Supplying ChinaExamining the Role of China in Global Steel Markets

Neil T. DharManaging Director

Hard Commodities DivisionNoble Group Limited

March 2012

New frontiers

1. About Noble

2

Who we are

� Noble is a market leader in managing the global supply chain of agricultural, industrial and energy products.

� Our “hands on” approach to business has seen us grow to become a world leader in supply chain management in just 20 years.

� We specialize in the origination and delivery of strategic raw materials, adding value at each stage of the supply chain.

3

What we do

4

Our Group’s Business Strategy

5

Our Global Reach

6

OperatingIncome

Our Global Reach

7

New frontiers

2. China’s Steel Market

8

Steel

9

� 2000-2010: booming decade for Chinese Steel, driven by domestic demand, infrastructure, growth in heavy industry.

� Steel production and domestic consumption is expected to peak this decade in 2015

� Evolution of the Chinese Economy towards growth in services (rather than heavy industry) should stabilize long term domestic demand

� Steel consumption likely to grow 6%-7% this year (vs. 8% in 2011) as housing construction cools.

Steel

10

� China has historically been both a net Importer and a net Exporter of Steel.

� However, overall trend has been evolution from Net Importer to Net Exporter and since 2005, China always been net Exporter

� The % of overall steel production going to the Export markets has traditionally been rather low (ranging from 7% to 15%) with a high emphasis on priority servicing of the domestic market.

Steel

11

� China is currently below global averages on the use of metal recycling in steel production; and there is currently no clear trend higher

� Steel is produced mostly using blast furnaces in China, with only 8% of crude steel output from Electric Arc Furnace [EAF] ,versus a 28% global average

� China’s average of ~14% scrap per steel used per tonne is currently below the 30%+ global average.

� Important to note that EAFs can be up to 22% cheaper to operate than blast furnaces, and can process more scrap

Scrap

12

� China could significantly save on Iron ore imports by catching up to global average in use of EAFs and scrap utilization

� Government recently addressed this issue with new sector policies:

• Targeting of 20% scrap usage rate (200kg scrap / tonne steel)

• Consolidation of industry and additional licenses for dismantling and recyling vehicles/ships to increase domestic supply of scrap

• Notably silent on any policies to drive larger overseas imports of scrap

Iron Ore

13

� The growth in global iron ore trading and domestic iron ore production during the last decade has been fueled almost exclusively by the Chinese steel industry.

� Chinese Iron Ore production represents significant % of total global production but most of it consumed domestically.

� Chinese reserves of raw iron ore are large, but of lower quality and thus relatively limited when adjusted for actual iron content (7.2Bt) and also limited relative to Demand / Production.

Iron Ore

14

� China currently imports accounts for about 60% of all global seaborne iron ore trade

� There is a high reliance on Australia, with more Iron Ore projects being developed in Australia (Western Australia) to supply the China market.

� China will continue to sustain seaborne iron ore imports (despite large domestic production) as China will increasingly face depletion of domestic high-quality deposits.

� Rapid escalation of mining costs prevalent in China due to relatively lower quality of the mineral deposits make imports the most viable long-term option to keeping steel industry competitive

Ferroalloys

15

� China is the largest ferroalloys-producing and exporting country (followed by South Africa, India, Kazakhstan and Russia).

� Leading producer and exporter of Ferrochromium and Ferrotungsten

� Leading producer and exporter of Ferromanganese (overseas market share > 50%)

� China is becoming more dependent on imports for its raw materials (e.g. Nickel ores, Chromites).

� But vertical integration with mine acquisition abroad and strategic alliances between steel and ferroalloy industries developing to maintain a secure supply

Metallurgical Coke

16

� China is currently the worlds largest producers of Coke (~366Mt) accounting for about 65% of global production.

� China used to be the largest seaborne coke exporter, but exports receded in 2008 after the central government raised coke export duties to 40%, from the previous 25% level.

� Chinese Coke exports remain intermittent and for niche qualities (maximum 7% of global seaborne trade)

� In recent years, Chinese Coke production is shifting from inland provinces (e.g. Shanxi) over to the coast where steel capacity is being added

Metallurgical Coal

17

� China is slowly but steadily developing into a more liquid domestic Metallurgical Coal marketplace, with the ability to trade a wide range of qualities

� Published indices are becoming more reliable and widespread, increasing transparency

� As Chinese Steel Mills and Cokeries come to rely on seaborne market for long-term supply, Chinese Metallurgical Coal traders can no longer remain passive opportunistic players, but now seek to engage (and influence) the seaborne market

� Consolidation of Metallurgical Coke capacity has allowed focused growth in Metallurgical Coal supply but structurally tight supply situation is likely to remain.

Metallurgical Coal

18

� Metallurgical Coal imports represent about 44m Mt (2010), making China the second largest global importer of coking coal (after Japan).

� Domestic Metallurgical Coal production probably can’t grow fast enough to satisfy demand - imports expected to increase

� Rising production cost and the RMB appreciation may keep price floor at relatively high levels.

� Mongolia could soon become China’s largest Metallurgical Coal supplier

New frontiers

3. Noble’s Strategy

19

Noble’s Sourcing Strategy

� Core strategy is to build integrated “pipelines” to control the critical stages of the supply process. We seek origination from low-cost production markets, and then add value and capture margin – at each subsequent step of the supply chain process.

20

Value Added by Noble

Mining Haulage Blending Shipping Marketing Delivery

Supplier diversification

Pre-financing Owned vessels give competitive freight

rates

Product optimization

Market knowledge and

pricing

Infrastructure development

Noble’s Competitive Advantages

� International and Global Company with strong links to China

� Strong Brand Name with wide recognition and prestige in China

� The appropriate mix of Asset-based and third-party sourcing

� A global trading network with strong international pipelines

� Logistical capabilities at sourcing point and delivery point

� Product blending as well as product beneficiation expertise

� Range of Steel Raw Materials product platform (one-stop-shop)

� Expertise in off take agreements to secure supply and support customers

� Successful at cooperating with partners through strategic alliances and JV’s

21

Noble’s Presence

� In 2011 we supplied about 10Mt of coal, 21Mt of iron ore, and about 200kt of Special ores and Alloys to China;

� Second largest importer of Metallurgical Coal in China;

� Managed portfolio of over 12 coal products sold to major steel mills and coke producers throughout China;

� Regional offices in Shanghai, Beijing, Baoshan and Mongolia;

� Securing Metcoal offtake and building Sino-Mongolian supply chain.

22

� Beitai� Benxi� Anshan� Jiachen

� Guofeng�Sinomet�Jianlong� Ruifeng�Capital� Shijiazhuang

�Wuhan� Xiangtan� Xinyegang

�Wuhan� Xiangtan� Xinyegang� Rizhao�Huaxi�Taishan� Shiheng� Jiuyang

� Yuanli�Baosteel�Masteel� Shangang� Zenith�Nanjing

Conclusions

� China is currently and will remain, a key demand side driver for the global steel markets

� Input supply side constraint domestically or internationally likely continue for some time

� China’s steel industry participants become international players and our future partners

� Any structural changes in China’s steel industry (consolidation etc) have a global impact

� Noble well positioned as a “one-stop shop” and supplier of choice to Chinese steel sector

23

Thank you very much !