6 4 4 2 2-2 -4 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 1-1. 217e Source : China Customs, SteelHome In the first ten months of 217, China s steel export was 64.49 mln tons, falling 28.14 mln tons or down 3.4% on year; annualized export was 76 mln tons, a decrement of 32.93 mln tons, down 3.2%.

Steel De-capacity Promotes All-around Upgrading in China Steel Industry China Steel Export by Product in 215-217 12 1 1 tons Long Tubes Flat Others 8 6 4 2 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Export 1 tons Jan.-Oct. 217 Jan.-Oct. 216 Up/Down Up/Down,% 216 215 Up/Down Up/Down,% Steel 6449 9263-2814 -3.4 1893 11233-34 -3. Long 1667 49-2423 -59.2 4643 499-266 -5.4 Flat 376 3986-28 -7 4813 4846-34 -.7 Source : China Customs, SteelHome

Steel De-capacity Promotes All-around Upgrading in China Steel Industry Global (Excl. China) Crude Steel Production and Apparent Consumption in 26-217 11 1 mln tons Production A.S.C P.growth% A.growth% % 3 9 2 7 1 5 3-1 1-2 -1 26 27 28 29 21 211 212 213 214 215 216 1-1. -3 1 mln tons 1-1, 217 1-1, 216 Up/Down Up/Down,% 216 215 Up/Down Up/Down,% World (excl China) Output 71. 667. 34. 5.7 82.1 816.6 3.5.4 China Net Export of Crude Steel 64.5 92.6-28.1-3.4 11.59 15.72-4.14-3.9 World ASC (excl China) 765.5 759.6 5.9.8 921.69 922.32 -.64 -.1 Source : WSA, SteelHome

Steel De-capacity Promotes All-around Upgrading in China Steel Industry 65 6 55 5 45 4 35 3 25 2 215/1/9 Rebar 215-217 Rebar Imp/Exp Volume in China and Several Countries 215-217 HRC Imp/Exp Price in China and Several Countries $/t 215/3/9 215/5/9 215/7/9 Jun. 216 China Export USA Import Turkey Export C.I.S. Export E.U. Import 215/9/9 215/11/9 Jul. 216 216/1/9 216/3/9 Aug. 216 216/5/9 216/7/9 Sep. 216 216/9/9 216/11/9 Oct. 216 217/1/9 217/3/9 Nov. 216 217/5/9 217/7/9 Dec. 216 217/9/9 217/11/9 Jan. 217 E.U. Import 498 459 452 459 474 494 53 547 554 552 554 522 499 538 573 626 63 597 Source : SteelHome 8 7 6 5 4 3 2 215/1/9 Feb. 217 $/t 215/3/9 215/5/9 Mar. 217 215/7/9 215/9/9 Apr. 217 215/11/9 216/1/9 May 217 216/3/9 216/5/9 Jun. 217 216/7/9 216/9/9 Jul. 217 China Export C.I.S. Export 216/11/9 217/1/9 Aug. 217 217/3/9 217/5/9 Sep. 217 USA Import E.U. Import China Export 315 332 354 364 37 41 451 44 445 468 441 443 455 49 538 558 545 54 Turkey Export 445 389 376 368 378 42 436 437 45 438 419 439 435 519 543 585 588 579 C.I.S. Export 433 46 356 36 353 394 416 427 418 433 418 419 415 456 521 543 525 514 USA Import 458 417 48 41 393 433 469 468 472 51 51 55 529 451 51 546 525 51 E.U. Import 498 46 446 445 426 425 423 434 456 451 516 529 537 511 524 576 577 586 HRC Jun. 216 Jul. 216 Aug. 216 Sep. 216 Oct. 216 Nov. 216 Dec. 216 Jan. 217 China Export 365 366 393 45 43 443 523 51 517 513 448 43 448 53 558 593 575 565 C.I.S. Export 39 368 368 384 398 44 488 492 473 49 465 438 613 627 646 66 661 671 USA Import 66 592 563 547 511 514 62 66 636 654 65 642 438 47 527 58 555 536 Feb. 217 Mar. 217 Apr. 217 May 217 Jun. 217 Jul. 217 Aug. 217 Sep. 217 217/7/9 217/9/9 Oct. 217 Oct. 217 217/11/9 Nov. 217 Nov. 217

Steel De-capacity Promotes All-around Upgrading in China Steel Industry 3. De-capacity pushes forward all-around rally in China steel industry: price spike in steel and raw materials during 216-217; huge increase in steelmakers profit; falling debt ratio in steel enterprises In Nov 217, SteelHome (China) Rebar Price Index, HRC Price Index, Iron Ore Index, Coke Index and Coking Coal Index increased 121.%, 12.%, 54.7%, 146.3% and 155.5% compared to December 215. In 215, CISA-member steelmakers reported a loss of 64.534 billion RMB. In the first ten months of 217, these companies registered 137.787 billion yuan of profit, soaring by 436.51 percent on year; and debt ratio fell to 68.5 percent, compared to 7.1 percent at the end of 215.

Steel De-capacity Promotes All-around Upgrading in China Steel Industry China Steel and Raw Materials Market Prices Rallied up Sharply price in RMB/t Nov. 217 Dec. 215 Up/dow n Up/down % Rebar 2mmHRB4 427 194 233 121. HR 5.75mmQ235 428 1913 2295 12. Iron ore Qingdao 62% 478 39 169 54.7 Iron ore Tangshan 66% 669 418 251 6 Grade I Coke Hebei 1618 657 961 146.3 Coking coal Shanxi 145 55 855 155.5

Steel De-capacity Promotes All-around Upgrading in China Steel Industry China Major Steel Enterprises Economic Benefits Have Obviously Improved 2 1 mln Rmb Profit margin % 1. 15 8. 1 6. 4. 5 2. 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 1-1.. -5-2. -1 Profit Profit Margin -4. Source : CISA, SteelHome In the first ten months of 217, CISA members reported 137.787 billion yuan of profit, an explosion of 436.51% on year; profit margin was 4.45%, up 3.37 percentage points than 216.

Steel De-capacity Promotes All-around Upgrading in China Steel Industry Debt Ratio in CISA-member Steelmakers Declines 6 1 mln Yuan Debt Assets Debt Ratio % 75 5 7 4 65 3 6 2 1 55 26 27 28 29 21 211 212 213 214 215 216 1-1. Source : CISA, SteelHome 5 In the first ten months of 217, debt ratio of CISA members was 68.5 percent, down 1.1 percentage point from end of 216, or down 1.6 percentage point from end of 215.

Steel De-capacity Promotes All-around Upgrading in China Steel Industry 4. In coming ten years, China steel consumption will remain high. Manufacturing industry will be new rising driver for China s steel demand, and steel consumption from property will step down. China crude steel cumulative consumption per capita in 216 was 7.59 tons, may by 235 reach the level in developed countries when they realized industrialization and urbanization. Forecast for 22: crude steel consumption 78 mln tons; construction steel consumption 4 mln tons, accounting for 51.3% (-2 percentage points from 216); Forecast for 225: crude steel consumption 75 mln tons; construction steel consumption 37 mln tons, accounting for 49.2% (-4 percentage points from 216).

Development Trend of China Steel Industry Per Capita Crude Steel Cumulative Consumption in China VS Developed Countries 5 45 tons World U.S.A U.K. Germany Unit: ton 1973 1981 1991 21 211 216 4 35 France Japan Developed country(5) C.I.S. China U.K. 17.4 2.1 22.55 24.71 25.3 24.92 U.S.A 21.19 23.61 24.63 25.15 25.86 26.25 3 25 Germany 17.4 21.96 26.36 3.71 37.2 38.53 France 12.2 14.88 17.3 19.59 21.17 21.83 Japan 9.72 16.2 23.76 3.98 39.45 43.95 2 15 Developed Country(5) 16.78 2.48 23.72 26.5 29.37 3.58 1 C.I.S. 9.86 14.23 19.36 23.1 27.63 27.76 5 1973 1981 1991 21 211 216 China.27.47.87 1.64 4.78 7.59 World 3.52 4.29 4.96 5.55 6.65 7.54 Source:SteelHome China crude steel intensity per capita in 216 was 7.59 tons, around 9 tons lower than 16.78 tons in developed countries (UK, France, USA, Germany, Japan) when they realized industrialization and urbanization. China may reach the level by 235 based on current consumption volume.

Development Trend of China Steel Industry Prediction on China Steel Consumption in 22 & 225 216 Container, 3, % 22e Container, 4, 1% 225e Container, 5, 1% Household Electrical Appliances, 12, 2% Ship building, 16.7, 2% Hardware, 18, 2% Energy, 29.7, 4% Others, 68, 9% Real estate, 25, 32% Hardware, 18, 2% Household Electrical Appliances, 12, 2% Energy, 33, 4% Ship building, 18, 2% Others, 69, 9% Real estate, 22, 28% Hardware, 18, Household 2% Electrical Appliances, 12, 2% Energy, 3, 4% Ship building, 18, 2% Others, 65, 9% Real estate, 2, 26% Machinery Industry, 153, 2% Automobile, 63, 8% Infrastructure Construction, 13, 17% Other Buildings, 33, 4% Machinery Industry, 16, 21% Automobile, 66, 8% Infrastructure Construction, 145, 19% Other Buildings, 35, 4% Machinery Industry, 165, 22% Automobile, 7, 9% Infrastructure Construction, 135, 18% Other Buildings, 35, 5% 1 mln tons Real Estate Infrastructure Construction Other Buildings Machinery Industry Auto Ship building Container Household Electrical Appliances Hardware Energy Others Total 216 25 13 33 153 63 16 3 12 18 3 68 776 22e 22 145 35 16 66 18 4 12 18 33 69 78 225e 2 135 35 165 7 18 4 12 18 3 65 752 Source : SteelHome

Steel De-capacity Promotes All-around Upgrading in China Steel Industry 5. Steel de-capacity promotes all-around structural upgrading in China steel industry. China EAF steel in total steel output will considerably go up as scrap reservoir increases. Then China s demand for iron ore will weaken. China scrap reservoir was 118 mln tons in 216, will reach 182 mln tons in 22 and 29 mln tons in 225. China EAF steel output was 42.4 mln tons in 216, is expected to be 75 mln tons and 1 mln tons by 22 and 225 respectively (8.8% and 12% of total crude steel output). China pig iron output was 7 mln tons in 216, will be 7 mln tons and 67 mln tons by 22 and 225 (72 mln tons in 217); iron-to-steel ratio was 86.7% in 216, is forecasted to be 82% and 8% in 22 and 225 (down 4.7 percentage points and 6.7 percentage points compared to 216). China iron ore consumption (Fe62%) was 1.16 billion tons in 216, will be 1.16 billion tons in 22 and 1.11 billion tons in 225 (flat and down 5 mln tons from 216). 6. In the future, China steel industry will mainly focus on meeting domestic demand. China, to benefit from One Belt One Road Initiative, will develop capacity cooperation with seaborne partners with advantages in equipment, technology and management.

Development Trend of China Steel Industry Prediction on China Scrap Reservoir in 22 & 225 35 3 1 tons 29139 25 2 18247 15 11828 1 5 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 Source SteelHome China s scrap reservoir was 118 mln tons in 216; expected to 182 mln tons in 22 and 29 mln tons in 225.

Development Trend of China Steel Industry Prediction on China EAF Steel Output in 22 & 225 9 1 tons Crude Steel Electric Furnaces Rate,% % 2 8 18 7 6 5 4 3 2 16 14 12 1 8 6 4 1 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 22e 225e China s EAF steel output is expected to 75 mln tons in 22 (8.8% of total) and 1 mln tons in 225 (12% of total). Source : SteelHome

Development Trend of China Steel Industry Prediction on China Pig Iron and Crude Steel Output in 22 & 225 9 1 tons Pig iron Crude steel Iron / Crude % 15 8 1 7 95 6 9 5 85 4 8 3 75 2 7 1 65 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 22e 225e 6 Source SteelHome China s pig iron output is expected to 7 mln tons in 22 (iron-to-steel ratio 82.4%, down 4.7 percentage points from 216) and 67 mln tons in 225 (iron-to-steel ratio 8%, down 6.7 percentage points ).

Supply/Demand Structure Scenario of China Steel Industry Prediction on China Iron Ore Demand in 22 & 225 14 1 tons Pig iron Iron ore 62% 12 1 8 6 4 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 22e 225e Source SteelHome China s 62% iron ore demand is expected to 1.7 bln tons in 22 (down 9 mln tons from 216) and 1. bln tons in 225 (down 16 mln tons from 216).

Supply/Demand Structure Scenario of China Steel Industry China Steel Industry Will Mainly Focus on Meeting Domestic Demand 9 1 mln tons Production Exports Ra te,% % 16 8 14 7 6 5 4 3 2 12 1 8 6 4 1 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 217e 22e 225e Source SteelHome In 22 and 225, China crude steel consumption is expected to 78 mln tons and 75 mln tons; output to 85 mln tons and 83 mln tons; export on crude steel basis to be 85 mln tons and 93.1 mln tons repesctively.

Outlook for 218-22 China Steel Market II Outlook for 218-22 China Steel Market 1. China GDP rose by 6.9% in Q1-Q3 217; is expected to rise by 6.9% in 217, by 7% in 218 and 6.5-7% in 219-22. 217e 218e 219e 22e F.A.I 7.3% 8% 7-8% 7-8% Investment in infrastructure construction 19% 19% 18-19% 18-19% Investment in real estate development 7.5% 7.5% 6-7% 6-7% Manufacturing industry F.A.I 4.1% 4.5% 4.5% 4.5% Foreign exports 7% 5% 5% 5% Social consuming goods retails: 1.3% 1.3-1.5% 1.3-1.5% 1.3-1.5% CPI 1.6% 1.8% 2% 2% PPI 6.5% 3-4% 3% 3%

Outlook for 218-22 China Steel Market China GDP Forecast in 218-22 China F.A.I Forecast in 218-22 12 1 mln GDP growth% % 16 9 1 mln F.A.I growth% % 35 1 8 6 4 2 14 12 1 8 6 4 2 8 7 6 5 4 3 2 1 3 25 2 15 1 5 26 27 28 29 21 211 212 213 214 215 216 17Q3 217e 218e 219e 22e 26 27 28 29 21 211 212 213 214 215 216 1-1. 217e 218e 219e China Foreign Export Forecast in 218-22 China Retail Sales Forecast in 218-22 22e 3 1 mln $ Exports growth% % 4 6 1 mln Retail Sales growth% % 25 25 3 5 2 2 2 4 15 15 1 3 1 2 1 5-1 1 5-2 26 27 28 29 21 211 212 213 214 215 216 1-1. 217e 218e 219e 22e 26 27 28 29 21 211 212 213 214 215 216 1-1. 217e 218e 219e 22e Source : NBSC, China Customs,SteelHome

Outlook for 218-22 China Steel Market China Investment in Real Estate Development Forecast in 218-22 China Manufacturing Industry F.A.I Forecast in 218-22 16 14 12 1 8 6 4 2 1 mln Investment in real estate development grow th% % 35 3 25 2 15 1 5 25 2 15 1 5 1 mln Manufacturing Industry F.A.I grow th% % 35 3 25 2 15 1 5 26 27 28 29 21 211 212 213 214 215 216 1-1. 217e 218e 219e 22e 26 27 28 29 21 211 212 213 214 215 216 1-1. 217e 218e 219e China Infrastructure Investment Forecast in 218-22 China CPI & PPI Forecast in 218-22 22e 25 2 15 1 5 1 mln Infrastructure Investment grow th% % 5 45 4 35 3 25 2 15 1 5 8 6 4 2-2 -4-6 PPI,% PPI CPI,% CPI 7 6 5 4 3 2 1-1 -2 26 27 28 29 21 211 212 213 214 215 216 1-1. 217e 218e 219e 22e 26 27 28 29 21 211 212 213 214 215 216 1-1. 217e 218e 219e 22e Source : NBSC, SteelHome

Outlook for 218-22 China Steel Market II Outlook for 218-22 China Steel Market 2. Some cities in North China are limiting production, which will cause a reduction of 25 mln tons of iron and steel production (.2 mln tons a day). 3. Outlook for 217: crude steel output 85 mln tons (+5.1% on year); steel output 1.8 billion tons (-5.1%); steel import 13 mln tons (flat); steel export 75 mln tons (-31.1%); apparent consumption of crude steel 785 mln tons (+11%). Outlook for 218: crude steel output 855 mln tons (+.6% on year); steel export 75 mln tons; apparent consumption of crude steel 79 mln tons (+.6%). Outlook for 219-22: crude steel output 85 mln tons; steel export 7-9 mln tons; apparent consumption of crude steel 76-78 mln tons.

Outlook for 218-22 China Steel Market Production Limitation During Winter Heating Season province Cities Cutback rate Pig iron Crude steel Steel province Cities Cutback rate Pig iron Crude steel Steel Beijing unsettled 163 Jinan unsettled 822 86 826 Tianjin 5% 1661 1799 8667 Zibo 5% 271 389 383 Shijiazhuang 5% 1516 1498 1454 Jining unsettled 44 Tangshan 5% 8895 8831 11837 Dezhou 5% 519 Langfang unsettled 2766 Shandong Liaochen g unsettled 124 Baoding unsettled 22 Binzhou unsettled 656 752 751 Hebei Cangzhou unsettled Heze unsettled Hengshui unsettled 261 Linyi 5% 265 224 913 Xingtai 5% 522 5 671 Weifang 5% 639 696 Handan 5% 3878 4188 5532 Zhengzh ou 5% 536 Zhangjiakou unsettled 694 672 597 Kaifeng unsettled Taiyuan unsettled 777 179 119 Anyang 5% 1889 1847 1921 Yangquan unsettled Henan Hebi unsettled Shanxi Changzhi 5% 339 523 495 Xinxiang unsettled 36 Jincheng 5% 417 354 Jiaozuo unsettled 28 Linfen 5% 947 932 12 Puyang unsettled 24 Jiangsu Xuzhou 3% 67 572 613 Anhui Anhui 3% 2243 2731 3226 Shaanxi Shaanxi 5% 856 925 1234 Steelmakers in the north has been cutting production during 15 Nov 17-15 Mar 18, which will cause the 25-3 mln tons of steel production decrement (.2-.25 mln tons per day). (Note: white forms above are 2+26 cities initiated in the policy, and grey ones are added thereafter.)

Outlook for 218-22 China Steel Market Forecast on 217-218 China Crude Steel Output Forecast on 217-218 China Steel Import and Export 14 12 1 tons Crude Steel Crude Steel gowth% Steel Steel growth% % 3 25 14 12 1 tons Imports Exports Net.Exports Net. Exports 14 12 1 8 6 4 2 15 1 5 1 8 6 4 1 8 6 4 2-5 2 2-1 26 27 28 29 21 211 212 213 214 215 216 1-1. 217e 218e 219e 22e 26 27 28 29 21 211 212 213 214 215 216 1-1. 217e 218e 219e 22e Forecast on 217-218 China Apparent Consumption of Crude Steel 12 1 tons Crude Steel Steel % 3 Crude Steel gowth% Steel growth% 1 25 2 8 15 6 1 4 5 2-5 -1 26 27 28 29 21 211 212 213 214 215 216 1-1. 217e 218e 219e 22e Source : NBSC,China Customs, SteelHome 1 mln tons 216 217e 218e 219e 22e Crude Steel Production Steel Production 88.37 85 855 85 85 1138 18 185 18 18 Steel Imports 13.21 13 13 13 13 Steel Exports 18.93 76 75 7-9 Crude Steel Consumption Steel Consumption 76.78 785 79 76-79 142.29 118 123 12-223

Outlook for 218-22 China Steel Market II Outlook on 218-22 China Steel Market 4.Global iron ore market: oversupplied China iron ore output in Jan-Oct 217 totaled 1,81.68 mln tons, up 6%; imports 896.23 mln tons, up 6.3%. It is predicted that China s iron ore output in 217 will be 1.3 billion tons, up 1.5%; imports 1.8 billion tons, up 5.5%. Expansion in top four mines slows down. Iron ore output of four biggest mines in Q1-Q3 217 added 19.62 mln tons, up 2.4%. Iron ore addition in the world will be around 8 mln tons in 217 and 35 mln tons in 218. Annual China s iron ore output will be 1.3 billion tons in 218 and 1.2-1.25 billion tons in 219-22; annual iron ore imports in the country will be 1.1 billion tons in 218, 1.8 billion tons in 219-22. 5. Price forecast for 218: China s common HR steel products will be running in the range of 35-45 RMB/t; iron ore import price delivered to China will be 6-9 dollars/t (avg. 7 dollars/t), CIF.

Outlook for 218-22 China Steel Market Forecast on China Pig Iron Production in 218-22 Forecast on China Crude Iron Ore Output in 218-22 8 1 tons Production Growth,% growth % 25 16 1 tons Output Growth,% growth % 5 7 6 5 2 15 14 12 1 4 3 4 1 8 2 3 2 1 5 6 4 2 1-5 -1 26 27 28 29 21 211 212 213 214 215 216 1-1. 217e 218e 219e 22e 26 27 28 29 21 211 212 213 214 215 216 1-1. 217e 218e 219e 22e Forecast on China Iron Ore Import in 218-22 12 1 8 6 1 tons Import Growth,% growth % 45 4 35 3 25 2 1 mln tons 216 217e 218e 219e 22e Pig iron Production Domestic iron ore Output 7.74 72 725 715 7 128.89 13 13 12-125 4 2 15 1 5 Iron ore Imports 124.12 18 11 18 18 26 27 28 29 21 211 212 213 214 215 216 1-1. 217e 218e 219e 22e -5 Source : NBSC, China Customs, SteelHome

Outlook for 218-22 China Steel Market Top Four Mines Production Expansion Slows down 1, tons Jan-Sep 217 Up/Down Up/Down % 216 16-15 Up/Down % 215 15-14 Up/Down % VALE 27316 1669 6.5 34885 549 1.6 34336 2415 7.6 Rio Tinto 2415 29.1 32946 1958 6.3 3988 2929 1.4 BHP 19618 354 1.8 26597 491 1.9 2616 27 8.3 FMG 1283-9 -.7 1714 46 2.8 1668 14 9.2 Top 4 83779 1962 2.4 111568 3458 3.2 1811 875 8.8 Anglo American 4618 534 13.3 5276-129 -2.4 545 515 1.5 Total 88379 2496 2.9 116844 3329 2.9 113515 976 8.7 Source : SteelHome It is forecast that in 218, Vale will at most add 15 mln tons of iron ore output; Rio Tinto will add 5 mln tons-6 mln tons of iron ore; BHP Billiton will add 6 mln tons-8 mln tons; FMG has no plan; Anglo American will add 1 mln tons; Atlas and Roy Hill will not have huge expansion. Then global iron ore increment in 218 will be 35 mln tons.

Outlook for 218-22 China Steel Market index price (RMB/t) Rebar HRC 212 213 214 215 216 217 218e 449 ( 643 USD) 447 (647 USD) 3642 (587 USD) 3758 (66 USD) 3169 (519 USD) 334 (547 USD) 2285 (368 USD) 233 (376 USD) 2557 (388 USD) 2818 (427 USD) 3866 (585 USD) 3829 (58 USD) 35-45 (532-684) USD

Outlook for 218-22 China Steel Market Avg price Unit 212 213 214 215 216 217 218e Iron Ore Import Price (USD/t) USD/t 127.99 133.85 96.2 56.18 58 71.1 6-9 Domestic Iron Ore Price (RMB/t) RMB/t 141 127 852 562 532 671 6-8

Conclusions De-capacity of China steel industry has already worked: recovering in industry, enhanced concentration and improved profit. Manufacturing industry and infrastructure construction will be new rising drivers for China s steel demand. China s steel demand from property will trend down, and that from manufacturing industry will be steadily rising in the future. China steel industry will upgrade in the future. China s EAF steel output will increase greatly. Development of the industry will focus on meeting domestic demand. Forecast for steel: crude steel output to be 855 mln tons (218), 85 mln tons (219) and 85 mln tons (22); steel export to 75 mln tons (218-22); apparent consumption of crude steel to 79 mln tons (218), 785 mln tons (219) and 785 mln tons (22). Common HR steel products price in 218 will be 35-45 RMB/t (53-68 US dollars/t). Forecast for iron ore: China s crude iron ore output to be 1.3 billion tons (218), 1.25 billion tons (219) and 1.25 billion tons (22); imports to 1.11 billion tons (218), 1.9 billion tons (219) and 1.7 billion tons (22). China s iron ore import price to run in the range of 6-9 dollars/t in 218, and average price at 7 dollars/t (CIF).

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