Million Link China Investment Ltd China steel and

Million Link (China) Investment Ltd. China steel and it’s raw materials, today and beyond Lecturer: Hill Summer Managing director http: /www. millionlink. com hillsummer@millionlink. com

01 Price surges from Feb, 2016 until today

01 Graphite electrode monster

02 Demand increment is still positive

02 Supply side reform is the key Buzzwords: supply side reform deproductivity environmental protection solid scrap Intermedia furnace mini furnace environmental taxation winter season production limit natural resources tax Watercooling steel reform Above all, deproductivity is leading target, others are only tools.

03 IF furnace Massive movement is to cut off steel production made with intermedia frequency furnace. 30 th June, 2017 was the latest date to cut all it’s productivity to Zero. The productivity was about 120 MMT, actual production was 60 -80 MMT 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. In fact, from as early as Dec, 1999, it was listed in cut off list issued National Economic and 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 Consequence: Productitivy of IF had been replaced by EF step by step.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 price dropped to … at…, as low as RMB/MT , then rebounced to…. Graphite electrode used by EF flied.

04 Mini blast furnace Exit of mini BF was done according to “ 2017 deproductivity of steel” issued by National Committee of Economic and Trade” In 1999, 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 400 M 3 BF for steel or pig iron production, RF less than 30 MT. In fact, Hebei provincial government defines mini BF 450 M 3 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.

05 Solid waste 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.

06 Winter season production quota First time, at 2017 -2018 winter season 1 st Sept 2017 -29 th March, 2018, especially 10 th Nov, 2017 -29 th 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.

04 Manganese mining Under pressure of environmental protection policy, manganese ore mining reduced a lot. Year Mn ore import Simn output Y 2015 15, 760 KMT 7, 116 KMT Y 2016 17, 050 KMT 7, 313 KMT Y 2017 21, 260 KMT 7, 820 KMT 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, 000 MT at 2016 and 3, 2 MMT at 2017 respectively. Y 2018 H 1, mn ore import 12, 290 MT. Does it mean that at Y 2018 H 1, mn ore output may reduce 3. 5 MMT ?

07 Billet EBITDA of billet in Tangshan area at 15 th Aug, 2018, raised to RMB 1124/mt while ex plant RMB 4090, as high as 27. 5% , keeps at high level of RMB 500/mt minimum at last 2 years.

06 China steel showcase under deproductivity

07 Non equalizing of deproductivity Iron ore output declined Mn ore output declined Coal output declined Coking coal output declined Met coke output declined Fesimn output declined Fe. Si output increased Fe. Cr 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.

07 Premium and discount of iron ores 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.

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

06 On the name of environment protection 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.

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

02 Watercooling vs. standard Q 235 >>> HRB 400

06 How GB/T 1499. 2 -2018 affects Si. Mn and Nitrogen V New standard of rebar GB/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.

06 Vanadium price already responsed, then Si. Mn? 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?

07 Metallurgical coke shortage Ratio of pig iron production and metallurgical coke 2015 69141/44778. 2=1. 5441 2016 70227/44911. 5=1. 5640 2017 71006. 5/43142=1. 6459 2018 H 1 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 2018 H 2. And more, coking coal import has been reduced significantly at 2018 H 1. 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)

07 Coal shortage Assuming coal consumption per GDP does not change too much in short period of time, we predict huge shortage of coal supply at H 2 2018 and beyond.

07 Will pig iron import reverse? Sponge iron Billet Iron briquette Iron ingot Scrap Silicon manganese Ferro chrome Ferro manganese

07 Stainless steel Deproductivity has not affected SS and it’s raw materials ferrochrome output. On contrary, output increased firmly. Y 2018 H 1 SS/FECR： 1226. 71/4. 303=285. 0825 Y 2017 SS/FECR： 2361. 945/7. 590=311. 1917 Y 2016 SS/FECR ： 2469. 51/7. 015=352. 0328 SS/Fecr ratia described why ferro chrome price is so weak at H 1 2018.

07 Nickel/Manganese metal RKEF is main furnace to produce ferro nickel pig iron. Fe. Ni production has not been affected too much. Eelectrolytic manganese output at H 1 2018 712, 400 mt, down 2. 30% Yo. Y. Tianyuan Manganese owns EM productivity 800, 000 mt, 50% of China productivity. Recovery of production is the key to EM supply.

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

Thanking you hillsummer@millionlink. com