Steel Raw Materials: Weekly Market Tracker...tier create a scrap oversupply Chinese crude steel output weakened in December and we think it unlikely that it will recover in January

l MBR’s Raw Materials Index started the year off on a higher note, with the index increasing 3.6% from the end of December. This is the first time since October that the index climbed above 200. Much of the gains can be attributed to scrap prices which rose strongly into January after exhibiting an increasing trend through December. Iron ore prices also posted gains.

l The US domestic scrap prices for rose $35/l. ton for HMS material, but some factors indicate that the market may experience downward pressure later this month. A post-holiday surge, weak pig iron prices and mild temperatures in the northern tier are creating a scrap oversupply that is already weighing on prices. Turkish merchants continue to remain active in the global scrap market, spreading their purchasing activity between the USA and Europe. As the euro continues to depreciate against the US dollar, however, EU ferrous scrap exports are becoming more attractive. Since the beginning of January the euro has depreciated about 2% against the dollar and will most likely continue to face pressure, thus pushing EU scrap to the forefront.

l Inventory-building in anticipation of the Lunar New Year has resulted in a small appreciation in the iron ore spot prices, as Chinese mills secure stocks ahead of the trade suspensions. We see this only as a short-term event and believe prices have little room to rise further. Chinese crude steel production weakened in December and we think it unlikely that it will recover in January. The export duty hike on iron ore fines and lumps implemented by the Indian authorities in early January will not have significant effects on the spot price in the short term.

l As expected, coke and coking coal demand has been subdued into January. Little activity is taking

place, and it seems that most buyers have what they need to last through the Lunar New Year holidays. With crude steel output growth slumping throughout Q4 2011, coke and coking coal stocks are sufficient to last into February. We see little pick-up in activity until next month. MBR expects that Q1 coking coal contract prices for FY 2012 will decline on a restrained demand outlook.

MBR Steel Raw Materials Index versus MBR Global Steel Price Index*Raw materials prices have increased slightly in early 2012

Source: Metal Bulletin Research *2006=100

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Raw Materials Index

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A post-holiday surge, weak pig iron prices and mild temperatures in the northern tier create a scrap oversupply

Chinese crude steel output weakened in December and we think it unlikely that it will recover in January

Steel Raw Materials: Weekly Market Tracker Regular analysis of coking coal, coke, iron ore, scrap, ferro-alloys, zinc and freight markets

MBR Steel Raw Materials Index* = 202

Issue 20610 January 2012www.metalbulletinresearch.com

Steel Raw Materials: Market Tracker 1Coke and Coking Coal Highlights 6Iron Ore Highlights 8Ferro-alloy Highlights 10Zinc Highlights 11Scrap Highlights 12Iron Metallics Highlights 14Freight Highlights 15Key Global Economic Indicators 16

Steelmaking Raw Materials MonthlyAnalysis of ferrous scrap, iron metallics, iron ore and coking coal markets

Issue 117January 200818 January 2008www.metalbulletinresearch.com

ContentsMarket prices 2North America 4Europe 7Asia 10Raw materials 12

Export rebates unchanged in China

l The Chinese government has put an end to the debate over rebates for aluminium rod, wire, bar and extruded profiles by reducing them to zero from July 1. However, sheet, coil and plate remain at 11% and foil at 13%. This move was largely unexpected and reflects the lobbying power of the new state-owned mills. Export agents and mills, especially those where massive investments have been made recently, are relieved but there is a general feeling that the remaining rebates are still under threat and may be reduced later in the year. Anticipation of the rebate cuts stimulated an increase in exports of semis over the past months.

l The North American flat rolled market has remained subdued in June as demand for rolled products has declined and ordering is weak. The market has been reported as soft and, while some mills are busy, most are generally struggling. Unsurprisingly, mills have been unable to maintain margins, and margins on standards have fallen by a cent. Lead times remained flat at 3-5 weeks in June. Weakening end-use demand is clearly illustrated by the weak US housing market, which saw no improvements. US housing starts fell by 24.2% year-on-year in May, while planning activity also softened as building permits fell 21.7% year-on-year in the same month.

l Aerospace market still booming: page 7l Mill margins weaken in Asia: page 12l Potential growth in Nigeria: page 19

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EAA vs Rolled Product Orders Indices The AA rolled products orders index continued to spiral down, falling by 15.7% year-on-year in May.

EAA Rolled Product Orders Index 6-mma

AA Sheet & Plate Orders Index 6-mma

6-mma = 6 month moving average

May Aug Nov Feb May Aug Nov Feb May Aug Nov Feb May04 04 04 05 05 05 05 06 06 06 06 07 07

Source: MBR, AA, EAA

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IMPORTANT NOTICE

4 Steel Raw Materials: Weekly Market Tracker January 2012

Metal Bulletin Research

201.82

Weekly Raw Materials PricesUnit Prices

todayPrices 7 days

ago% ch

wk/wkWeekly

price trend Prices 4 weeks

ago% ch vs. last

monthCoking Coal (1) Australian export $/tonne 235 235 0.0% FLAT 255 -7.8%

US (low-vol) export $/ton 230 240 -4.2% DOWN 250 -8.0%Chinese (domestic price - Shanxi Province) $/tonne 255 255 0.0% FLAT 255 0.0%

Coke Chinese export FOB (3) $/tonne 485 485 0.0% FLAT 485 0.0%Chinese domestic (2) $/tonne 306 305 0.3% UP 303 1.0%

Iron Ore Chinese fines import CFR $/tonne 145 145 0.0% FLAT 142 2.5%Indian export FOB (63.5% Fe) $/tonne 134 133 0.6% UP 131 2.3%Chinese pellet import CFR $/tonne 163 163 0.0% FLAT 158 2.8%Chinese domestic concentrate (13) $/tonne 173 173 0.2% UP 177 -2.3%Chinese domestic pellet(14) $/tonne 193 194 -0.6% DOWN 194 -0.6%MB Iron Ore Index, China imports (62% Fe)(12) $/tonne 141 139 2.1% UP 140 1.3%

Pig Iron CIS export (4) $/tonne 458 458 0.0% FLAT 435 5.2%Brazilian export (Vitoria) $/tonne 453 445 1.7% UP 445 1.7%Brazilian export (Ponta da Madeira) $/tonne 473 455 3.8% UP 453 4.4%EU import CFR $/tonne 471 500 -5.8% DOWN 501 -6.1%

HBI Venezuelan export (5) $/tonne 340 325 4.6% UP 340 0.0%

Ferrous scrap US domestic HMS No1 $/l.ton 445 410 8.5% UP 410 8.5%US domestic shredded $/l.ton 470 440 6.8% UP 440 6.8%US scrap export East Coast HMS No1 FOB $/tonne 440 440 0.0% FLAT 397 10.8%US domestic No1 Busheling $/l.ton 525 500 5.0% UP 500 5.0%EU Rotterdam HMS No1 FOB $/tonne 439 439 0.0% FLAT 400 9.7%EU Rotterdam HMS No1&2 FOB $/tonne 382 382 0.0% FLAT 355 7.6%EU Rotterdam shredded FOB $/tonne 442 442 0.0% FLAT 405 9.1%South Korean import HMS No1 CFR $/tonne 470 456 3.1% UP 440 6.8%Japan export HMS No2 FOB ¥/tonne 31,750 32,000 -0.8% DOWN 31,250 1.6%Japan domestic delivered HMS No2 (Tokyo) ¥/tonne 32,250 32,750 -1.5% DOWN 30,250 6.6%Japan domestic delivered HMS No2 (Osaka) ¥/tonne 32,250 32,750 -1.5% DOWN 29,750 8.4%Turkish A3 import CFR (Izmir) $/tonne 455 455 0.0% FLAT 430 5.8%Black Sea A3 export FOB $/tonne 440 440 0.0% FLAT 415 6.0%MB ferrous scrap Turkey index CFR Iskenderun $/tonne 464 464 0.0% DOWN 433.3 7.0%

Ferro-Silicon (75%) European free market €/tonne 1,110 1,110 0.0% FLAT 1,150 -3.5%US import CFR $/lb 0.91 0.91 0.0% FLAT 0.96 -5.7%Japanese import CFR $/tonne 1,425 1,475 -3.4% DOWN 1,475 -3.4%Chinese export FOB $/tonne 1,430 1,430 0.0% FLAT 1,430 0.0%

Ferro-Manganese European high-carbon (78%) €/tonne 805 805 0.0% FLAT 805 0.0%US high-carbon (78%) $/l. ton 1,275 1,275 0.0% FLAT 1,330 -4.1%US medium-carbon (80%) $/lb 1.03 1.03 0.0% FLAT 1.03 0.0%Chinese high-carbon FOB (75%) $/tonne 1,505 1,505 0.0% FLAT 1,505 0.0%

Silico-Manganese Chinese export (65% Mn, 17% Si) $/tonne 1,510 1,510 0.0% FLAT 1,510 0.0%European lumpy (65-75% Mn, 14-25% Si) €/tonne 805 805 0.0% FLAT 805 0.0%US free market (65-75% Mn, 14-25% Si) $/lb 0.51 0.51 0.0% FLAT 0.57 -9.7%

Ferro-Chrome European import (60%) $/lb 1.10 1.10 0.0% FLAT 1.13 -2.2%(high-carbon) US import (60-65%) $/lb 1.09 1.09 0.0% FLAT 1.10 -0.9%

Chinese export (60%) $/lb 0.93 0.91 2.0% UP 0.90 3.1%

Ferro-Vanadium European destinations delivered $/kg 24.78 23.60 5.0% UP 24.20 2.4%(70-80%) US free market $/lb 14.25 14.25 0.0% FLAT 14.25 0.0%

Vanadium pentoxide CIF Europe $/lb 5.85 6.10 -4.1% DOWN 6.18 -5.3%

Ferro-Molybdenum European destinations delivered (65-70%) $/kg 33.35 32.60 2.3% UP 32.80 1.7%US free market (65-70%) $/lb 16.30 16.30 0.0% FLAT 15.75 3.5%

Molybdic Oxide European in-warehouse $/lb 13.75 13.55 1.5% UP 13.40 2.6%US in-warehouse $/lb 13.55 13.55 0.0% FLAT 13.40 1.1%

Zinc LME spot $/tonne 1,913 1,834 4.3% UP 1,850 3.4%LME three-month $/tonne 1,923 1,851 3.9% UP 1,862 3.3%

Aluminium LME spot $/tonne 2,138 2,020 5.8% UP 1,966 8.8%LME three-month $/tonne 2,155 2,043 5.5% UP 1,988 8.4%

Tin LME spot $/tonne 20,075 19,573 2.6% UP 19,019 5.6%LME three-month $/tonne 20,010 19,624 2.0% UP 19,026 5.2%

LME Index (6) Index 347 339 2.4% UP 333 4.4%

CRB Index spot (7) Index 481 481 0.0% FLAT 476 0.9%

Freight JEHMA (8) Index 9,969 10,194 -2.2% DOWN 12,094 -17.6%BSI S2 Route (9) $/day 6,098 5,955 2.4% UP 7,327 -16.8%Baltic Supramax Index (BSI) (10) Index 1,112 1,176 -5.4% DOWN 1,335 -16.7%

Energy Crude oil WTI (11) $/barrel 101.30 99.68 1.6% UP 100.50 0.8%Natural gas (Henry Hub) $/mmBtu 3.01 3.11 -3.3% DOWN 3.46 -13.0%

Exchange Rates Dollar : Euro $:€ 0.786 0.776 1.4% UP 0.758 3.7%Dollar : Pound $:£ 0.648 0.644 0.7% UP 0.641 1.1%Dollar : Yen $:¥ 76.9 76.9 0.0% UP 77.83 -1.2%Dollar : Renminbi $:Rmb 6.31 6.32 -0.2% DOWN 6.35 -0.6%Dollar : Rouble $:Rs 31.62 31.88 -0.8% DOWN 31.30 1.0%

Note: (1) Hard coking coal spot price (FOB) (2) Basis second grade, average of all producing provinces (3) Basis Shanxi Province, first grade, <12.5% ash. (4) Basis Black Sea/Baltic Sea. (5) Basis FOB stowed (6) A weighted average of the six base metals, with January 1999 as the base. (7) Commodities Research Bureau is a US commodities research data firm, which has began an index tracking the price movements of 22 commodities in 1962. It currently uses 1967 as its base. (8) JE Hyde Handymax Index tracks changes in the following routes: Antwerp - Skaw Trip Far East, Canakkale Trip Far East, Japan - SK/NOPAC or Australia, Japan - SK Trip Gib - Skaw range, Antwerp - Skaw Trip US Gulf, USG Trip Skaw - Passero. (9) Delivery to South Korea/Japan, range for one Australian or TranspaCIFic round voyage, for a 35/40 day round trip, with redelivery to South Korea/Japan range 5% commission total. (10) Baltic Exchange Supramax Index tracks changes in the following routes: Antwerp/Skaw range redelivery Singapore/Japan, South Korea/Japan range for Australian or trans-PaCIFic round voyage, South Korea/Japan range redelivery Gibraltar/Skaw, Gibraltar/Skaw for trans-Atlantic round voyage. (11) West Texas Intermediate, Nymex. (12) Latest figures available at www.mbironoreindex.com. (13) Hebei region concentrates with ferrous content 66-69%, average of all producers. (14) Average of 9 producing regions, ferrous content ranging from 54-63.5%.* 2006=100. The MBR Raw Materials Index is a weighted measure of price movements of four of the most influential raw materials required for the steel making process, as well as of freight. The average price for 2006 was taken as the base value.

MBR Raw Materials Index* =

The Chinese in-warehouse (Rotterdam) ferro-molybdenum 60% basis price will no longer be reported as of 10/01/2012

January 2012 Steel Raw Materials: Weekly Market Tracker 5

Metal Bulletin ResearchMetal Bulletin Research

Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12Scrap - USHMS No 1(1) Midwest 335 417 423 420 420 413 386 400 400 410 420 420 421 400 410 417 413(2) East Coast 353 432 444 441 441 426 400 408 420 425 430 430 442 411 425 425 428(2) West Coast 361 398 415 410 415 390 340 355 375 385 390 380 413 362 383 377 387US shredded(1) Midwest 352 444 453 446 445 438 411 428 435 440 445 440 448 426 440 433 427(2) East Coast 363 436 450 445 445 430 390 410 425 430 435 435 447 410 430 430 433(2) West Coast 372 408 425 420 420 395 345 360 380 390 395 385 422 367 389 382 392

US No.1 busheling 422 493 513 510 511 503 460 483 500 510 515 505 511 482 508 498 502Scrap - AsiaJapan (Kanto price)

HMS No 2 ('000 ¥/tonne) 32 35 35 33 35 32 28 30 32 33 33 34 34 30 33 34 35(2) HMS No 2 export 358 436 450 443 453 417 352 388 386 390 395 395 449 386 390 405 431South Korea

HMS No 1 ('000 won/tonne) 362 347 475 453 437 453 431 475 473 477 482 482 455 453 477 492 517(2) HMS No 1 import 403 478 488 495 499 475 423 442 440 445 450 450 494 447 445 462 492Scrap - EuropeHMS No 1(3) Belgium 271 296 295 295 295 285 265 275 270 270 265 270 295 275 268 275 290

France 261 306 305 305 305 295 275 275 270 270 265 270 305 282 268 275 290Germany 264 315 312 312 310 300 280 290 285 285 279 285 311 290 283 290 306Italy 271 330 320 320 320 310 290 300 295 295 289 295 320 300 293 300 316Spain 261 335 330 330 330 320 300 310 304 304 299 304 330 310 302 310 327

(4) UK 208 237 230 230 230 220 211 222 218 218 214 218 230 218 217 222 234(2) Export 350 433 444 441 439 420 396 403 410 420 425 425 441 406 418 420 427Shredded(3) Belgium 282 312 310 310 305 290 270 280 275 275 270 275 308 280 273 280 295

France 277 320 320 320 315 300 280 290 285 285 279 285 318 290 283 290 306Germany 284 327 325 325 320 305 285 285 280 280 275 280 323 292 278 285 301Italy 296 352 350 350 340 325 310 320 314 314 308 314 347 318 312 320 337Spain 271 350 340 340 340 325 310 320 314 314 308 314 340 318 312 320 337

(4) UK 219 252 241 241 240 230 218 225 221 221 217 221 241 224 220 225 237(2) Export 355 438 449 446 444 425 401 408 415 425 430 430 446 411 424 427 438

Pig iron (2)

US import 471 524 543 557 540 500 465 460 465 470 470 485 547 475 468 488 517Korea import 459 529 540 545 550 510 480 470 475 480 480 495 545 487 478 498 525CIS export 439 508 544 537 521 486 436 435 440 450 455 460 534 452 448 465 503

HBI (2)

USA 334 454 455 460 460 465 455 430 435 440 440 445 458 450 438 448 467

Iron ore (2)

63.5% fines CFR China 152 175 179 186 187 170 141 135 135 145 150 150 184 149 143 145 137

Coking coal (2)

Chinese domestic (Shanxi) 219 247 246 250 260 262 257 255 250 240 240 235 252 258 243 232 230Australian HCC spot 214 295 306 299 287 281 258 253 245 240 240 235 297 264 242 233 245US low-vol HCC spot 205 285 300 300 289 284 257 248 240 235 235 230 296 263 237 230 238

Coke (2)

Chinese FOB export 449 487 500 490 485 485 485 485 490 490 500 500 492 485 493 493 473Notes: Shaded cells contain forecast data, (1) $/long ton (2) $/tonne (3) €/tonne (4) £/tonne. South Korean domestic HMS No 1 ('000 won/tonne) includes a 10% VAT

2010 2011

Overview of MBR raw material price expectationsWe are now expecting prices to continue to correct into next month, with marked increases only coming in the New Year

Source: Metal Bulletin Research

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Chinese domestic Hard Coking spot price (ex-Shanxi province)US East Coast export HMS No1Chinese iron ore fines import CFR [RHS]



Market Outlook

Coke and Coking Coal Highlights

l Subdued steel output hinders demand into Januaryl Inventories are sufficient to cover needs into next monthl Trading activity is not expected to pick up until after New Year holidays

Coking coal market activity yet to pick up in New YearLast month, we expected that the coking coal spot market would go quiet over the holidays with the risk that little activity would take place through the Chinese Lunar New Year. Inventories, so far, appear to be sufficient to cover mills’ needs as hot metal and crude steel production growth across the industry has been subdued, thus limiting raw materials demand. Spot coking coal prices are now below $240/tonne FOB and closer to $230/tonne for premium hard coking coal with the transactions that do take place falling below the fourth quarter of financial year 2011 hard coking coal contract price of $230-235/tonne FOB. As demand contracts lead up to the Lunar New Year festivities, international spot prices will continue to falter.

Prices for material sales to China remained flat with Australian hard coking coal offered at around $230-240/tonne CFR, and some lower quality coking coal at $200/tonne CFR.

Chinese coking coal demand under pressure until next monthTrading activity in China remains thin, and coal miners will gradually slow production for holidays over the next two weeks which will see the number of transactions come off further. There is little positive news in the local steel markets at this point. Chinese steel prices fluctuated over the past few weeks but are on a par with prices one month ago. Steel billet prices in Tangshan were at Rmb3,770/tonne this week, little changed from mid-December. Crude steel production slowed over the past month, with daily output rates falling 2.4% in the last ten days of December, from earlier in the month as December output declined 0.5% from November.

Mainstream hard coking coal prices in Shanxi and Hebei province stood at Rmb1,550-1,680/tonne ($246-267/tonne) this week, little overall change in average prices but sentiment is falling. In order to move material, coking coal miners in Shandong province lowered offer prices by Rmb50/tonne, but it did not make a difference in transaction prices as previous prices were also steeply discounted. Mills are willing to wait for offers to fall.

Coke prices find little supportAs China’s steel product markets seek direction, there is little activity in the domestic or export coke markets. As a result, coke prices displayed

As expected, coke and coking coal demand has been subdued into January. Little activity is taking place, and it seems that most buyers have what they need to last through the Chinese Lunar New Year holidays.

With crude steel production growth slumping throughout the fourth quarter of 2011, coke and coking coal inventories are sufficient to last into February 2012. We see little pick-up in activity taking place until next month. The USA, however, looks set to continue the trend of positive net coke imports on sustained BF/BOF output. MBR holds to the expectation that first quarter coking coal contract prices for the financial year 2012 will decline on a restrained demand outlook. Key Prices

This week

Next week

Chinese Coke export 485 -1%Shanxi coking coal 255 0%Australia coking coal 235 -1%

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Chinese coke(FOB, $ tonne)


International spot prices will continue to falter, as demand dwindles in run-up up to Lunar New Year festivities

Chinese steel prices fluctuated over the past few weeks, but are on par with prices one month ago

Source: Metal Bulletin Research, US Census Bureau

US metallurgical coal exports (m tonnes) Brazilian mills will look for other sources of coking coal this

year as prices may still be too high to grow steel margins

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little movement through the start of the year. Though coke producers have been keen to raise prices due to the constriction of high production costs and falling product prices, poor demand is not providing any support. January crude steel production will likely continue the downward trend in output that began in the second half of 2011. Coke prices will have limited scope to increase before the end of the Lunar New year holiday next month.

Coke futures on the Dalian Commodity Exchange ended higher over the past week, with the most traded May contract closing at Rmb2,034/tonne, up 1.7% from a week ago. On the spot market, coke prices slipped, as demand from steel mills is sluggish and will likely stay that way as the New Year holiday nears. Grade II coke in northern China stood at Rmb1,750-1,850/tonne free on rail, down Rmb50/tonne from a week ago, while grade I coke stood at around Rmb1,950/tonne, narrowed from Rmb1,950-2,000/tonne a week ago.

Chinese export quota reduced for the first half 2012Further pressure will be placed on coke makers this year as Beijing reduced China’s export quota for the first half of the year, dropping exports to 4.2m tonnes from 4.6m tonnes in the first half of 2011 and 6.1m tonnes in 2010. These quotas are meant to keep material in the domestic market. As has been the case in the past, the cost structure is such that, without the export outlet and the slowing growth in hot metal output, plants will continue to close over time, thus shoring up prices and cutting pollution from the aging plants. With less Chinese coke in the international markets, even with the export tax, there will be a supply shortage in times of high demand.

Meanwhile, export prices, with the 40% tax, have little market in which to rise at this time since few deals have been closed and there is little potential activity taking place. Prices are unchanged from the end of 2011. Hot metal and crude steel production have been under pressure globally since late last year as steel prices softened. The seasonal firming of prices in the first quarter, however, could bring about a turnaround in steel output and overall coke demand going into the second quarter. For example, as the chart illustrates, US BOF output, due to operating efficiencies, did not take as strong a hit as US EAF output in the fourth quarter. We see little reversal in this trend and expect US imports to exceed exports in the first quarter as well. Lower supplies out of China will eventually provide price support.

Coke producers have been keen to raise prices due to the constriction of high production costs and falling product prices

With less Chinese coke in the international markets, even with the export tax, there will be a supply shortage in times of high demand


US steel mill production rates (tonnes/day) BOF rates remained on an upward trend through the end of

2011, while EAF output faltered

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Poland coke production and exports ('000 tonnes) Production fell throughout the second half of 2011, but

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Iron Ore Highlights

l Spot prices may move up slightly on pre-holiday restockingl February steel prices are kept low to attract ordersl Indian export duty rises to 30% for fines and lump

Exports to China supported by pre-holiday restockingPrices of export iron ore in China rose in the first week of 2012 on the back of stronger demand. This was primarily due to the attempt of the steelmakers to secure some stocks before Chinese New Year celebrations begin on 22 January. Since 23 December, import fines gained on average 3%. Prices of lumps from Australia and India grew on average 2.9% since the end of December.

In the coming week, we expect prices into China to move further up as the traders and miners will try to push prices taking advantage of the pre-holiday buying spree. However, we remain sceptical of the ability of Chinese steelmakers to support significantly higher prices. We believe that only a marginal price increase is plausible, to around $146/tonne for 63.5% ferrous content grades.

Chinese demand softening to last to the end of JanuaryChinese demand for raw materials suffered a slump in December as steel production fell. Daily production rates at the end of the month suffered a decline, led by large steel mills and caused by weak end-user demand and thinning orders. In particular, when the third quarter figures on construction suggested that the plan to start construction of 10 million housing units was accumulating delay, we thought that Chinese authorities would boost

Market Outlook 2012 opened with a small appreciation in the spot market, as Chinese mills secure stocks ahead of the trade suspensions during lunar New Year celebrations. We believe this will lead to only small price rises in the coming week. On the demand side, Chinese crude steel production has weakened in December and we think it unlikely that it will recover in January, a traditionally slow month for construction. Japanese crude steel production and iron ore consumption, on the other hand, may have returned to growth in December and will probably keep the trend up in January, contributing some additional support to prices.

On the supply side, the export duty hike on iron ore fines and lumps implemented by the Indian authorities in early January will not have significant effects on the spot price, at least until supply from Australia and Brazil escape the potential seasonal disruptions in February and March.

We expect prices into China to move further up as traders and miners take advantage of the pre-holiday buying spree

Key PricesThis

weekNext week

Chinese fines import 145 1.0%Chinese pellet imports 163 1.0%

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Source: Metal Bulletin Research, Steelhome

Iron ore fines imports to China

Premium grades start the year heading up

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$/to

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Braziian fines 65%

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Source: Metal Bulletin Research, Steelhome

Iron ore lump imports to China

Export duty further tightens Indian lump market and prices

start heading up

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China's attempt to rein in inflation prevents local governments from financing construction projects

Decline in Indian exports could exacerbate an iron ore price rise

construction starts, and construction steel demand, for the end of the year to meet the target. It would seem that the simultaneous attempt to rein in inflation by raising the capital requirements for banks, prevented local governments from financing construction projects. We expect orders to remain at low levels in the coming three weeks and until Chinese New Year celebrations last. In expectation of a continuingly slow market, both Baosteel and Hebei Steel maintained their February prices flat.

Japan crude steel production trends upwardsIn Japan, the second larger iron ore importer, crude steel production stopped falling year-on-year and we expect data for December 2011 to mark a y-o-y growth, as the reconstruction effort gathered momentum. Japanese demand will likely stabilise in early 2012. This return will provide some support to prices, particularly as the seasonal rains in Australia and Brazil could lead to disruption in the supplies.

Indian steelmakers obtain iron ore export duty hike An attempt to develop Indian steel industry has resulted in the government decision to increase export duties on non-manufactured iron ore products (fines and lumps). On 2 January 2012, the export duty went up to 30%.

The immediate implications of this policy change are negligible. On the domestic side, and for the Indian steelmaking capacity the domestic market is sufficiently served. Additionally, Indian steelmakers have technology geared to using lump instead of fines, so it will take some investment to be able to profit from an increase in fines availability. On the international side, any loss of Indian supply will be compensated by Australian miners, which, in 2011 put on stream sufficient capacity to supply the spot market.

In the medium term, especially with the revitalisation demand that will follow the end of Chinese New Year celebrations, a further decline in Indian export could exacerbate an iron ore price rise, should seasonal, weather-related disruptions on trade from Brazil, and Australia become more likely.

Domestically, the move is in line with the growing trend towards trade protectionism. In many of China’s commodity suppliers, advocates of a change in trade terms are gathering support. Particularly, but by no means exclusively in emerging markets, a growing constituency would like to see their low value-added exports falling in favour of the development of a stronger and more competitive manufacturing industry. This in turn would need cheap captive raw materials to feed its phase of development. Indian steelmakers therefore expect that the move will force down the price of iron ore in the domestic market, cutting costs for Indian steelmakers and increase their competitiveness against, for example, Chinese exporters of finished steel products.


BOF crude steel production in major iron ore import countries Falling demand in China and

Germany accentuated in December


Chinese iron ore supply year-on-year, Jan-Sep 2011 - Indian supplies to fall further in 2012, and may

lead to tight markets during the Australian rainy season

-15%

-10%

-5%

0%

5%

10%

15%

20%

Jan 11

Feb 11

Mar 11

Apr 11

May 11

Jun 11

Jul 11

Aug 11

Sep 11

Oct 11

Nov 11

year

-on-

year

% c

hang

e

China

Germany

Japan

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

-25-20-15-10-505

10152025

SOUT

H AF

RICA

BRAZ

IL

INDI

A

AUST

RALI

A

VENE

ZUEL

A

IRAN

y-o-

y ch

ange

y-o-

y ch

ang

e m

illio

n to

nnes

Absolute change [LHS]% change [RHS]



Market Outlook

Ferro-alloy Highlights

l Ferro-alloy prices show signs of stabilising in early 2012 l US ferro-silicon prices find a floor after plunging late last year l Chinese ferro-silicon prices struggle as steel growth slows

Ferro-silicon stabilises in the USA, but struggles in ChinaAfter facing significant downward pricing pressure in late 2011, US ferro-silicon prices appear to have found a floor at around $0.89-0.92/lb. US ferro-silicon prices had gained a significant premium over European and Chinese prices last year, and this premium was eradicated both by an influx of material redirected from Europe to the USA as European steelmakers slashed production in the final quarter of 2011 and relatively inexpensive imports from China. The surge of imports from Europe has now slowed, however, and US prices have stabilised at a level on a par with Chinese replacement costs.

Meanwhile, Chinese ferro-silicon export prices are stable at $1,420-1,440/tonne FOB in a subdued market marked by quiet demand. Chinese producers are cutting their domestic offer prices in an attempt to stimulate buying activity ahead of the Chinese New Year. Export offers are down by Rmb50/tonne to Rmb6,400-6,500/tonne. Chinese ferro-silicon producers have already shuttered approximately half of the nation’s capacity, and with steelmakers understood to have sufficient ferro-silicon stocks on hand, we do not foresee any improvement in Chinese ferro-silicon prices or demand in the near term.

According to the China Iron and Steel Association (CISA), Chinese steel output is estimated to have reached 680m tonnes in 2011, down from earlier estimates of 690m tonnes. In November, based on data from the Worldsteel Association, Chinese steel production slipped to 49.9m tonnes, marking the sixth consecutive month of production declines.

Output is expected to show a further decline in December data. We do not see a significant improvement in Chinese steel production in early 2012, with output initially dampened by the Chinese New Year celebrations in January.

Furthermore, CISA is warning that apparent steel consumption in China is forecast to rise just 4% year-on-year in 2012 to 700m tonnes. Demand growth at this modest level will limit both steel production and ferro-alloys consumption growth in 2012.

The surge of imports from Europe have slowed and US prices have stabilised to level with Chinese replacement costs

CISA forecasts that apparent steel consumption in China will rise by just 4% year-on-year in 2012

Key PricesThis

weekNext week

US import FeSi 0.91 0%EU import FeCr 1.10 -1%US free market FeMo 16.30 -1%Chinese export FeCr 0.93 0%

1,000

1,500

2,000

2,500

Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12

European FeSi price


$/ton

ne

Ferro-alloy prices are generally stable in early 2012, as the downward pressure that characterised most markets late last year has dissipated, at least temporarily. The US steel market is far outperforming other regional markets, and hence, we may see stronger ferro-alloy pricing in this market as well. Higher prices, however, inevitably attract increased imports, as we saw late last year in the case of ferro-silicon in particular.

We expect to see stronger ferro-alloy buying activity in China in the next two weeks in advance of the Chinese New Year celebrations. Chinese steelmakers generally restock before the holiday closures, with increased purchasing lending upward momentum to prices. The uplifting price effect may be more subdued this year, however, as steelmakers continue to restrain output levels, and a number of mills are understood to have sufficient ferro-alloy inventories.


Chinese HR steel prices vs FeSi and SiMn export prices - Chinese ferro-alloy prices continue to

decline amid sluggish steel prices and production

400

800

1,200

1,600

2,000

2,400

100

200

300

400

500

600

700

800

900

Dec 08

Jun 09

Dec 09

Jun 10

Dec 10

Jun 11

Dec 11

$/tonne

$/to

nne

HR Coil (LHS)FeSi (RHS)SiMn (RHS)

LME stocks start to climb again After peaking at 894,825 tonnes in mid-July, LME zinc stocks had started to decline in the second half of 2011, reaching 736,150 tonnes in early December. However, they have since recovered to 819,200 tonnes. This sudden rebound may well have been destocking ahead of year end. The bulk of the increases were seen in New Orleans and Johor during the period December 8-22, but since then the inflow has slowed to a trickle. The outflow has also slowed, averaging 2,488 tpd in November and 1,346 tpd since the start of December. We will now wait to see if the outflow starts to pick back up again. If not then it may well be an indicator of slower demand, which is what we would expect given the macroeconomic backdrop. Indeed, it is noteworthy that cancelled warrants have dropped to 12,050 tonnes down from a peak of 114,950 tonnes in August, which suggests that demand for warrants is much softer than it was. Prices suggest market is well balanced, but surpluses suggest otherwiseWith zinc prices holding at depressed levels, but not heading lower, it does suggest the market is well balanced at present, even though global supply exceeded demand by 300,000-400,000 tonnes last year and we expect to see another surplus year in 2012. Given the cumulative surplus in recent years, most of which has been accumulated in financing deals, we feel that in the absence of production cutbacks prices still have the potential to fall.


Market Outloook

Zinc Highlights

l Zinc prices are stuck in a sideways range l Stocks have been climbing again and the global outlook is generally weakl The main exception seems to be the resilience of the US economy

Zinc prices are languishing around the $1,850/tonne mark. Although they have avoided retesting the October lows at $1,719/tonne, they are struggling to advance above $1,900/tonne. There have been three attempts to test this level since mid-December and each one has left a tail on the chart, which implies overhead supply. Another feature that has changed is the direction of LME stocks, which have started to climb again.

Given the overall economic outlook with a depressed prognosis for Europe and slowing growth in Asia, the outlook for zinc demand is not good at the global level. That said, the outlook for the US is running high, with macroeconomic data continuing to come in generally ahead of expectations. However, globally the zinc market is expected to remain in a surplus in 2012 and therefore it is difficult to get bullish on prices for the metal unless the economic outlook improves to the extent that funds start to get bullish again.

Source: LME, Metal Bulletin Research

LME three-month official zinc price daily basis

1,500

1,900

2,300

2,700

Mar 11

Apr 11

May 11

Jun 11

Jul 11

Aug 11

Sep 11

Oct 11

Nov 11

Dec 11

Jan 12

3-month price

100-day MA

200-day MA

'000

tonn

e

Given the cumulative surplus in recent years and the poor demand outlook, we feel that in the absence of significant production cutbacks prices still have the potential to fall

Source: LME, Metal Bulletin Research

Total LME zinc stocks and cancelled warrants

250

350

450

550

650

750

850

950

Mar 11

Apr 11

May 11

Jun 11

Jul 11

Aug 11

Sep 11

Oct 11

Nov 11

Dec 11

Jan 12

0%

3%

6%

9%

12%

15%

Cancelled warrants [RHS]

LME stocks [LHS]

'000 tonne % of total tonnage

Key PricesThis

weekNext week

LME spot 1,855 -2%LME three month 1,868 -2%

1,750

2,000

2,250

2,500

Q4 10

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

Q3 12

Q4 12


Zinc price forecast ($/tonne)




Market Outlook

Scrap Highlights

l US domestic scrap market begins the year with strong pricel European scrap export markets receive support from the weak euro l Heavy scrap prices in China decline slightly on sluggish domestic steel market

US domestic market begins the year strong, but may feel the effects of oversupply later this monthThis week, the US domestic scrap market followed a pricing scheme similar to the trend seen last month. Prices for US HMS No. 1 rose $35/long ton delivered mill terms, while No. 2 domestic average prices increased $30/long ton delivered mill terms, the equivalent of 8.54% and 7.63% gain, respectively. Although prices picked up this week, some factors indicate that the US domestic scrap market may experience downward pressure later this month. One of the leading indicators that suggest US scrap may be vulnerable to price deterioration is the oversupply of scrap in the market.

The pricing tone for scrap prices this week was primarily influenced by last month’s price surges, which took place before the holiday shutdowns. The return of mills and scrap merchants to the market following the holiday triggered a flood of scrap into the market, resulting with large volume of ideal scrap. Additionally US import prices for pig iron, which range around $460/tonne CFR Gulf, will compete with prime grades of scrap. The combination of these indicators suggests that the US domestic scrap market may face downward pricing pressure later this month.

The international scrap market entered the quarter with scrap prices for many countries settling higher than last month. Mills and merchants will focus on global economic growth projections in order to forecast steel production and apparent scrap demand. In the US domestic market, the year has begun with a surge in domestic prices; however, we expect that these new price levels will be vulnerable to deterioration later this month due to oversupply issues.

In the global scrap export market, the exchange rate put pressure on ferrous scrap exports from the EU and USA, allowing the export markets in the EU to gain support from the weakening euro. Since the beginning of January the euro has depreciated about 2% against the dollar (1.27:1). Economic policies in China will continue to have a large impact on steel and scrap consumption this year. Mainstream heavy scrap prices in eastern China stood at Rmb3,300-3,340/tonne ($523-529/tonne) including tax, a decline of Rmb50-100/tonne from mid-December. The slight price deterioration of scrap prices has primarily been attributed to sluggishness in China’s domestic steel market.

Key PricesThis

weekNext week

US HMS No.1 445 0%Japan HMS No.2 (¥) 32,250 -1%Turkish A3 import 455 2%Rotterdam HMS No.1 439 2%

0

100

200

300

400

500

Q1 10 Q3 10 Q1 11 Q3 11 Q1 12 Q3 12

US HMS No. 1($/tonne)


Although prices picked up this week, the US domestic scrap market may experience downward pressure later this month


Turkey ferrous scrap importsEAF crude steel production - as EAF crude steel output rises so

to does the volume of ferrous scrap imports into Turkey

0

500

1,000

1,500

2,000

2,500

Jan 06 Nov 06 Sep 07 Jul 08 May 09 Mar 10 Jan 11

January - March

Turkey Total Ferrous Scrap Imports

Turkey Crude Steel Production EAF


Euro to dollar exchange rate fluctuation Europeans ferrous scrap export market continues to be

supported with the depreciation of euro

-2

-1

0

1

2

3

4

5

6

0.62

0.64

0.66

0.68

0.7

0.72

0.74

0.76

0.78

Oct 11 Oct 11 Oct 11 Nov 11 Nov 11 Dec 11 Dec 11 Jan 12

euro:dollar [LHS]

% change day-to-day [RHS]



European export markets gain support with the depreciation of the euroTurkish merchants continue to remain active in the global scrap market, spreading their purchasing activity between the USA and Europe. As the euro continues to depreciate against the US dollar, ferrous scrap exports from the EU are becoming more attractive. Since the beginning of January the euro has depreciated about 2% against the dollar (1.27 $/€). The correlation of the currency exchange rate to the volume of scrap imported into Turkey, suggests that as the dollar strengthens, European exports become less expensive and attract more foreign demand. The euro will most likely continue to face downward pressure as the eurozone sovereign debt-crisis remains unresolved.

Prices for US export ferrous scrap HMS 1&2 (80:20) were recorded last week at selling for $440/tonne fob East Coast, with Europe export ferrous scrap HMS 1&2 (80:20) at $439/tonne fob Rotterdam. The relationship between the currency exchange and volume of scrap purchases is most likely driven by the preference of Turkish merchants to operate with a tight amount of scrap on hand. As a result, Turkish buyers are able to step in and out of foreign export markets in order to find the most competitive prices. Increasing global scrap prices will influence Turkish merchants to focus their attention on the best deal available, which at the moment is European scrap.

Heavy scrap prices in China slip on sluggishness in the domestic steel marketMainstream heavy scrap prices in eastern China stood at Rmb3,300-3,340/tonne ($523-529/tonne) including tax this week, a decline of Rmb50-100/tonne from mid-December. Since October, China’s largest scrap consumer, Shagang, has kept its scrap bids unchanged at Rmb3,300-3,340/tonne, regardless of the price rise seen in early December. Despite Shagang’s lead, other steel mills in China, including Jiangsu Steel and Changzhou Zhongtian, cut their scrap bids by Rmb30-50/tonne earlier this week. Further cuts in scrap bids by as much as Rmb70/tonne are expected later this week, pushing prices down to Rmb3,350/tonne. The slight price deterioration of scrap prices is primarily attributed to sluggishness in China’s domestic steel market.

The scrap import market in China has begun the year fairly slow, with only a few deals recorded within the last week. Offers of Japanese heavy scrap were noted with price levels at $475/tonne CFR, and $435/tonne CFR for HMS No. 2, while US shredded and HMS 1 prices stood at $460 and $455/tonne CFR. US scrap prices will have upward pressure later this month, as offers to Turkey have exceeded $460/tonne CFR for HMS 1&2 (80:20), with additional pressure from the US domestic scrap market as prices continued to rise this week. Some Chinese steel mills have begun to shelve scrap imports following previous price increases with expectations of price levels for US HMS1&2 (80:20) reaching a potential high in the range of $470-480/tonne CFR China.

As the euro continues to depreciate against the dollar, ferrous scrap exports from the EU are becoming more attractive

The scrap import market in China has begun the year fairly slow, with only a few deals recorded within the last week


Key Purchasing Manager's Indices (PMI) The PMI for the USA, eurozone, and China trended positively

by the end of the year


Russia and Ukraine billet exports $/tonne FOB - the rise in global scrap prices has given Russian

and Ukrainian billet prices momentum

40

45

50

55

60

65

May 10

Jul 10

Sep 10

Nov 10

Jan 11

Mar 11

May 11

Jul 11

Sep 11

Nov 11

USA Eurozone China

400

450

500

550

600

650

700

Jan 10

Apr 10

Jul 10

Oct 10

Jan 11

Apr 11

Jul 11

Oct 11

Jan 12

Russia billet exoprt (FOB)

Ukraine billet export (FOB)



Market Outlook

Iron Metallics Highlights

l China’s manufacturing PMI 50.3 provides some sign of supportl Production cuts in Germany amid weak demand – some support for prices l Positive US data supports Brazilian pig iron and Venezuelan HBI prices

Markets ended 2011 flat, with a slight recovery seen in CIS and Brazilian pig iron export markets. This is contrasted by poor data from China that appears to signal a slowdown in the first few months of 2012 is a strong possibility. Data released last week gives some hope of avoiding a hard-landing in China, although low end-user demand is likely to weight on domestic prices in the coming weeks.

The revival of the Brazilian and Venezuelan export markets is dependent on the continuation of evidence of a turnaround in the US market. Positive employment data and manufacturing PMI data signals this may continue, but the world’s largest economy is not completely insulated from a downturn elsewhere.

China PMI see recovery in DecemberChina’s manufacturing PMI value of 50.3 in December marks a recovery from the lowest value since March 2009 in November, when the index measured 49. Expansionary policies will help the economy avoid a hard-landing as will continued positive news from some export markets; although the European market remains subdued, the US continues to post exceed expectations. Domestic raw material prices are likely to remain flat in the coming weeks and should start to pick up on the back on improved domestic sentiment, stronger export orders and an increased inventory levels.

Pig iron supply will increase following Chongqing Iron and Steel Company’s announcement to build a 660,000 tonnes/year plant and restart production in the Jiangjin District for the first time in 50 years. The facility will provide up-stream benefits serving as a provider to its new 6.5 million tonnes/year steelworks plan nearby. Much of the Rmb1.1bn investment will be used to relocate the infrastructure for the plant from another site. Current prices of Rmb3,250-3,300/tonne ($515-523/tonne) keep domestic producers in profit, but fragile end-user steel demand and an unclear outlook do not make good reading for producers.

Elsewhere, production cuts in Germany by ThyssenKrupp will cut supply and should provide some support for prices. The firm plans to cut production by 16% by closing its 5,555 tonnes/day blast furnace in Hamborn. Current low demand levels can be satisfied using other furnaces and should demand increase, as is likely as downstream users rebuild stock levels, the firm can use its own stocks in the short-run.

Is the US in the recovery position?Venezuelan HBI export prices should increase in January as the US economy picks up. Prices are forecast to remain below the $420/tonne mark from September this month, but a continued US recovery and the continued success of steel price hikes will apply upward pressure on prices.

There is spare capacity available (some plants are operating between 70-80% of capacity) should there be a significant increase in demand. We expect producers to try to lift prices before ramping up production however.

China's expansionary policies will help the economy avoid a hard-landing

Key PricesThis

weekNext week

CIS pig iron export 458 2.0%Brazil export FOB 453 2.0%Latin America HBI FOB 340 2.0%

0

150

300

450

600

Q1 10 Q3 10 Q1 11 Q3 11 Q1 12 Q3 12

US pig iron import($ tonne)



The domestic Chinese market The reversal in the PMI trend should signal a reversal in

domestic pig iron price

44

46

48

50

52

54

56

1,500

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2,500

3,000

3,500

4,000

4,500

Aug 10 Nov 10 Feb 11 May 11 Aug 11 Nov 11

Domestic Pig Iron (RMB/tonne)

Manufacturing PMI [RHS]



Freight Highlights

l The BCI drops 30% in the first week of 2012 l Chinese New Shipbuilding Orders slumped almost 50% in 2011 l Vale’s first VLOC docks in China

Freight Indices

This WeekPrevious

Week% change

w/wLast Month %change m/m Last Year %change y/y

SSY Atlantic Capesize Index 7,692 9,976 -22.9% 10,138 -24% 6,196 24%SSY Pacific Capesize Index 6,044 8,126 -25.6% 8,090 -25% 5,270 15%

Baltic Dry Index (BDI) 1,347 1,624 -17.1% 1,922 -30% 1,137 18%Baltic Capesize Index (BCI) 2,304 2,955 -22.0% 3,697 -38% 1,368 68%Baltic Panamax Index (BPI) 1,537 1,619 -5.1% 1,713 -10% 1,337 15%Baltic Supramax Index (BSI) 1,112 1,158 -4.0% 1,230 -10% 1,209 -8%Baltic Handysize Index (BHI) 559 570 -1.9% 602 -7% 722 -23%

Source: SSY, The Baltic Exchange

Freight Rates

This Week Previous Week

% change w/w

Last Month %change m/m Last Year %change y/y

SSY Capesize Pacific ($/tonne)Rizhao/Rotterdam 11.30 14.15 -20.1% 14.40 -22% 11.40 -1%Dampier/Qingdao 9.50 11.65 -18.5% 12.75 -25% 7.35 29%Saldahna Bay/ Qingdao 16.40 22.00 -25.5% 21.50 -24% 14.05 17%Richards Bay/Kwangyang 14.15 20.55 -31.1% 19.15 -26% 12.30 15%Cape Lambert/Rotterdam 12.15 14.75 -17.6% 15.25 -20% 12.05 1%NSW 15.2M/Japan 13.55 17.00 -20.3% 16.75 -19% 10.20 33%Queensland/Rotterdam 15.75 19.65 -19.8% 19.60 -20% 15.50 2%NSW 15.2M/South Korea 13.35 16.75 -20.3% 16.55 -19% 9.85 36%T/C Transpacific round 2.30 4.86 -52.7% 4.60 -50% 1.91 20%SSY Capesize Atlantic ($/tonne)Narvik/Rotterdam 4.75 6.45 -26.4% 6.85 -31% 4.15 14%Tubarao/Rotterdam 11.60 14.45 -19.7% 14.65 -21% 9.00 29%Richards Bay/Rotterdam 11.15 12.85 -13.2% 12.75 -13% 9.75 14%Hampton Roads/Rotterdam 12.00 14.10 -14.9% 14.65 -18% 9.40 28%Puerto Bolivar/Rotterdam 12.25 15.25 -19.7% 15.75 -22% 9.80 25%Nouadibou/Taranto P2 7.50 9.00 -16.7% 9.35 -20% 6.00 25%Tubarao/Japan 23.15 29.50 -21.5% 28.25 -18% 18.40 26%Tubarao/Beilun+Baoshan 23.30 29.65 -21.4% 28.50 -18% 18.60 25%T/C Trip Cont/Far East 5.74 8.75 -34.4% 9.28 -38% 4.58 25%T/C Transatlantic round 2.65 4.95 -46.5% 5.21 -49% 2.03 31%JEHSUP 52k DWT Supramax ($/day)del Black Sea, redel Singapore-South Japan 24,000 25,500 -5.9% 28,500 -16% 23,000 4%del US Gulf, redel Skaw-Passero 24,500 24,500 0.0% 26,500 -8% 29,000 -16%del Far east, redel Atlantic 2,750 2,750 0.0% 4,250 -35% 8,000 -66%del to make Australia, redel India 7,250 7,000 3.6% 8,000 -9% 10,750 -33%JEHMA 45k DWT Handysize ($/day)Antwerp - Skaw Trip Far East 20,500 20,500 0.0% 23,250 -12% 20,000 2%Canakkale Trip Far East 21,500 23,000 -6.5% 26,000 -17% 20,000 8%Japan - SK / NOPAC or Australia rv 400 3,900 -89.7% 5,750 -93% 8,500 -95%Japan - SK Trip Gib - Skaw range 1,500 1,500 0.0% 3,000 -50% 6,750 -78%Antwerp - Skaw Trip US Gulf 4,500 5,000 -10.0% 5,750 -22% 7,500 -40%USG Trip Skaw - Passero 22,250 22,250 0.0% 24,250 -8% 26,500 -16%Source: SSY, ICAP Hyde

Market Outlook Weak demand continues to the story in freight markets; the restraint in the capesize market in the run up to Christmas has extended into 2012. The BCI dropped below the 3,000 mark when it opened in 2012 for the first time since early November. At 2,304, it is well down from its peak of 3,697 in December. The price of shipping iron ore from Australia and Brazil to China is down to $10.5/tonne and $25.5/tonne, respectively. Despite some signs of resurgent demand in the panamax market in late December, ballasting ships arriving from Asia are placing downward pressure that will continue in the coming weeks as tonnage remains high. There is weak demand in the Pacific, with few coal cargoes booked from Indonesia.

Slowing growth in China’s shipbuilding industry has been confirmed by figures showing output growth was 2.1% lower in the Jan-Nov period of 2011, compared with the same period of 2010. Despite a year-on-year rise of 8.8% in the tonnage built, new orders slumped by 47%. Despite this bleak release, builders remained profitable. Chinese charters are under pressure to gain access to finance and meet chartering payments. In an industry famous for its reliance on relationships, this does not send positive signals to an already jittery market.

Index This

weekPrice direction

Baltic Dry 1,347 Baltic Capesize 2,304 Baltic Panamax 1,537

1,000

1,500

2,000

2,500

3,000

3,500

29 Jan

28 Feb

31 Mar

30 Apr

31 May

30 Jun

31 Jul

31 Aug

30 Sep

31 Oct

30 Nov

31 Dec

Baltic Capesize Index (BCI)

Baltic Panamax Index (BPI)

Baltic Supramax Index (BSI)


16 Steel Raw Materials: Weekly Market Tracker January 2012 Steel Raw M

aterials: Market Tracker / Issue 206 / 10 Jan

uary 2012

Key Global Economic IndicatorsSelected Demand Indicators

2010 Q2 11 Q3 11 Sep 11 Oct 11 Nov 11Japan Unit

IPI: SA: Manufacturing 2005=100 94.6 88.6 92.4 90.6 92.5 90.2 Motor vehicle production Unit 2,407,230 1,524,334 2,378,023 883,602 904,254 838,135 New building construction started Sq m th 121,455 32,187 34,352 9,741 10,364 10,645 CPI 2005=100 99.6 99.4 99.4 99.49 99.59 -

South KoreaIPI: SA: Manufacturing 2005=100 139.6 150.3 149.8 149.9 149.1 148.7 Motor vehicle production Unit 4,271,741 1,221,658 1,086,223 374,004 414,608 428,350 New buildings commenced Unit 188,470 59,546 48,067 16,359 18,260 17,680

ChinaIP: Automobiles Unit th 18,755,000 4,476,000 4,432,000 1,664,000 1,605,000 1,793,000 CPI PY=100 103.3 105.7 106.3 106.1 105.5 104.2 PMI: Mfg % 53.8 51.9 50.9 51.2 50.4 49.0 FDI: Utilized: ytd: Construction USD mn 5,973.1 1,132.8 1,585.7 631.9 667.5 767.8

USAIPI: SA 2007=100 90.1 92.9 94.3 94.4 95.0 94.8 Automobile Inventories Unit th 8,645.9 1,820.1 1,689.9 595.9 693.6 781.7 Automobile: Domestic Production Unit 2,839,900 714,500 744,100 274,000 318,800 276,300 Private Housing Units Started Unit th 587 164 171 59 53 52 CPI 2005=100 111.7 115.5 116.0 116.2 115.9 115.8

MexicoIPI: SA: Manufacturing 2003=100 114.2 120.0 120.2 120.8 120.3 - Motor Vehicle Production Unit 2,260,774 615,390 649,297 225,287 240,648 231,080 Construction Output: Building MXN mn 169,839 44,804 49,370 17,229 18,368 -

CanadaIPI: SA % 106.4 108.7 109.4 109.7 - - PMI % 57.9 65.0 55.5 63.4 55.6 57.1

European Indicators IPI: SA 2005=100 97.5 101.2 101.9 101.0 100.9 - Construction Production Index: SA: EU 27 2005=100 90.0 90.7 90.7 89.9 88.7 - EU: Harmonized Consumer Price Index 2005=100 100.0 108.3 110.9 109.4 110.3 - EU: CPI: % Change % 1.6 2.8 2.7 3.0 3.0 3.0

FranceIPI: SA 2005=100 92 94 64 - - - New housing construction commenced Sq m th 22,330 6,055 6,654 2,159 2,269 2,568

GermanyMotor Vehicle Production Unit 492,165 - - - - - New construction commenced Unit 22,919 6,680 6,603 2,044 2,267 - Construction Orders Value Index 2005=100 109 129 130 129 109 -

UKMotor Vehicle Production: Car Unit 1,271,816 305,622 320,395 136,051 128,654 136,111 IoP: Manufacturing (Mfg) 2006=100 90.6 91.8 29.9 - - -

ItalyIPI 2005=100 88.6 94.1 81.7 95 91 - IPI: Mfg: Transport Equipment 2005=100 91.6 100.6 78.7 95.9 92.0 -

RussiaIPI: Manufacturing (Mfg) RUB bn 1,435.7 1,773.0 1,857.3 1,918.3 1,921.1 1,984.8 CPI Dec2005=100 162.8 176.7 176.9 176.7 177.6 - FCI RUB bn 9,151.4 2,245.0 2,757.5 1,035.5 1,097.0 1,138.0

TurkeyIPI:SA 2005=100 117.0 124.1 125.2 125.5 130.8 127.5 Motor Vehicle Production Unit 674,496 168,624 168,624 56,208 56,208 56,208 CPI 2003=100 178.4 188.4 188.7 190.1 196.3 199.7

BrazilIPI: SA 2002=100 128 129.8 128.8 127.1 126.3 126.6 Capacity Utilization: Manufacturing: SA % 82.3 82.4 82.0 81.7 81.4 - Motor Vehicles Production Unit 3,642,688 879,947.0 893,708.0 261,184 265,571 274,487 CPI Dec1993=100 3,206 3,408 3,435 3,450 3,461 3,481

IndiaIPI 2004-05=100 162 167.9 164.1 163.5 158.1 - Motor Vehicle Production: Total Unit 17,063,915 4,839,085 5,149,720 1,790,267 1,594,780 1,804,223 Foreign Inward Investment: Direct USD mn 21,947.0 13,441.0 5,694.0 1,765.0 1,160.0 -

Sources: CEIC. Notes: SA: seasonally adjusted, CPI: Consumer price index, IPI: Industrial production index, PMI: Purchasing Managers Index, FCI: Fixed Capital Investment. Mexico construction total output has been changed to public.

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'000 units Motor Vehicle ProductionUS Germany South KoreaIndia China

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