china iron ore monthly monitor-2013-01

China Iron Ore

Monthly Monitor January

Steelease Information & Technology Co.,Ltd.

February 5, 2013

Copyright © STEELEASE All rights reserved. Contents of this report are strictly confidential and must not be disclosed without written permission of the publisher. Reproduction of this study by photocopying, electronic or other means without prior permission of the publisher is illegal. All information contained in this study has been obtained in good faith from market sources and has been prepared with great care to eliminate any errors. Where data has been unavailable, Steelease has used its best estimates. The authors accept no liability or responsibility whatso-ever for any commercial decisions based on this study.

Contents

Contact : Hotline: +86-21-5155-0306 Email: [email protected] Web: http://en.smm.cn

Summary 1

Hot Topic 2

Iron Ore Supply and Demand 3

Price 5

Price Forecast 6

Imported Ores 8

Iron Ore Operating Rate 9

Iron Ore Production Cost 11

Inventories 12

Import Analysis 13

Port Inventory 14

Shipments 14

Steel Mills 15

Expansion 17

Industry movements 17

Appendix 1 18

Appendix 2 19

Appendix 4 21

Appendix 3 20

China Iron Ore Monthly Monitor

February 5, 2013

mailto:[email protected]

● The Steelease Mines Price Index averaged 136.81 in January, up 11.40 or 9.09% from December. Domestic concentrate prices held firm in January after retreating from a surge in early January. Rising prices on imported ore, growing expectations of pro-growth policy changes, and tight iron ore supplies heading into Chinese New Year, all contributed to supporting domestic concentrate prices last month. Steelease anticipates that prices may continue to rise after the holiday.

● Imported ore prices staged big swings in January, with prices rising from USD 144.5/

mt in late December to early January’s USD 159.25/mt before slipping to USD 144.5/mt. Prices finally ended the month at USD 151/mt. Steelease believes im-ported ore prices will rise further after the Chinese New Year holiday for the follow-ing reasons.

● The average operating rate at domestic independent mines in Steelease sample

was 54.5% in January, flat at December’s level, but down 4.88 percentage points from a year earlier. Operating rates at mines in Hebei, Liaoning, and Inner Mongo-lia edged down in January influenced by cold weather and the upcoming Chinese New Year holiday. However, the rate at large mines in Shandong rose as much as 4.5 percentage points from the previous month.

● Concentrate prices (Fe 66%, wet basis, excluding tax) in Qian’an, Hebei, averaged

RMB 906/mt, yielding RMB 285/mt in profits for local mine operators in January , up RMB 89/mt MoM, but down RMB 5/mt YoY.

Toxic smog that enveloped Beijing, Shanghai, and other major cities over several weeks prompted the Chinese leadership to take stronger measures to drive structure adjust-ments in key industries to promote energy efficiency and a substantive reduction in emissions. Steelease believes it likely that China will see another round of energy effi-ciency and emission reduction initiatives implemented this year, potentially eclipsing those of 2010. However, it will not expected to noticeably impact domestic ore prices.

Implementation of Energy Conservation and Emission Reduction Rules after Holiday Not Ex-

pected to Noticeably Impact Ore Prices

Highlights

Summary

Iron Ore Spot Market Prices13-1-31 12-12-31 Change (RMB/mt) Change (%)

66% Fe Concentrates Dry Basis in Qian'an, Hebei (Ex-works Price,Including Tax) 1145 1090 55 5.05%

66% Fe Concentrates Wet Basis in Beipiao, Liaoning (Ex-works Price, Excluding Tax) 785 705 80 11.35%

Ex-works Prices for Linyi Concentrates in Shandong (containing 65% Fe content, wet basis, excluding tax) 880 840 40 4.76%

66% Fe Concentrates Wet Basis in Baotou, Inner Mongolia (Ex-works Price, Excluding Tax) 595 595 0 0.00%

63.5% Fe Indian Fines CFR Qingdao 1050 1005 45 4.48%

62% Fe Indian Fines CFR Qingdao 1030 985 45 4.57%

Data Source: Steelease

Unit: Mt Dec-12 Nov-12 MOM

Iron Ore Production 119.5 124.6 -4.1%

Iron Ore Import 70.9 65.8 7.8%

Dependence on Import 83% 75% 10.5%

Pig Iron Production 50.9 51.4 -1.0%

Iron Ore ConcentratesApparent Consumption

100.8 96.9 4.0%

Iron Ore ConcentratesActual Consumption 81.4 82.3 -1.0%

Unit: kt Jan-13 Dec-12 MOM

Inventories at DomesticBeneficiation Plants 132.0 181.0 -27.1%

Operating Rates at DomesticBeneficiation Plants

Jan-13 Dec-12

Average 55.5% 54.5%

Hebei 55.5% 56.5%

Liaoning 45.3% 46.0%

Shandong 83.0% 78.5%

Inner Mongolia 10.9% 14.0%

Profit at DomesticBeneficiation Plants (RMB/mt)

Jan-13 Dec-12 MOM

Tangshan, Hebei 285 196 45.4%

Chaoyang, Liaoning 156 54 188.9%

Linyi, Shandong 242 193 25.4%

Guyang, Inner Mongolia -146 -86 69.8%

RMB/mt Jan-13 Dec-12 MOM

Iron Ore Cost Per Ton of PigIron 1332.0 1246.7 6.8%

Pig Iron Cost 2095.9 1980.2 5.8%

Billion RMB (accumulation) Dec-12 Dec-11 YOY

Ferrous Metals Mining andTotal Investment in FixedAssets

128.2 125.1 24.0%


China Iron Ore Monthly Monitor

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Jan 10May 10

Sep 10Jan 11

May 11Sep 11

Jan 12May 12

Sep-12Jan-13

China Mines Price IndexImported Iron Ore Price Index


2010 2011 2012

Iron Ore Price Index (1 Jan 2010 - 31 Jan 2013)

This document is confidential and its circulation and use are restricted. ©Copyright 2011 Steelease

1

Hot Topic Implementation of Energy Con-servation and Emission Reduc-tion Rules after Holiday Not Ex-pected to No-ticeably Impact Ore Prices


2

February 5, 2013 Implementation of Energy Conservation and Emission Reduction Rules after

Holiday Not Expected to Noticeably Impact Ore Prices

Toxic smog that enveloped Beijing, Shanghai, and other major cities over several weeks prompted the Chi-nese leadership to take stronger measures to drive structure adjustments in key industries to promote en-ergy efficiency and a substantive reduction in emissions. Steel plants in many regions were forced to cut or suspend production in late 2010 in order to comply with energy efficiency and emissions reduction targets. As a result, domestic pig iron output fell from 52.26 mil-lion mt in May, 2010, to 46.65 million mt that December, an 11% drop. Supply thus declined more sharply that weakening demand, causing rebar prices to soar from RMB 2,010/mt in July, to RMB 4,500/mt by the end of 2010. Mines were also ordered to suspend production in 2010. The average operating rate at mines in Hebei thus fell to 75-77% in September-November 2011, down sharply from the 90% obtaining prior. Iron ore prices edged up, pulled along by surging steel prices and pushed along by declining domestic ore sup-plies. The price of concentrates (66% Fe, dry basis, including tax) in Qian’an advanced sharply from a low RMB 990/mt in July to RMB 1,400/mt by year’s end. Steelease believes it likely that China will see another round of energy efficiency and emission reduction initiatives implemented this year, potentially eclipsing those of 2010. Smog has already impelled Beijing to close 58 energy-intensive and heavily polluting enterprises across the building materials, metals and chemi-cal sectors. Tangshan, Hebei is China’s largest steel producing region and is less than 200 km away from Beijing. It is widely anticipated that a wave of energy efficiency and emission reduction schemes will be im-plemented there after Chinese New Year to address the problems posed by the high concentration of ineffi-cient, polluting SMEs in the steel industry there. Such a move is expected to cause steel prices to rise sig-nificantly inasmuch as Tangshan represents 13% of China’s total steel output, and since this will take place against a backdrop of urbanization driving demand for construction steel. Steelease thinks it also likely that Hebei will implement similar energy efficiency and emission reduction poli-cies at mines in the province. This, however, is not expected to noticeably influence ore prices. The average operating rate at Hebei’s mines was a relatively high 90% in July 2010. This average rate fell to 56% in January. Most of the mines that were affected in 2010 were SMEs with capacities below 200,000 mt/yr. Mines that remain in production today, however, now have capacities in excess of 200,000 mt/yr. Should Hebei opt to implement new efficiency and pollution policies, its most likely direct impact would be to keep mines that had suspended operations earlier shuttered indefinitely. This implies that operating rates will re-main effectively unchanged from January. Falling steel output in Hebei naturally also implies weakening demand for iron ore. This relatively flat supply of ore thus leaves little room for ore prices to rise even in the event of a jump in steel prices.

Hebei Conc. Plant Operating Rate

40%

50%

60%

70%

80%

90%

100%

May-1

0Ju

l-10

Sep-10

Nov-10

Jan-1

1

Mar-1

1

May-1

1Ju

l-11

Sep-11

Nov-11

Jan-1

2

Mar-1

2

May-1

2Ju

l-12

Sep-12

Nov-12

Jan-1

3

Energyconservation


China Pig Iron Production

45

48

51

54

57

60

Jan-10Apr-10

Jul-10Oct-10

Jan-11Apr-11

Jul-11Oct-11

Jan-12Apr-12

Jul-12Oct-12

Unit: Mt

Data Source: NBS, Steelease

Energy conservation andemission reduction

Iron Ore Supply and Demand


3



Iron Ore Demand and Supply（ROM Grade: 15.6%）

Unit: Mt ROM Concentrates Imported Ores Pig Iron Apparent Consumption

ActualConsumption Surplus

Dec-11 119.26 36.88 64.09 48.01 100.97 76.82 24.16Jan-12 71.52 17.86 59.32 53.42 77.18 85.47 -8.28Feb-12 81.57 20.37 64.98 54.27 85.35 86.82 -1.47Mar-12 103.31 25.80 62.87 57.51 88.67 92.02 -3.34Apr-12 104.02 25.98 57.69 56.78 83.67 90.84 -7.17May-12 112.35 28.06 63.84 57.34 91.90 91.74 0.16Jun-12 125.69 31.39 58.31 55.72 89.70 89.15 0.55Jul-12 115.46 28.84 57.87 56.32 86.71 90.11 -3.40Aug-12 116.57 29.12 62.45 53.74 91.57 85.99 5.58Sep-12 129.06 32.24 65.01 52.90 97.25 84.63 12.61Oct-12 124.85 31.18 56.43 53.98 87.61 86.37 1.24Nov-12 124.64 31.13 65.78 51.41 96.91 82.26 14.65Dec-12 119.48 29.84 70.94 50.89 100.78 81.42 19.36

Note 1: Concentrates is converted to grade 62.5%

Note 2: Actual consumption is calculated based on the pig iron output by times 1.6.Note 3: ROM grade = pig iron Fe-content - imported Fe-content = domestic Fe-content / ROM output Data Source: Steelease

According to data from National Bureau of Statistics, China’s output of pig iron for December totaled 50.89 million mt, down 1% MoM, but up 6% YoY. Daily average output recorded 1.64 million mt, down 4.2% MoM. Total output of pig iron for 2012 totaled 664 million mt, up 4.2% YoY. Daily output of pig iron fell in December, which was mainly due to sharp decline in operating rates at con-struction sites in north China and arrival of traditional low-demand period in manufacture sector. Steelease believes that daily average output of pig iron will rise in January, and the reasons are as follows. First, steel prices have rebounded sharply recently. The most active rebar futures contract prices ad-vanced from RMB 3,500/mt in early December to around RMB 4,000/mt in middle January, up RMB 500/mt.In response, many steel mills, including Baosteel, Anshan I/S and Shagang Group, raised ex-works nickel prices, pushing up operating rates at steel mills. Second, the infrastructure construction is bound to expand in 2013. China’s many large and medium cities set GDP growth target for 2013 at around 12%, with investment contribution accounting for 50% of total GDP. Market expectation towards demand in 2013 was positive, and some trades began to replenish stocks. Steelease believes that the stock replenish will increase apparent consumption of steel and push up steel output. Finally, some steel mills will resume production in January after December’s unit maintenance, which will greatly increase output in January. Based on historical data, daily average output in January usually grew significantly compared to that in December.

December Pig Iron Output Fell, Janu-ary Output to Grow Notably

China’s iron ore output in December 2012 was 119 million mt, down 4.14% MoM, but up 0.19% YoY. 2012’s total iron ore output rose 1.08% YoY to 1.329 billion mt. The depression across global iron ore mar-ket forced smaller mines to halt production last year. This was particularly evident in Hebei province with iron ore output there falling 10.8% YoY in 2012 to a mere 530 million mt. Nevertheless, as a large number of new capacities came online, combined with commissioning of capacities built earlier, iron ore output in Sichuan, Shanxi, and Anhui increased noticeably. ROM output in 2012 was 290 million mt, up 18.8% from the previous year. The decline in December’s output should be mainly attributable to severe weather and maintenances. Steelease expects iron ore output in January to slip sharply. First, iron ore output in north China, such as Xinjiang, Shanxi, Inner Mongolia, Hebei, and Liaoning, dropped significantly due to cold weather. Data showed that output in north China during December was down 9% to 79.65 million mt. The output is expected to fall further in January with weather turning colder. Second, security inspections by local governments became more rigid with the approach of the Chinese New Year holiday, and mines found unqualified were all forced to halt production. Above all, explosive supplies to small and medium mines in the regions around Beijing, including Tangshan, were suspended, negatively affecting ROM output.

ROM: Iron Ore Output to Fall Greatly in January


4



December Imports Record New High, Imports for 2012 Hit 750 Million Mt

According to data from China Customs, China’s imports of iron ore during December were 70.94 million mt, up 7.84% MoM, and up 10.69% YoY. December’s imports exceeded 68.97 million mt recorded in Novem-ber, and hit a new high for the year. YTD imports for 2012 totaled 745 million mt, up 8.55% YoY. Steelease believes that the high imports for December were mainly due to the following factors. First, domestic steel market presented positive performance in November, which brought profits for steel producers. Therefore, domestic blast furnace steel producers kept operating rate high. However, as do-mestic supply of iron ore in winter was tight, producers’ demand for imported iron ore grew. Meanwhile, prices for imported iron ore were cheaper than domestic iron ore. Second, profits for iron ore stimulated traders’ importing interest. As demand for iron ore increased, inven-tories of iron ore fell rapidly at ports, tightening supply of nickel ore, which pushed up prices of iron ore. Driven by higher profits, a large amount of iron ore was imported from abroad. Finally, China’s central economic work conference held on middle December and the launch of QE4 stoked positive expectation, increasing traders’ importing interest. Meanwhile, steel mills pre-holiday stock replen-ishments also helped increase iron ore imports. Therefore, imports of iron ore hit new high in December. With regard to imports in January 2013, Steelease expects that imports will remain around 70 million mt, and the major reasons are as follow. First, the price surge of iron ore after New Year holiday prevented traders from importing. Second, the large amount imports of iron ore in December tighten cash flow at trad-ers, which restricted their purchases in January. However, considering the stock replenishment demand from steel mills and traders, imports in January will only fall marginally.

Finally, mines that have not conducted maintenances planned to undertake maintenance operations for a month starting in late January. These mines will not resume production until late February or early March.

The Steelease Mines Price Index for Hebei in January was 136.49, up 10.10 or 7.99% from December. Although the concentrates market in Hebei retreated after rising earlier in the month, the market held fast as expectations strengthened. By the end of the month, the ex-works concentrates price (66% Fe, dry basis, including tax) in Qian’an, Tangshan was RMB 1,145/mt, up RMB 55/mt on the month. The rise in the price of imported ore over New Year’s caused billet prices in Tangshan to jump. This then pulled the Hebei concentrates market up after the holiday. Tangshan billet prices then climbed another RMB 40/mt on top of the RMB 70/mt posted after New Year’s to RMB 3,380/mt. This enabled Hanxing Mining and Beijing Miyunto raise concentrates prices twice – RMB 85/mt, then RMB 100/mt – such that the ex-works concentrates price (66% Fe, dry basis, excluding tax) at Hanxing hit RMB 1,115/mt, and that at Beijing Miyun (66% Fe, dry basis, including tax, by acceptance) hit RMB 1,235/mt. Billet prices subsequently fell RMB 120/mt to RMB 3,260/mt in mid-January while imported ore also gave up ground, each applying downward pressure on the local concentrates mar-ket. Concentrates prices in Qian’an, Tangshan dropped from RMB 1,170/mt, to RMB 1,125/mt.This rattled some traders, who then dropped their own quotes. Steel plants lowered pro-curement prices RMB 5-20/mt. This situation persisted for two weeks before cargo holders held firm again due to rising confidence, even if many had already left the market prior for the Chinese New Year holiday. By the end of January, the ex-works concentratesprice (66% Fe, dry basis, including tax) in Qian’an, Tangshan was RMB 1,145/mt, and the ex-works concentrates price (65% Fe, wet basis, excluding tax) in Wu’an was RMB 960/mt.

Price Domestic Ore Prices Edge Up in January, Market Bullish

Hebei Market

The Steelease Mines Price Index averaged 136.81 in January, up 11.40 or 9.09% from December. The con-centrates market in China retreated some, following an initial rise right after New Year’s, before stabilizing. The uptick in China’s concentrates market after New Year’s was the result of hopes of significant policy changes as well as shorter supplies. The surprising performance of market for imported ore also lent a boost to the domestic concentrates market. The domestic concentrates market continued to rise after New Year’s as large mines raised ex-works prices on January 8. The price of imported ore then jumped, nearly breaking USD 160/mt, which in turn spurred the domestic concentrates market. Many large mines in Hebei, Beijing and Shandong then hiked ex-works concentrates prices again on January 11, bringing the aggregate price rise to RMB 80-100/mt. This situation held through mid-month. This rebound in the ore market boosted market confidence, prompting traders to try to build up stocks. Beneficiation plants, however, held back, muting transaction volumes. Then, later in the month, steel and imported ore futures and spot prices dropped, deflating investor confi-dence. This pulled quotations on domestic concentrates back down. Steel plants garnered increased power over pricing and began to apply downward pressure. Pricing did not recover until late January when grow-ing optimism over the market outlook following Chinese New Year and mounting supply shortages reversed declining domestic concentrates prices. Steelease expects concentrates prices to remain on an upward tack after the holiday.

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Sep-10Jan-11

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20122010

China Mines Price Index (1 Jan 2010 - 31 Jan 2013)

2011


5

ThisMonth

LastMonth Change

Fe 66% 136.66 126.59 7.95%

Fe 65% 130.96 120.05 9.09%

Fe 64% 135.19 124.60 8.50%

CompositeIndex

136.49 126.39 7.99%



The Steelease Mines Price Index in Shandong for January was 132.16, up 13.37 or 11.26% from December. Shandong’s concentrates market proved the most sensitive to spot ore prices at ports, and was thus the most volatile. Activity in the Shandong market was brisk throughout January, particularly early and late in the month. Prices fell only narrowly in mid-January with the slump in imported ore prices. Prices in Shandong’s concentrates market rose noticeably after New Year’s, widening the spread between imported and local ores. This allowed large mines in Shandong to raise prices after the holiday. They adjusted prices sharply on the first Friday after New Year’s such that the ex-works price of concentrates (66% Fe, dry basis, including tax) at Jinling was RMB 1,230/mt. The ex-works price of con-centrates (64% Fe, dry basis, including tax, by acceptance) at Luzhong was RMB 1,210-1,220/mt. and the ex-works price (64% Fe, dry basis, including tax, by acceptance) at Zhonggang was RMB 1,230-1,250/mt. SMEs and small traders in Shandong thus hiked quotes frequently, pulling concentrates prices up significantly. This pushed local and nearby steel plants towards a more cautious stance as they fell under cost pressure. Once the price of imported ore fell in mid-January, large mines refrained from lowering concentrates prices, muting transaction volumes. Market sentiment thus reversed and some traders turned to discounting against inventory and liquidity risks. Both the imported ore and steel markets regained momentum towards the end of the month, again boosting concentrates prices in Shandong. By the end of the month, the ex-works price of concentrates (65% Fe, dry basis, including tax, by acceptance) in Yishuiwas RMB 1,200-1,210/mt; the ex-works price (65% Fe, wet basis, excluding tax, by cash) in Tai’an was RMB 895-915/mt; the ex-works price (66% Fe, dry basis, including tax, by acceptance) in Zibo was RMB 1,230/mt; and the ex-works price of concentrates (64% Fe, dry basis, including tax, by acceptance) in Laiwuwas RMB 1,210/mt.

Shandong Market This

MonthLast

Month Change

Fe 66% - - -

Fe 65% 127.66 115.33 10.69%

Fe 64% 143.82 127.72 12.60%

CompositeIndex

132.16 118.79 11.26%



The Steelease Mines Price Index for Inner Mongoliain January was 130.77, flat with De-cember.The concentrates market in Inner Mongolia remained stable in large part due to the lack of activity as most beneficiation plants have suspended and as Baotou Iron & Steel has yet to buy. Ulanhot Iron & Steel set its price-to-factory for concentrates (65% Fe, dry basis, including tax, by acceptance) at RMB 960/mt.

Inner Mongolia Market

ThisMonth

LastMonth Change

Fe 69% . . -

Fe 66% 130.77 130.77 0.00%

Fe 65% - - -

CompositeIndex

130.77 130.77 0.00%

Liaoning Market

ThisMonth

LastMonth Change

Fe 66% 141.17 124.22 13.64%

Fe 65% 138.21 124.73 10.81%

Fe 64% - - -

CompositeIndex

139.44 124.49 12.01%

The Steelease Mines Price Index for Liaoning in January was 139.44, up 14.95 or 12.01% from December. Liaoning’s concentrates market outperformed Hebei’s in January, holding stable in mid-month against declines elsewhere. Concentrates prices in Liaoning rose RMB 70-80/mt on the month. Soaring spot and futures prices on billet and imported ore drove concentrates prices in Liaoning early in the month. Concentrates prices derived support from winter-induced supply shortfalls, which pushed up beneficiation plant quotes. Despite disappointing transaction volumes following these price rises, concentrate producers contin-ued to build up stocks in expectation of further price increases. Steel plants in northeast China and Tangshan were forced to raise their procurement prices to secure supply. The price-to-factory of concentrates (66% Fe, dry basis, including tax, by cash) at Lingyuan Iron & Steel was RMB 930/mt early in the month, up RMB 100/mt. The price-to-factory of con-centrates (66% Fe, dry basis, including tax, by cash) at Xinfugang was RMB 990/mt, up RMB 160/mt. But the weakening in the market for steel from mid-January also affected Liaoning. Concentrates prices there, however, dropped only modestly. Quotes from medium and large mines held firm even against a small number of cargo holders that discounted against tight cash flows. This comparative price inelasticity in concentrates was backed by tight overall supply. As January drew to a close, overseas markets rebounded and helped boost local concentrates prices. By the end of January, the ex-works price of concentrates (66% Fe, wet basis, excluding tax) in Chaoyang was RMB 795/mt and RMB 790/mt (65% Fe, wet basis, excluding tax) in Anshan. The price of concentrates (65% Fe, wet basis, ex-cluding tax) at the Port of Jinzhou was RMB 835/mt, while the price of concentrates (65% Fe, wet basis, excluding tax) at the Port of Dandong was RMB 810/mt.


6



Domestic concentrate prices held firm in January after retreating from a surge in early January. Rising prices on imported ore, growing expectations of pro-growth policy changes, and tight iron ore supplies heading into Chinese New Year, all contributed to supporting domestic concentrate prices last month. Steelease anticipates that prices may continue to rise after the holiday. Most importantly, steel mills will need to replenish input inventories against material consumed during the holiday. Raw material inventories at China’s larger mills are generally 30 days, while SMEs are closer to 15-20 days. Historical pricing patterns also suggest that a rise should be expected following Chinese New Year. Operating rates at China’s mines typically fall in winter, particularly around Chinese New Year. Steelease surveys indicate that the average operating rate at beneficiation plants attached to independent mines is around 60%. The rate in north China – Hebei, Shandong, Liaoning, and Inner Mongolia, specifically – is slightly lower around 55%. This situation has been reinforced by flooding in Australia, which has hampered iron ore shipments to China. Inventories at China’s ports have thus fallen below 70 million mt. The Steelease Steel PMI rose 2.05 in January, 10.44 YoY, to 50.93. The PMI for downstream producers also rebounded above 50. Although construction remains hampered by winter weather, a nascent recovery in manufacturing has become apparent. HSBC’s China PMI remains above 50, signaling that the upward trend in steel demand has weathered this winter’s extremes. Finally, expectations that pro-growth policies may be in the offing continue to bolster China’s steel market. The upcoming NPC and CPPCC sessions, as well as the conference on urbanization, are widely expected to enact these policies, which are lending support to iron ore prices before March. The recent relaxation in lending has also allayed concerns over liquidity. The combination of these factors leads Steelease to expect a continual rise in domestic concentrate prices after the Chinese New Year holiday.

Price Forecast Domestic Concen-trate Prices Re-main Strong, Ex-pected to Rise Further after Holi-day

66% Fe Concentrates Prices VS Billet Prices inTangshan City

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2,500

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66% Fe Concentrates <L> Bi llet <R>


Unit: RMB/mt Unit: RMB/mt

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Hebei Qian'an (66% Fe concentrates)Qingdao CIF Price(Indian Import 63.5% Fe)

Unit: RMB/mt


Price Gap Betw e en Dom es tic & Im porte d Ores


7


Imported Ores Imported Iron Ore Fluctuated in Janu-ary, Expects to In-crease Further in February



Imported ore prices staged big swings in January, with prices rising from USD 144.5/mt in late December to early January’s USD 159.25/mt before slipping to USD 144.5/mt. Prices finally ended the month at USD 151/mt. The sharp increase in early January was the result of in-creased replenishments by steel mills at year’s end and higher prices offered by foreign mines. However, as spot steel market failed to move up in mid-January, and steel mills and traders considered the prices too high, imported ore prices fell back. At the end of January, the rising futures steel prices and a new round of replenishments by steel mills again pushed up ore prices. Steelease be-lieves imported ore prices will rise further after the Chi-nese New Year holiday for the following reasons. First, iron ore output in Brazil and Australia should fall in 1Q given the rainy season in the southern hemi-sphere. Coupled with a large amount of long-term contracts at steel mills, few resources will be available in spot market or traded through tenders. Second, the resumption of construction projects in March and the urbanization progress will prompt steel mills to increase purchases. Despite disappointing orders for steel mills mainly devoting to hot-rolling in February, the RMB 200/mt profit will inspire these mills to keep operating rates at high levels. Although iron ore prices are expected to rise in February, the significant increase in iron ore prices during January will place greater cost pressures on steel mills which report larger proportion of long-term contracts. In this context, iron ore prices will definitely stage pullbacks if orders for steel mills fall and if downstream demand misses forecasts. Spot ore prices at China’s ports remained strong through January. Spot prices rose another RMB 70-90/mt in the first trading week of the year. The price of Australian PB fines (61.5%) in Qingdao climbed to RMB 1,080/mt with some traders quoting even higher. Port supplies remained tight this past month. That, com-bined with a surge in the price of imported ore in the futures market, left traders less willing to sell as they continued to raise their price quotes. Some traders reported price rises of RMB 30/mt in a single day. Spot prices, however, fell in mid-January as demand from steel mills weakened. The prices of PB fines (61.5%) thus slipped to RMB 1,000/mt with some cargo holders going below RMB 1,000/mt to convert inventories to cash. Spot ore prices did not fall further after these two weeks of declines, even as trading activity tapered off heading into Chinese New Year, as traders have become bullish over the post-holiday market and have resisted any further slip in prices. Spot prices at the Port of Qingdao were up RMB 40-50/mt by the end of January as described below: Australian PB fines (61.5%) prices were RMB 1,020-1,030/mt. Yandi fines (58%) prices were RMB 945-955/mt. Prices for PB lumps (62.5%) were RMB 1,120-1,130/mt, those for Robe river fines (57%) were RMB 925-935/mt. Newman fines (62.5%) were traded at RMB 1,030-1,040/mt, and FMG Special fines (57.5%) at RMB 920-930/mt. Prices for Brazilian sintered ore (63%) were RMB 1,025-1,035/mt. Brazilian sintered ore (64%) prices were RMB 1,045-1,055/mt. Indian fines (54%) prices were RMB 785-795/mt, while prices for Indian fines (58%) were RMB 885-895/mt. Indian fines (61%) prices were RMB 965-975/mt, and Indian fines (63.5%) prices were RMB 1,040-1,050/mt.

50

100

150

200

250

Jan-10May-10

Sep-10Jan-11

May-11Sep-11

Jan-12May-12

Sep-12Jan-13


2010

Imported Iron Ore Price Index (1 Jan 2010 - 31 Jan 2013)

2011 2012

8


9

Operating Rate Concentrator oper-ating rate keep flat MoM

The average operating rate at domestic independent mines in Steelease sample was 54.5% in January, flat at December’s level, but down 4.88 percentage points from a year earlier. Operating rates at mines in Hebei, Liaoning, and Inner Mongolia edged down in January influenced by cold weather and the upcoming Chinese New Year holiday. However, the rate at large mines in Shandong rose as much as 4.5 percentage points from the previous month. 59%

62%

70%

75%

64%61%

56%53%54%53%

54%

55%

56%

50%

60%

70%

80%

90%

100%

Jan12

Feb12

Mar12

Apr12

May12

Jun12

Jul12

Aug12

Sep12

Oct12

Nov12

Dec12

Jan13

Operating Rate of China Iron Ore Mines


The average operating rate at independent mines in Hebei was 55.6% in Janu-ary, slipping 0.97 percentage point from the previous month, but up 0.85 per-centage point YoY. As prices for domestic iron ore were lower than those for imported ore, steel mills in Hebei increased purchases of domestic ore during January. Most large mines in Hebei with capacity above 300,000 mt/yr were producing in full capacity in January, and planned to maintain production during the holiday. Some smaller mines, however, failed to resume production as their costs were kept high due to low-grade ROM. Operating rates in Chengde, Han-dan, and the Qinglong district of Qinhuangdao, remained above 60% or even close to 70%, while the rates in Tangshan and Zhangjiakou were below 60%. Besides, private mines in Wu’an halted production since January 20 as required by local government. All private mines in Wu’an are required to close for holiday every January and are not allowed to restart production until the conclusion of NPC and CPPCC sessions. However, as a few private mines in the region were still in operation following the consolidation, only 100,000 mt of iron ore capacity was affected by the two-month production halts, showing little impact on overall market.

Hebei

55%

60%65%

69%61%59%

51%

48%

54% 55%55% 57%

54%

40%

50%

60%

70%

80%

90%

100%

Jan12

Feb12

Mar12

Apr12

May12

Jun12

Jul12

Aug12

Sep12

Oct12

Nov12

Dec12

Jan13

Operating Rate of Hebei Iron Ore Mines


Liaoning

The average operating rate at independent mines in Liaoning was 45.3% in January, falling 0.7 percentage point MoM and 16.5 percentage points YoY due to seasonal factor. Small and medium mines with capacity below 200,000 mt/yr in Liaoning already closed for holiday, but as large private mines were still in production, the decline in operating rate was limited. Nevertheless, some large mines also planned to suspend production in early February and resume pro-duction in late February or early March considering the slipping profits.

62%

69%

76%

80%

66%64%

60%

50%45%46%

47%46%

45%40%

50%

60%

70%

80%

90%

100%

Jan12

Feb12

Mar12

Apr12

May12

Jun12

Jul12

Aug12

Sep12

Oct12

Nov12

Dec12

Jan13

Operating Rate of Liaoning Iron Ore Mines





10

The average operating rate at independent mines in Inner Mongolia fell 3.07 percentage points MoM during January to 10.9%, a decline of 9.81 percentage points from a year ago. Most mines in Inner Mongolia, except several in Baotou and Chifeng, have been closed for several months. These mines are expected to resume production in late March or early April at the earliest.

21%31%

52%

64%

47%38%

35%

32%26%25%

24%14%

11%0%

20%

40%

60%

80%

100%

Jan12

Feb12

Mar12

Apr12

May12

Jun12

Jul12

Aug12

Sep12

Oct12

Nov12

Dec12

Jan13

Operating Rate of Inner Mongolia Iron OreMines


Inner Mongolia



Shandong

The average operating rate at independent mines in Shandong rose 4.5 per-centage points MoM during January to 83%, down 0.82 percentage point YoY. Large mines, including Shandong Jinling Group and Shandong Hualian Mining, raised quotations and reported satisfactory sales in January. With only a few SMEs in Shandong intending to close for holiday, operating rates in the region should remain high in February. 84%

87%

82%

84%

75%73%74%76%76%

70%75%

79%

83%

60%

70%

80%

90%

100%

Jan12

Feb12

Mar12

Apr12

May12

Jun12

Jul12

Aug12

Sep12

Oct12

Nov12

Dec12

Jan13

Operating Rate of Shandong Iron Ore Mines



11

Cost Profit of M ine s at Tangs han, He be i

0

90

180

270

360

450

Jan-12Feb-12

Mar-12Apr-12

May-12Jun-12

Jul-12Aug -12

Sep -12Oct-12

Nov-12Dec-12

Jan-13

Note: All price and cost are wet b as is , tax exc lus ive.Date Source: Steelease

Unit: RMB/mtIron Ore's Production Cost w ith Fe-content

66% in Tangshan, Hebei (Open Pit Mine)

523

558

630 621

500

530

560

590

620

650

2010 20112012 H1

2012 H2Data Source: Steelease

Unit：RMB/mt

Hebei

Liaoning Profit of M ine s at Chaoyang, Liaoning

-140

0

140

280

Jan-12Feb-12

Mar-12Apr-12

May-12Jun-12

Jul-12Aug -12

Sep -12Oct-12

Nov-12Dec-12

Jan-13

Unit: RMB/mt

Note: Al l price and cost are wet b as is , tax exc lus ive.Date Source: Steelease

Iron Ore's Production Cost w ith Fe-content66% in Chaoyang, Liaoning (Underground

Mine)

500

543

639659

450

500

550

600

650

700

2010 20112012 H1

2012 H2

Data Source： Steelease

Unit： RMB/mt



Concentrate prices (Fe 66%, wet basis, excluding tax) in Qian’an, Hebei, averaged RMB 906/mt, yielding RMB 285/mt in profits for local mine operators in January , up RMB 89/mt MoM, but down RMB 5/mt YoY.

Concentrate prices (Fe 66%, wet basis, excluding tax) in Chaoyang, Liaoning, averaged RMB 777/mt, yielding RMB 156/mt in profits for local mine operators in January, up RMB 102/mt MoM, but up RMB 28/mt YoY.

Profit o f M ine s at L inyi, Shandong

0

90

180

270

360

450

Jan-12Feb-12

Mar-12Apr-12

May-12Jun-12

Jul-12Aug -12

Sep -12Oct-12

Nov-12Dec-12

Jan-13

Unit: RMB/mt

Note: Al l price and cost are wet b as is , tax exc lus ive.Date Source: Steelease

Iron Ore's Production Cost w ith Fe-content62% in Guyang, Baotou, Inner Mongolia (Open

Pit Mine)

473

531

606

561

450

490

530

570

610

650

2010 20112012 H1

2012 H2


Unit： RMB/mt

Shandong

Concentrate prices (Fe 66%, wet basis, excluding tax) in Linyi, Shandong, averaged RMB 863/mt, yielding RMB 242/mt in profits for local mine operators in January, up RMB 49/mt MoM, but down RMB 85/mt YoY.


12

Profits of M ine s at Guyang, Baotou, Inne r M ongolia

-150

-80

-10

60

130

200

Jan-12Feb-12

Mar-12Apr-12

May-12Jun-12

Jul-12Aug -12

Sep -12Oct-12

Nov-12Dec-12

Jan-13

Unit: RMB/mt

Note: All price and cost are wet b as is , tax exc lus ive.Date Source: Steelease

Iron Ore's Production Cost w ith Fe-content65% in Linyi, Shandong (Underground Mine)

561

600

633610

500

530

560

590

620

650

2010 20112012 H1

2012 H2


Unit： RMB/mt

Inner Mongolia

Inventories Inventory down 132 kt MoM

Concentrate inventories in Hebei, Liaoning, Shandong, and Inner Mongolia dropped appreciably to 132,000 mt in January, down 49,000 mt from December. Consumption improved during the month as steel mills stepped up purchasing of domestic concentrate. Large mines reported normal supply opera-tions, but smaller mines held back out of growing expectations towards the post-holiday market. Mine inventories in Inner Mongolia proved the exception as Baotou Steel suspended purchasing.

Region Number ofCompany Samples

Beneficiation Capacity

Inventory inNov

Inventory inDec

Inventory inJan

MoM Days

Hebei 22 6,120 88 110 72 Down 4Liaoning 14 3,200 26 26 19 Down 2Shandong 7 1,620 13 31 15 Down 3Inner Mongolia 5 1,370 11 14 26 Up 7Total 48 12,310 138 181 132 Down 4Data Source: Steelease

Iron Ore Inventories (Unit: kt）



Concentrate prices (Fe 66%, wet basis, excluding tax) in Guyang, Baotou, averaged only RMB 475/mt, generating RMB 146/mt in losses for local mine operators in January, down RMB 60/mt MoM and RMB 135/mt YoY.


13

Import & Export Imports by Countries: Australia and Brazil Remain Dominant, but Peripheral Sup-pliers on the Rise

China imported 33.67 million mt of iron ore from Australia in December, up 1.02% MoM and 14.97% YoY. Imports from Brazil climbed 42.21% MoM and 50.69% YoY to 20.02 million mt, and those from India in-creased 84.38% MoM to 290,000 mt, but were still 93.98% lower than a year ago. Imports from South Africa were down 27.63% MoM and 33.17% YoY to 2.77 million mt. Imports from these four countries together amounted to 56.75 million mt, 80.0% of the national total. China’s iron ore imports hit a record high of 70.94 million mt in December as imports from Brazil hit a new high and those from Australia their second highest. Three major factors underlie this surge in imports from Brazil. First, demand from China’s domestic steel market improved noticeably in December, spurring traders to increase their iron ore procurement volumes. Second, a large volume of iron ore under long-term contracts was shipped from Brazil to China at year’s end, creating a surge in Brazilian imports. Third, traders favored Brazilian ore due to sharp price declines earlier. The surge in imports from Australia was also the result of an uptick in the steel market, rising expectations, and concerns over supply-demand imbalances. Imports of iron ore from Iran, Canada, and the Ukraine each exceeded 1 million mt in December. Those from Russia, Indonesia, Kazakhstan, Mexico, and Malaysia were also high. The rise in volumes from these periph-eral suppliers helped fill the gap created by the plunge in imports of Indian iron ore.

Nov 2012

Australia

50.7%

Brazil21.4%

India0.2%

SouthAfrica5.8%

Others

21.9%


Oct2012

Australia

48.4%

Brazil26.0%

India0.5%

SouthAfrica5.1%

Others

23.2%

Iron Ore Imports By Countries



Concentrates Sinter Feeds Lump Pellet Concentrates Sinter Feeds Lump PelletDec-11 5.55 43.50 12.62 2.44 163.29 138.06 131.99 194.38Jan-12 4.82 40.66 11.51 2.32 152.7 133.0 135.7 167.7Feb-12 5.98 42.84 11.77 4.38 149.80 132.00 130.30 177.10Mar-12 6.10 39.35 13.40 3.99 150.9 134.1 135.2 170.3Apr-12 5.37 36.85 12.16 3.31 147.50 136.30 133.60 172.10May-12 5.97 41.71 13.61 2.55 148.5 139.1 138.7 170.6Jun-12 6.08 39.21 10.86 2.14 147.41 135.82 140.54 168.07Jul-12 6.12 38.20 11.74 1.81 144.8 132.3 132.5 167.8

Aug-12 5.40 43.59 11.23 2.24 132.88 127.80 129.88 161.64Sep-12 5.52 45.88 11.68 1.92 126.1 112.9 116.8 152.3Oct-12 5.26 38.60 9.90 2.66 112.26 102.18 104.58 131.10Nov-12 5.94 43.72 13.67 2.46 118.4 107.8 109.8 128.6Dec-12 7.34 47.89 12.79 2.92 116.20 112.74 112.77 134.47


Price (USD/mt)Quantity (Mt)Statistics of China’s Imported Iron Ore by Product Imports by

products:

China imported 7.34 million mt of iron ore fines in December, up 23.69% MoM and 32.23% YoY. Imports of coarse powder increased 9.53% MoM, 10.10% YoY, to 47.89 million mt, while imports of lumps were 12.79 million mt, down 6.41% from November, but up 1.34% YoY. Pellet imports grew 18.83% MoM and 19.51% YoY to 2.92 million mt. The price of fines edged down, but the prices on other imported products all rose.

Imported Iron Ore by Countries

0

7

14

21

28

35

42

Dec 11Jan 12

Feb 12Mar 12

Apr 12May 12

Jun 12Jul 12

Aug 12Sep 12

Oct 12Nov 12

Dec 120%

16%

32%

48%

64%

80%

Australia Volume Brazil VolumeIndia Volume Australia ProportionBrazil India



14



Port Inventory Port Inventory Total inventories of iron ore at China’s 33 ports were

70.89 million mt in January, down 5.37 million mt or 7% MoM. Iron ore inventories at China’s five largest ports – including Tangshan and Rizhao – were 34.18 million mt, down 1.25 million mt or 4% from a month earlier, to 47.7% of China’s total port inventory, 1.24 percentage points down from November.

Iron Ore Inventories at Ports

-1.3%

1.0% 1.0% 0.4%

-4.2%

-0.7%

-8.0%

-11.8%

-3.2%

0

24

48

72

96

120

25-May29-Ju

n27-Ju

l31-Aug

28-Sep26-Oct

30-Nov28-Dec

31-Jan

-15.0%

-11.0%

-7.0%

-3.0%

1.0%

5.0%

Jingtang,Rizhao,Qingdao,Zhanjianggang Others Y-o-Y

Unit: Mt


The Baltic Dry Index (BDI) rose in January before falling late in the month as new orders were few and as flooding in Australia forced some ports there to suspend opera-tions. The BDI typically retreats some each January as the demand for shipping slips between New Year’s and the Chinese New Year. The BDI closed at 779 on January 30, up 80 points or 11.4% from December. The global eco-nomic downturn, European debt issues, and the “fiscal cliff” in the US each undermined market confidence even as macroeconomic controls in China adversely affected the country’s foreign trade. The combination of these is-sues drove the BDI to a series of new lows throughout 2012. The Baltic Capesize Index began to recover in January after falling sharply in December. The demand of domestic steel mills for imported iron ore remained strong despite the holidays. The price of imported iron ore regained its upward momentum in January following an earlier correction, stoking buying interest among Chinese traders and steel mills. The BCI closed out January at 1,491, 256 points or 20.7% up from late December. However, cyclone-induced flooding in Australia forced several major east coast ports there to halt operations from late January. Although operations have now re-sumed, shipping from these ports has slowed. Frequent bouts of flooding in Australia in late January and early February imply that shipping from ports there may again be affected. This slowing will be exacerbated by slow-ing demand for iron ore from China with the approach of the Chinese New Year holiday. Overcapacity in the Pacific is thus expected to exert downward pressure on the Capesize shipping market. Shipping charges in the Panamax market continued to slide in early January before growing grain and coal transactions in North America from mid-January drove the Baltic Panamax Index (BPI) to a slight rebound. Nevertheless, sea freight fees still fell again against a dearth of new orders and idle capacity. The BPI closed January at 703, 4 points or 0.6% up on the month. Despite North American grain and coal shipments, the lack of any real improvement in demand in the Atlantic market dragged down Panamax charges. Trade between South America and East Asia remains brisk, but the inflow of idled Atlantic capacity forestalled any rise in Pa-cific shipping. Cyclones undermined the promise of coal exports from Australia as well, leaving the Pacific Panamax market depressed. However, as some ships in the western Pacific head for South America, shipping rates are expected to stabilize some. The Baltic Supramax Index (BSI) continued to fall through January to end the month at 695, 33 points or 4.5% down from December. Rains in Indonesia impeded coal and nickel ore shipments while market volumes con-tracted in anticipation of Chinese New Year. This dampened shipping activity further and sent freight fees in the Supramax market down.

Shipments

0

8

16

24

32

40

Jan-12Mar-12

May-12 Jul-12Sep-12

Nov-12 Jan-13

Tubara-Beilun/BaoshanDampier, Western Australia-Qingdao Beilun/BaoshanIndia's Vizag-Qingdao


Dry Bulk Freight ChargesUnit: USD/ton

Sea Freight 2013-1-31（USD/mt）

2012-12-24（USD/mt）

Changes（USD/mt）

Changes（%）

BDI Index 750 699 51 7.30%Dampier-Beilun/Baoshan 7.02 7.03 0.00 -0.07%Tubarao-Beilun/Baoshan 18.12 16.27 1.85 11.38%

Dry Bulk Freight Charges


Shipping Market Slipped in De-cember but Ex-pected to Pick up in January


15

Steel Mills

Costs at Steel Mills : Steel Produc-tion Cost In-crease in No-vember

The steel production cost model adjusted in the month. The days in inventory of raw materials is put into con-sideration for production cost estimation. That means instead of the average price for the month is adopted to calculate for the production cost of January, the prices which were in the period of the inventories were adopted. The rebar price in January is increased by RMB 156/mt, and the cost increased by RMB 110/mt. The profit of the month is increased by RMB 46/mt MoM and RMB 12/mt YoY. The sharply increased in imported ore prices push up the steel production cost by RMB 69/mt MoM. In addition, the increases in coke price push up the pro-duction cost by RMB 22/mt MoM. Steel ease believes that the production cost in February will continue to increase. First, the average Platts in-dex in January is increased by RMB 150/mt, up by 14% MoM. Second, the average price of coke, scraps, and other raw materials increased 2-3% MoM. ● The average domestic concentrate price was RMB 1,066/mt, up RMB 60/mt MoM but down RMB 126mt

YoY. Iron ore costs for pig iron production were RMB 1,332/mt, up RMB 85/mt MoM but down RMB 82/mt YoY.

● The price of coke was RMB 1,382/mt, up RMB 67/mt MoM but down RMB 368/mt YoY. Coke costs for pig

iron production were RMB 397/mt, up RMB 21/mt on the month but down RMB 222/mt YoY. ● The cost of pig iron was RMB 2,096/mt, up RMB 116/mt MoM but down RMB 249/mt YoY. Iron ore costs

constituted 65.94% of the total cost of pig iron in December, up 2.98 percentage points over the same period last year.

Proportion of Iron Ore Cost in Pig Iron Cost

0

600

1,200

1,800

2,400

3,000

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

45%

50%

55%

60%

65%

70%

Iron ore cost in per ton of pig ironPig iron costProportion of Iron Ore Cost in Pig Iron Cost


Unit: RMB/mt

2.4 million mt/yr in new capacity entered operation in December, bringing China’s total iron smelting capacity to 810 million mt/yr. Pig iron output was 50.89 million mt (654 million mt, annualized), pushing the capacity uniti-zation rate down 0.85 percentage point MoM and 1.54 percentage points YoY to 80.81%. Steelease attributes this decline in capacity utilization to weakening demand for steel products as well as the maintenance cycles a number of mills entered in December. As the market for steel products picked back up in January, steel mills raised ex-works prices and tied up their maintenance operations. Steel output thus appears likely to have risen in January, improving the aggregate operating rate.

Pig Iron Capac-ity Utilization Rate



Pig Iron Capacity Utilization Rate

82%81%

0

160

320

480

640

800

Dec-11Jan-12

Feb-12Mar-12

Apr-12May-12

Jun-12Jul-12

Aug-12Sep-12

Oct-12Nov-12

Dec-12

80%

82%

84%

86%

88%

90%

Capaci tyProduction (after conversion)Capaci ty Uti l ization Rate

Unit: Mt


Newly Increased Capacity of Blast Furnace

0.00

3.00

6.00

9.00

12.00

Dec-11 Feb-12Apr-12

Jun-12Aug-12 Oct-12

Dec-12

Unit: Mt


Estimation of Rebar Cost and Profit at Steel Mills

-3000

-1000

1000

3000

5000

7000

Jan-

12

Feb-

12

Mar

-12

Apr-

12

May

-12

Jun-

12

Jul-1

2Au

g-12

Sep-

12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

-200

-100

0

100

200

300

400Rebar Profit ('R)Rebar Cost (L)

Unit: RMB/mt Unit: RMB/mt


16



Price (RMB/mt) Recently Price in the

past 12 monthsChanges in thepast 12 months

Contribution togross profit marg inchanges during the

past 12 months

Price in thepast month

Changes in thepast month

Contribution togross profit marginchanges during the

past 12 months

Date 1-2013 1-2012 12-2012

Rebar (including VAT) 3771 4262 (491) 3588 183Rebar (excluding VAT) 3223 3643 (420) (420) 3067 156 156Concentrates (including VAT) 1066 1192 (126) 28 1006 60 (17)Spot Imported Ore（USD） 118 131 (13) 36 110 8 (8)Imported Ore Contract（USD） 35 (61)Blend Ore Proportion Adjustment (17) (10)Coke (including VAT) 1382 1750 (368) 127 1315 67 (22)Sea Fre ight Charges 11 13 (2) 11 13 (2) 12Scrap Steel 2838 3310 (472) 81 2876 (38) 2Ferroalloy (including VAT) 7100 10200 (3100) 131 6974 126 (5)Gross Profit Margin Changes 12 46Note; number in bracket stand for minus figures


Gross profit margins changes for per ton of steel between the past 12 months and this month

Expansion Sinters/Pellets

Steel Mill Category Starting Time CompletionTime

Progress Specification Capacity (Mt)

Chengyu Titanium Steel Sintered ore Jan-12 Jan-13 Operating 360m2 3.7Hebei Xinghua Steel Sintered ore Mar-12 Jan-13 Operating 200m2 2.0Yunnan Yuxi Steel Sintered ore Dec-11 Dec-12 Operating 260m2 2.8Data Source: Steelease

Iron Mines (Unit：Mt)

Company Region Iron Mine ROMProcessing Project Type Date of

Notification

Fushun Haolin Iron Mine Fushun,LiaoningWeiziyu Iron

Mine 0.18 Mining Pit Newly-built 18-Dec-12

Qingyuan Caiyuan IronMine Fushun,Liaoning Chaijiadian Iron

Mine 0.05 Mining Pit Newly-built 9-May-12


Blast FurnacesSteel Mill Completed by Construction State Cubic Meter Capacity (Mt)Yangzhou Qingyou Special Steel Jan-13 Operating 1080 1.23Xuzhou Huahong Special Steel Jan-13 Operating 1080 1.23Data Source: Steelease

Hebei Province to Shut down 1,100 Mines by 2015 It was reported that Hebei provincial government has issued a document entitled Crackdown on Metal and Non-metal Mines, which aims to crack down on illegal mining activities, and shut down mines failing to meet safety production condition and mines of heavy pollution. By the end of 2015, over 1,100 mines will by shut down. The following mines shall be shut down. First, mines fail to meet safety production regulation. Second, mines fail to go through related formality in given time. Third, mines and dressing plants release heavy pollutant and still make no efforts to meet environmental requirements. Private Iron Mines Production Halts in Wu’an Exerts Limited Impact on Market Wu’an Metallurgy Bureau conveyed a meeting on January 20th. It was required at the meeting that all private iron mine operators should halt production during the Chinese New Year holiday and the National People' s Congress of the People' s Republic of China, and Chinese People's Political Consultative Conference. All private mines in Wu’an are required to halt production from January every year, and will resume production after the National People' s Congress of the People' s Republic of China, and Chinese People's Political Consultative Conference. Number of private iron mines in Wu’an has reduced sharply after consolidation. Therefore, the pro-duction halt will only negatively affect output by 100,000 mt, which will exert limited impact on market.

Industry movements News Sum-mary


17



Iron Ore Imports Accounted for 70% of Total Pur-chase in 2012, Price Fell RMB 230/mt Data from the China Iron and Steel Association (CISA) showed that China’s 55 major steel mills in large and medium scales purchased a total of 382 million mt of iron ore in 2012. Of these, 2.69 million mt, or 70%, was imported, and 1.13 million mt was bought domestically. Purchasing prices for domestic ore averaged RMB 897/mt last year, down 19% or RMB 210/mt YoY, while those for imported ore dropped 20% or RMB 240/mt from 2011 to RMB 965/mt, leaving average purchasing price down RMB 230/mt or 20% YoY to RMB 945/mt. Chinese Top 10 Steel Producers Aims 60% Industry Concentration by 2015 The MIIT, together with MOF and NDRC has released a document to promote M&As in automobile, steel, ship-ping, aluminum, rare earth, electronic information, medicine and agriculture industrialization industries. It is aimed that industrial concentration at the top 10 steel producers shall be 60% of China’s total by 2015. Around 3-5 large groups of international competitiveness and influence should be established, and 6-7 large competitive groups should also be set up. Iron Ore Derivative Transactions Greatly Increase in 2012 Transactions of global iron ore financial derivatives increased by 140% YoY in 2012, and reflection of acceler-ated financialization pace of iron ore. Meanwhile, the derivative transactions have increasing impact on spot market. According to data from TSI, iron ore swap, option and futures transactions totaled 151 million mt, up 140% YoY.

Iron Ore Proportion of Steel Mills listed by CSI, 2012

DomesticPellets, 24 , 6%

DomesticConc., 89 ,

23%

Lumps, 48 ,13%

Fines, 186 ,49%

Conc., 19 , 5%

Pellets, 15 , 4%

Imports269, 71%

Unit: Mt

Data Source: China Steel Association, Steelease

Appendix 1: Cost and Profit of Domestic Iron Ore Mines


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RMB/mt Price Profit Cost RMB/mt Price Profit Cost RMB/mt Price Profit CostJan-10 743 220 Jan-10 631 131 10-Jan 870 309Feb-10 751 228 Feb-10 642 142 10-Feb 870 309Mar-10 868 345 Mar-10 763 263 10-Mar 921 360Apr-10 1033 510 Apr-10 923 423 10-Apr 1167 606May-10 945 422 May-10 825 325 10-May 1074 513Jun-10 883 360 Jun-10 777 277 10-Jun 885 324Jul-10 849 326 Jul-10 722 222 10-Jul 830 269Aug-10 944 421 Aug-10 838 338 10-Aug 958 397Sep-10 924 401 Sep-10 844 344 10-Sep 949 388Oct-10 996 473 Oct-10 912 412 10-Oct 1027 466Nov-10 1044 521 Nov-10 957 457 10-Nov 1071 510Dec-10 1076 553 Dec-10 968 468 10-Dec 1107 546Jan-11 1095 537 Jan-11 985 442 11-Jan 1092 492Feb-11 1159 601 Feb-11 1032 489 11-Feb 1130 530Mar-11 1066 508 Mar-11 960 417 11-Mar 1055 455Apr-11 1113 555 Apr-11 980 437 11-Apr 1095 495May-11 1086 528 May-11 956 413 11-May 1086 486Jun-11 1049 491 Jun-11 924 381 11-Jun 1049 449Jul-11 1070 512 Jul-11 953 410 11-Jul 1064 464Aug-11 1132 574 Aug-11 1031 488 11-Aug 1137 537Sep-11 1130 572 Sep-11 1031 488 11-Sep 1140 540Oct-11 1004 446 Oct-11 885 342 11-Oct 1009 409Nov-11 922 364 Nov-11 827 284 11-Nov 943 343Dec-11 920 362 Dec-11 799 256 11-Dec 967 367Jan-12 920 290 Jan-12 761 122 Jan-12 960 327Feb-12 919 289 Feb-12 805 166 Feb-12 946 313Mar-12 946 316 Mar-12 830 191 Mar-12 930 297Apr-12 921 291 Apr-12 817 178 Apr-12 914 281May-12 869 239 May-12 756 117 May-12 838 205Jun-12 864 234 Jun-12 740 101 Jun-12 830 197Jul-12 853 232 Jul-12 725 86 Jul-12 817 184Aug-12 824 203 Aug-12 673 34 Aug-12 758 125Sep-12 768 147 Sep-12 620 -19 Sep-12 692 59Oct-12 825 204 Oct-12 678 48 Oct-12 776 166Nov-12 815 194 Nov-12 683 44 Nov-12 811 178Dec-12 817 196 Dec-12 684 45 Dec-12 803 170Jan-13 906 285 Jan-13 777 156 Jan-13 863 242

621 610630

639 633

Date Source: SteeleaseNote: All price and cost are wet basis, tax exclusive.

500

600

561

630

Cost and Profit of Hebei's Private Iron Ores Mines

523

558 543

Linyi ( 65%, Open pit)Chaoyang (66%, Underground)Tangshan (66%, Open pit)

Appendix 2: Output of Major Mines in China



Month Accumulated Month Accumulated

Anshan Steel Mining Angang 4.16 44.78 1.37 15.12 0.0%Benxi Steel Mining 1.79 19.25 0.63 6.82 0.0%

Panzhihua Steel Mining Pangang 2.77 29.21 0.86 9.01 30.3%Hebei Steel Mining HBIS 2.87 32.92 0.59 6.61 0.0%Taiyuan Steel Mining Taiyuan Steel 1.24 13.33 0.49 5.33 28.5%

Baotou Steel Mining Baotou Steel 1.13 12.37 0.40 4.40 30.3%Shougang Mining Shougang 0.87 10.28 0.38 4.45 25.9%Wuhan Iron and Steel Mining Wuhan Steel 0.51 5.27 0.33 3.71 35.4%

Jiuquan Steel Iron and Steel Group Jiuquan Steel 0.50 6.68 0.27 3.18 36.3%Kunming Steel Dahongshan Mining Kunming Steel 1.21 10.28 0.55 4.00 33.9%Maanshan Steel Mining Masteel 0.90 10.20 0.24 2.65 19.4%

Hainan Mining Hainan Iron and Steel 0.57 5.21 0.05 0.52 43.0%Shanghai Meishan Mining Baosteel Meishan Steel 0.24 3.75 0.17 2.19 39.7%Shandong Jinling Iron Ore Shandong Steel Group 0.15 1.52 0.10 1.11 40.7%

Tonggang Banshi Mining Shougang Tonggang 0.24 2.72 0.11 1.17 30.1%Linyuan Steel Baoguo Iron Ore Linyuan Iron and Steel 0.22 2.52 0.08 0.83 24.5%Guangdong Dabaoshan Iron Ore Shaogang 0.10 0.99 0.06 0.63 -

Nangang Yeshan Mining Nanjing Iron and Steel 0.08 0.77 0.03 0.30 27.0%Anhui Lujiang Longqiao Mining Sugang（shareholder） 0.16 1.40 0.06 0.53 33.2%Hanxing Metallurgical Mining - 0.99 9.92 0.36 3.76 34.7%

Luzhong Mining - 0.28 3.30 0.14 1.62 27.4%Anhui Jin’an Mining - 0.24 2.61 0.08 0.87 25.9%Beijing Shouyun Iron Ore - 0.03 1.07 0.06 0.61 26.0%

Zhejiang Lizhu Iron Ore - 0.10 0.99 0.07 0.72 36.2%Beijing Yunye Mining - 0.15 1.66 0.05 0.50 25.2%Beijing Weike Metallurgy - 0.05 0.48 0.04 0.40 30.9%

Jiangsu Xuzhou Steel Mining 0.06 0.68 0.03 0.37 44.9%Jiangsu Xutie Iron Ore Group - 0.03 0.37 0.01 0.10 26.6%Anyang Steel Wuyang Mining 0.13 1.01 0.05 0.55 27.9%

21.77 235.55 7.65 82.03 27.5%124.64 1205.7217.5% 19.5%

Data Source: Steelease, Metallurgical Mines Association of China

Major MinesDomestic Proportion

Output of Major Mines in China, Nov. 2012

Mine (Unit: Million mt) OwnerROM Concentrates

Grade


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Appendix 3: Compilation Method for Price Index

Summary: ● Our domestic iron ore price index is a reference to reflect the extent of changes of China’s iron ore prices; the daily index has

been formed since the base date of May 9th, 2007. The prices acquisition areas are mainly concentrated in Hebei, Liaoning, Shandong and Inner Mongolia. The output of the four provinces accounted for more than 65% of the total output of China in 2009. The main domestic mining markets include but not limited to Tangshan Qian’an in Hebei Province, Chaoyang in Liaoning Province, Zibo in Shandong Province and Baotou in Inner Mongolia, etc..

● Prices of iron ore fines are the direct quote from the iron ore fines manufacturers, which ensures the reliability and timeliness of data.

● The compilation method for price index generally refers to the compilation method of CPI price index and other price indices, breakdown the price data and calculate the average value according to a certain method, taking the vertical axis as the regional composite index (average of different grade index) and the horizontal axis as the grade composite index (average of different regional index), a total composite index for domestic ore can be output ultimately. The process system is also adopted in the calculation i.e. each sub-index can be obtained as well. The index with no specific weight can be averaged by geometric method; the index with specific weight can be averaged by weighted average method.

● All prices are converted into uniform factory price including tax on dry basis.


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Appendix 4: Price Index


Hebei Liaoning Shandong Inner Mongo-lia 66% Fe 65% Fe 64% Fe Composite

Index

Composite Index

Composite Index

Composite Index

Composite Index

Composite Index

Composite Index

Composite Index

2007-05-09 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

...

...

...

...

...

...

...

...

...

2012-03-16 141.08 150.95 143.52 161.54 148.01 139.93 139.64 147.03 2012-03-23 141.08 152.66 143.52 161.54 148.67 140.58 139.64 147.64 2012-03-30 141.08 153.35 143.52 161.54 149.05 140.63 139.64 148.08 2012-04-06 140.55 152.82 143.52 161.54 148.54 140.08 138.70 147.46 2012-04-13 139.44 150.92 143.52 161.54 147.34 138.87 138.07 146.51 2012-04-20 138.84 149.54 143.52 161.54 146.36 138.65 138.07 145.76 2012-04-27 137.72 146.60 142.78 161.54 144.45 136.29 136.80 143.95 2012/05/04 137.14 145.77 140.70 161.54 143.65 134.63 134.27 142.75 2012/05/11 135.28 142.48 140.33 161.54 141.09 131.27 133.64 140.30 2012/05/18 132.78 140.75 136.19 154.95 138.54 129.12 129.69 137.61 2012/05/25 129.41 136.44 132.39 154.95 134.88 123.87 126.84 134.01 2012/06/01 128.04 134.35 129.26 154.95 133.51 123.09 125.42 132.78 2012/06/08 128.52 134.70 129.26 145.05 133.36 123.30 127.64 132.70 2012/06/15 130.08 136.42 129.41 145.05 134.60 125.63 129.86 133.79 2012/06/29 131.66 137.11 132.68 140.66 135.88 127.75 132.23 135.26 2012/07/06 131.52 136.42 132.68 140.66 135.56 127.64 132.23 135.03 2012/07/13 131.52 135.56 132.53 140.66 135.39 126.95 132.23 134.60 2012/07/20 130.03 131.56 129.10 140.66 133.06 124.93 129.54 132.43 2012/07/27 128.24 125.68 125.68 134.07 128.75 121.24 126.22 128.37 2012/08/03 124.81 124.86 125.61 134.07 127.90 120.13 125.28 127.10 2012/08/10 126.33 125.39 125.61 134.07 128.62 120.13 125.28 127.62 2012/08/17 126.12 124.86 120.09 134.07 128.06 119.82 123.63 126.84 2012/08/24 123.31 122.26 119.87 134.07 125.81 117.76 120.78 124.96 2012/08/31 117.41 118.45 117.05 134.07 122.00 113.45 117.31 120.99 2012/09/07 104.22 113.25 107.53 134.07 115.87 108.63 112.33 114.87 2012/09/14 103.06 110.16 107.38 134.07 113.97 105.61 109.79 112.90 2012/09/21 106.22 116.37 109.34 134.07 119.17 111.65 114.86 118.12 2012/09/28 120.35 117.07 104.13 134.07 120.13 111.65 114.32 118.76 2012/10/12 126.70 124.08 111.28 130.77 126.34 117.61 121.11 124.85 2012/10/19 125.46 122.78 111.11 130.77 125.34 116.16 121.11 123.74 2012/10/26 126.55 125.14 116.56 130.77 126.25 118.72 124.27 125.54 2012/11/02 126.26 126.05 116.56 130.77 126.34 120.22 125.53 125.69 2012/11/09 126.58 126.05 119.80 130.77 126.53 120.84 126.08 126.11 2012/11/16 126.27 125.57 119.80 130.77 126.09 120.73 126.08 125.78 2012/11/23 125.10 124.44 116.70 130.77 125.17 119.95 124.34 124.54 2012/11/30 124.70 123.35 116.19 130.77 124.50 119.57 123.08 123.93 2012/12/07 123.72 121.34 115.84 130.77 123.11 118.87 123.08 122.71 2012/12/14 124.92 122.96 115.84 130.77 124.32 120.70 123.08 123.89 2012/12/21 127.71 126.40 119.63 130.77 127.82 122.06 126.08 126.82 2012/12/28 129.91 127.36 124.19 130.77 129.34 123.66 128.52 128.66 2013/01/04 130.73 131.00 124.36 130.77 131.33 125.55 129.79 130.32 2013/01/11 138.67 140.50 134.76 130.77 139.63 135.21 139.18 138.53 2013/01/18 136.94 140.50 134.04 130.77 138.65 133.95 137.28 137.55 2013/01/25 136.71 140.18 134.04 130.77 138.28 133.95 136.65 137.32 Data Source: Steelease

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china iron ore monthly monitor-2013-01

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