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Outline
Slide 1
Who We Are
CBI China is the largest Chinese commodity research and consulting firm. We specialize in the industry chains of: petrochemical, steel, oil & gas, non-ferrous metal, pulp & paper; providing our clients with real-time market intelligence and in-depth industry value-chain analysis. We aim to offer value driven consulting services and support our clients in making strategic decisions on market entry, seeking business development opportunities and market penetration here in China. Bringing together over 350 local professionals, we have served over 73,000 multi-national and local clients with customized consulting and proven solutions since 1999.
Information Services
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What We Do
Maintain a database containing 100,000+ companies, which is continually being updated. Call directly to industry players to collect first-hand information and monitor major industries throughout China. Deliver more than 8,000 phone calls, 30,000 emails and 50,000 short messages everyday to serve our 11,000 customers all over the world. More than 350 full-time professionals are working in CBI, 20% with Masters degrees and the rest with a minimum Bachelor degree. More than 100 employees are bilingual.
We completed more than 100 projects and assignments for MNCs last year.
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Periodical Reports
Industrial Researches
China Steel Capacity Forecast 2007-2010 China Steel Demand Outlook 2007-2010
Customized Reports and Consulting Services Conference Call and Customized China Tour
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Outline
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5. Export Evolution
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1,400 1,200 1,000 800 600 400 200 0 2000 2001 China 2002 ROW 2003 2004 2005 15.0% 20.2% 17.7% 22.9%
40% 35% 33.8% 30% 31.0% 25% 26.2% 20% 15% 10% 5% 0% 2006
Slide 7
Central Government
Local Government
Steel Mills
Traders
End Users
CISA
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Goal: Smooth Growth with strategic long term planning Lack of experience for the transition from Planning Economy to Market Economy
Steep or flat learning curve? Protect the interest of bigger Stated Owned Enterprises
Industry consolidation
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Social stability GDP growth Tax revenue Employment Other related industries Different interest from central government
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State owned enterprises: The bigger, the better Economy of scale More clout to raw material suppliers, government, and competitors Ownership Top leaders are nominated by the government Whom they are responsible to? Government, shareholders, employees, or clients? Agency problem Mentality of leaders: Top line vs Bottom line, Market Share vs Profit margin Whats their top priorities within their tenure? Capacity, production, profit, or market share? Game theory What if I cut the capacity and production? Sales & marketing strategies and channel management need to improve Private mills: Low-value added product Hit and run, small in scale Not responsible to the government, CISA, National Bureau of Statistics, and public shareholder Strive to survive, maximize the profit More self-disciplined in terms of capacity and production
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Traders behavior adds more short term volatility to spot market price
Most small-medium size and private Low entry barrier for speculative traders: financing, relationship with steel mills, few industry knowledge, and guts
Little bargaining power to steel mills due to fragmentation Provide financing and distribution services to steel mills and end users Highly leverage on bank loan First tier traders are highly speculative with small percentage of direct sales
Future trend
Economy of scale with consolidation Distributors rather than speculators: service center Compete on sound financing, distribution network, and JIT services
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Direct orders from steel mills JIT inventory control Long-term contract with price lock-up
Order from traders Keep certain level of inventory Purchase at spot market price Get financing from traders with credit ranging from 15 to 30 days
Orders from traders Few inventory Purchase at spot market price Get financing from traders with credit ranging from 15 to 30 days
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3. Product Mix
Flat Production Is Catching Up Quickly
2001 Finished Steel Production Total= 160.7 Million tonnes
Others 13%
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Steel Mills
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450 400 350 300 250 200 150 100 50 0 2000 2001 2002 Demand 2003 2004 2005 2006 Production Production GR Demand GR
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45% 40%
45% 40%
35.1% 30.5%
35% 30% 25% 20% 19.3% 15% 11.7% 10% 5% 0% 2001 10.8% 9.6% 20.4% 21.0% 23.9%
26.5%
2002
2003 Production
2004 Demand
2005
2006
2002
2003 Production
2004 Demand
2005
2006
Slide 17
JILIN XINJIANG GANSU INNER MONGOLIA LIAONING BEIJING HEBEI SHANXI SHANDONG
QINGHAI
NINGXIA
TIBET South-West 18 14 32
SHAANXI HENAN JIANGSU ANHUI SHANGHAI SICHUAN HEBEI ZHEJIANG JIANGXI GUIZHOU HUNAN FUJIAN YUNNAN
GUANGDONG HAINAN
Data Source: CBI Research & Consulting.
TA IW AN
GUANGXI
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5. Export Evolution
China Exports & Imports by Destinations
China's Finished Steel Exports by Destinations, 2004 - 2006
14.2
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2004 2005 2006
24% 26.9% 21.6% 13.7% 11.6% 12.3% 9.1% 6.6% 17.4% 19.3% 20.4% 15.1% 33.9% 34.5% 33.6%
20.5
43
25.8
Others
80%
EU ASEAN USA
70%
8.0% 9.9%
22.2%
Korea Japan
Korea
16.8%
17.2%
37.9% 24.2%
2005
2006
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5. Export Evolution
Changes in Net Exports
20 15 10 5
0.5 0.3 0.0 -0.2 0.2 -2.9 -8.8 -6.8 -1.2 -0.7 -1.9 -9.5 -6.2 -1.6 -2.1 0.4 0.5 0.4 2.5 1.6 -1.9 -6.8 -1.7
Unit:Million tonnes
0.9 3.3 5.1
-1.9 -5.2
-2.7 -3.0
2001
2002
2003
2004
2005
2006
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Outline
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Hot Topics
1. When will the current oversupply end? 2. How strong will demand be in the future? 3. Will Chinese net exports continue to soar? 4. Potential impact of anti-dumping 5. Consolidation is on the way!
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601
642
667
672
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Flat Products
221.6
230.9
Plate
CR
15.7%
3.5%
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520.6
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Railway 1.0%
Railway 1.3%
Others 21%
Others 18.5%
Shipbuilding 2.5%
Automobile 6.2%
Machinery 15.8%
Construction 50.3%
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33.5 43 52.5 59.9 2006 2007E 2008E 2009E Finished Import 2010E Finished Export 52.4
10 0
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Flat Products
Wire Rod
25 17.6% 209.7 228 20% 226 180.2 15 10% 8.5% 206.6 0% -10% 10 -15.1% -20% Y-o-Y Growth Rate HR CR Plate GI
DeBar
20
15
-40%
Slide 28
4. Anti-dumping
China Doubled Its Share in Global Steel Trade in 2006
China Doubled Its Share in Global Steel Trade
2005
China 8%
2006
China 15%
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4. Anti-dumping
What Impacts Will Anti-dumping Activities Have on Chinas Steel Export
China Steel Export Quantities Under Anti-dumping Investigations, Jan 2006 - Jan 2007
CR 0.1 3.1
Million tonnes
Countries Raised Anti-dumping Investigations on Chinas Steel Export, Jan 2006 - Feb 2007 Mexico CR Indonesia HR & 14.8 M-H Plate Mexico USA USA USA Canada
0.3
GI
0.8
4.0
Debar
1.4
4.3
Wire Rod
0.1 0.1
5.8
India
Australia Mexico
Pipe
0.7
6.4
2006
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4. Anti-dumping
What Impacts Will Anti-dumping Activities Have on Chinas Steel Export
1. Chinese government have minimized Export VAT Refund and imposed
export taxes for semis 2. Flat product export will bear the brunt because of a larger share under investigation. 3. Export to SE Asia could stop increasing due to more anti-dumping investigations. E.U. and the Middle East are still promising for Chinas future steel export.
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2005
2006
2007E
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DeBar 12%
Section 6%
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2005
2006
2007E
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DeBar 12%
Section 6%
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4. Anti-dumping
VAT Refund Adjustment Chart Update
Export VAT Refund and Export Tax Rate Evolutions, 2000- Apr 2007
Export VAT Refund and Export Tax Rate
Pipes
Finished Steel Most of Flat Products Part of Long Products Most of Long Products Part of Flat Products Mostly CR & GI
Slab & Billet -10% 2000 Jan, 2004 Apr, 2005 Sep, 2006 Nov, 2006 Apr, 2007 Slab & Billet
Slide 38
5. Consolidation
Decreasing Concentration Ratio in the Past 6 Years
A Deterioration in Chinas Top 10 Concentration Ratio, 2001-2006
Unit:Million tonnes 500 450 400 350 300 250 200 150 100 50 0 2001 2002 2003 2004 2005 2006 25% 30% 35% 40% 45% 50%
Will capacity elimination really happen in China? How much capacity will be eliminated? Where will M & As go ?
Slide 39
5. Consolidation
Will Capacity Elimination Really Happen in China?
Policies :
Pollution Control
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5. Consolidation
How Much Capacity Will Be Eliminated by 2010?
NDRC s Target: 100 million tons of iron-making and 55 million tons of steel-making capacity are requested to be eliminated by 2010, the 11th Five-year Plan
Conclusion:
Small but solid progress has been seen in key areas since end 2006.
Further strengthening measures are needed to approach the target.
Slide 41
5. Consolidation
Where Will M & As Go ?
Intra-Province SOE with SOE SOE with Private Private with Private Overseas Mills Involved
Notes: 1. * refers to successful ones 2. Cases in red are self-initiated 3. SOE for state owned enterprises
Tanggang Group* Magang with Hefei* Tonghua I/S with Jilin Jianlong* Hangzhou I/S with Ningbo Jianlong* Shagang with Huaigang* Tangshan Guofeng with Yinfeng&Qunli*
Conclusions: 1. More successful intra-province cases than cross-province ones 2. Private mills are taking more active roles in M&As 3. More waiting time for overseas acquirers 4. Catalysts: Market forces rather than government force
Slide 42
Thank You!
Colin Liang E-mail: Tel: Mobile: colinliang@cbichina.com +86-21-5155-0040 +86-13818344493