15-11-10-Nomura-Steel-China-weekly-2010-11-15

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W E E K L Y

15 November 2010Nomura 1

Any authors named on this report are research analysts unless otherwise indicated.See the important disclosures and analyst certifications on pages 20 to 23.

Steel | C H I N A / T A I W A N

Josephine Ho +852 2252 2177 [email protected]

Steel Weekly (Nov. 15): Crude output

continues to slide in October

cSteel prices grow while inventory destocking continuesBoth flat and long steel prices recovered last week. Benchmark hot-rolled coil

(HRC) prices grew by 1.0% w-w to RMB4,532/tonne (including 17% VAT). Cold-

rolled coil (CRC) prices inched up 0.9% w-w to RMB5,394/tonne; rebar prices

rose by 3.2% w-w at RMB4,547/tonne; and wire rod prices climbed 3.3% w-w to

RMB4,646/tonne. Inventory (of flat and long products) at traders was down 3.5%

w-w to 14.1mt (down 0.8% w-w for flat, down 7.1% w-w for long products). Spot

iron ore prices rose 4.2% w-w to RMB1,250/tonne for domestic Qingdao Port spot

and 2.7% w-w to US$160/tonne for imports from India.

dMonthly data reviewChinas crude output reached 50.3mt in October, down 3% y-y but up 5% m-m.

Daily crude output was 1.6mt, down 2.8% y-y but up 1.5% m-m. As powerrationing is still going on in some provinces, we believe the total crude output will

remain on a downward trend on y-y comparisons for the rest of the year. For

October, Chinas total steel export was 2.86mt, up 6% y-y but down 5% m-m.

Total steel imports were 1.14mt, down 23% y-y and down 14% m-m. As such,

Chinas net steel export was 1.72mt, up 40% y-y and up 2% m-m. During

October, China imported 45.72mt of iron ore, up 1% y-y but down 13% m-m.

Chinas domestic iron ore production reached 95mt, up 14% y-y and 2% m-m.

eWeekly news in focus1) China's Hegang to buy shares in five privately owned mills; 2) Taiwanese mills

keep rebar prices flat on poor demand; 3) Baosteel keeps its December pricesflat; and 4) CISA official urges mills to use more scrap.

f Steel equities down on bearish sentimentSteel equities in Greater China ended the week mostly in negative territory.

Across our China/Taiwan steel stock coverage universe, China Steel was the best

performer, up 0.2% w-w compared with Taiex Indexs 1.6% decline. Baosteel was

the worst performer, down 5.0% w-w against a 4.6% decline in the Shanghai

Composite Index (see Exhibit 53 for details).

This editions highlights

Steel prices rose 0.9-3.3% w-w last week. Inventory fell for long steel (-7.1% w-w)

and flat steel (-0.8% w-w). In October, Chinas crude output fell 3% y-y due to power

rationing, but net steel export continued to grow, albeit at slowing pace, by 40% y-y

and 2% m-m (China domestic HRC price (net of VAT) was US$86-237/t lower than

overseas prices in October). We remain selectively positive on the China/Taiwan

steel sector: BUY Angang and China Steel; NEUTRAL on Baosteel and Maanshan.

BULLISH

N O M U R A I N T E R N A T I O N A L ( H K ) L I M I T E D

Analysts

Josephine Ho

+852 2252 2177

joseph in [email protected] m

Jialong Shi (Researcher)

+852 2252 1594ji along.sh i@ nomura .com

Weekly/Quarterly steel price movement

RMB/t 12-Nov-10 5-Nov-10 Change (%)

Iron ore 1,250 1,200 4.2

HRC 4,532 4,486 1.0

CRC 5,394 5,344 0.9

Medium plate 4,539 4,424 2.6

Rebar 4,547 4,407 3.2

Wire Rod 4,646 4,499 3.3

RMB/t QTD 3Q10 Change (%)

Iron ore 1,196 1,128 6.0

HRC 4,457 4,325 3.0

CRC 5,357 5,248 2.1

Medium plate 4,454 4,353 2.3

Rebar 4,336 4,100 5.8

Wire Rod 4,446 4,201 5.8

Source: Mysteel, Nomura research


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Steel | China/Taiwan Josephine Ho


Exhibit 1. Summary of coverage

Company Ticker Price Currency Rating Price target

Upside

/Downside Analyst

Baosteel 600019 CH 6.97 RMB NEUTRAL 7.0 0% Josephine HoAngang Steel 347 HK 12.38 HK$ BUY 16.0 29% Josephine Ho

Maanshan Iron&Steel 323 HK 4.64 HK$ NEUTRAL 5.0 8% Josephine Ho

China Steel 2002 TT 31.85 NT$ BUY 37.0 16% Josephine Ho

Company Market Cap

US$ mn 09 10F 11F 09 10F 11F

Baosteel 18,391 23,247 32,106 34,267 0.33 0.63 0.67

y-y chg -20% 38% 7% -10% 90% 7%

Angang Steel 9,850 7,910 15,561 17,776 0.10 0.65 0.88

y-y chg -14% 97% 14% -75% 522% 35%

Maanshan Iron&Steel 4,391 6,299 7,649 8,747 0.05 0.24 0.28

y-y chg -10% 21% 14% -51% 369% 15%

China Steel 14,300 21,271 46,386 45,236 1.50 2.50 2.46y-y chg -62% 118% -2% -22% 67% -2%

EBITDA (mn) EPS

Prices as of 12 November 2010 market close; local currency for EBITDA and EPS. Upside/downside is the potential return to our price targets.

Source: Bloomberg, Nomura estimates

Exhibit 2. Nomura steel, iron ore and coking coal price forecasts

801001201109870125565394Thermal (JFY) ($/t)

140220250241191173253103119205Hard Coking (CY) ($/t)

Australian Coal

7012815015911571845146128Realized Aus FOB ($/t)

801301601691478415812671140China Spot CIF ($/t)

Iron Ore (fines) (CY)

Longterm2013E2012E2011E2010E2009200820072006Spot

801001201109870125565394Thermal (JFY) ($/t)

140220250241191173253103119205Hard Coking (CY) ($/t)

Australian Coal

7012815015911571845146128Realized Aus FOB ($/t)

801301601691478415812671140China Spot CIF ($/t)

Iron Ore (fines) (CY)

Longterm2013E2012E2011E2010E2009200820072006Spot

Source: Bloomberg data, Nomura estimates

Exhibit 3. China steel supply-demand outlook

mn metric tons 2006 2007 2008 2009 2010E 2011E 2012E

Crude Steel Capacity 502 540 660 710 760 800 830

Y-o-Y 9.7% 7.6% 22.2% 7.6% 7.0% 5.3% 3.8%

Crude Steel Production 421 488 502 568 646 685 739

Y-o-Y chg 21.1% 15.7% 2.9% 13.1% 13.7% 6.0% 8.0%

chng 73 66 14 66 78 39 55

Crude Steel Utilization Rate 84.0% 90.3% 76.1% 80.0% 85.0% 85.6% 89.1%

Finished steel production* 386 454 469 542 616 653 705

Y-o-Y chg 18.2% 17.7% 3.4% 15.4% 13.8% 6.0% 8.0%

Imports 19 17 15 18 18 18 18

Y-o-Y chg -28.4% -8.9% -8.5% 14.2% 0.3% 0.0% 0.0%

Exports 43 63 59 25 43 35 50

Y-o-Y chg 109.6% 45.7% -5.6% -58.5% 74.9% -18.6% 42.9%

Net Imports/(exports) -25 -46 -44 -7 -25 -17 -32

Y-o-Y chg -559.8% 87.1% -4.5% -84.1% 263.3% -31.6% 86.6%

Finished Steel Apparent Consumption* 361 408 426 535 591 636 673

Y-o-Y chg 8.9% 13.0% 4.3% 25.6% 10.5% 7.6% 5.9%

*Double counts might exist for finished steel output.

Source: China Iron and Steel Association, Nomura estimates


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Exhibit 4. Global supply-demand outlook

2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011FNorth America 137.5 131.3 150.8 138.3 155.7 141.3 129.0 83.8 103.1 115.5Brazil 16.5 16.0 18.3 16.8 18.5 22.1 24.0 19.2 22.1 24.7 Other Americas 11.2 11.6 14.7 15.7 17.9 19.8 20.3 15.2 17.5 19.6Central & South America 27.7 27.6 33.0 32.5 36.4 41.9 44.3 34.4 39.6 44.3E U-27 158.7 160.1 172.4 165.5 188.6 198.1 181.3 123.3 141.8 155.9E urope-other 17.5 19.9 22.6 25.1 28.9 31.6 25.3 21.0 23.5 25.4R uss ia 24.9 25.3 26.3 29.3 34.9 39.5 37.3 25.6 27.4 29.6Ukraine 5.5 8.2 7.2 7.2 7.1 9.5 6.9 4.0 4.3 4.6

Other CIS 3.6 3.5 4.6 5.0 6.9 7.6 4.7 4.0 4.2 4.6CIS 34.0 37.0 38.1 41.5 48.9 56.6 48.9 33.5 35.9 38.8Middle E as t 24.1 28.9 29.8 33.5 34.9 40.3 43.1 39.2 43.1 47.4

Afric a 19.1 18.3 19.9 21.5 22.9 25.1 26.2 26.4 28.5 31.4China 191.3 240.5 275.8 331.8 361.3 408.3 425.7 535.0 591.0 636.0India 28.9 33.1 36.4 41.4 46.1 50.3 52.6 55.8 61.3 67.5

J apan 72.7 77.1 79.1 83.1 83.3 86.3 83.1 55.2 61.7 64.1Korea, South 43.7 45.4 47.2 47.1 50.2 54.3 57.6 44.3 50.1 54.1Taiwan 20.4 19.9 22.1 19.9 19.8 20.2 16.7 11.4 13.2 14.5Other Asia 42.4 38.2 42.5 50.8 49.3 51.9 65.7 57.8 63.6 69.9

As ia 399.4 454.2 503.0 574.1 610.1 671.3 701.4 759.4 840.9 906.1Oceania 7.2 7.5 8.0 7.9 7.9 8.6 7.6 5.3 6.7 7.3

World 825.2 884.8 977.6 1039.9 1134.3 1214.8 1207.0 1126.4 1263.1 1372.2

Apparent s teel c onsumpt ion (% c hange year on year)2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E

North America 2.4% -4.5% 14.9% -8.3% 12.6% -9.2% -8.7% -35.0% 23.0% 12.0%B razil -1.2% -3.0% 14.4% -8.2% 10.1% 19.5% 8.6% -20.0% 15.0% 12.0%Other Americas -8.2% 3.6% 26.7% 6.8% 14.0% 10.6% 2.4% -25.0% 15.0% 12.0%Central & S outh Americ a -4.2% -0.4% 19.6% -1.5% 12.0% 15.1% 5.7% -22.3% 15.0% 12.0%E U-27 10.2% 0.9% 7.7% -4.0% 14.0% 5.0% -8.5% -32.0% 15.0% 10.0%

E urope-other 7.4% 13.7% 13.6% 11.1% 15.1% 9.3% -19.9% -17.0% 12.0% 8.0%R uss ia -7.4% 1.6% 4.0% 11.4% 19.1% 13.2% -5.6% -31.5% 7.2% 8.0%Ukraine -5.2% 49.1% -12.2% 0.0% -1.4% 33.8% -27.0% -42.0% 7.0% 8.0%Other CIS 9.1% -2.8% 31.4% 8.7% 38.0% 10.1% -38.0% -16.0% 7.0% 8.0%CIS -5.6% 8.8% 3.0% 8.9% 17.8% 15.7% -13.5% -31.5% 7.2% 8.0%Middle E as t 4.3% 19.9% 3.1% 12.4% 4.2% 15.5% 6.8% -9.0% 10.0% 10.0%

Afric a 8.5% -4.2% 8.7% 8.0% 6.5% 9.6% 4.3% 1.0% 8.0% 10.0%China 21.1% 25.7% 14.7% 20.3% 8.9% 13.0% 4.3% 25.7% 10.5% 7.6%India 5.5% 14.6% 9.8% 13.9% 11.4% 9.0% 4.6% 6.0% 10.0% 10.0%

J apan -3.1% 6.1% 2.6% 5.1% 0.2% 3.6% -3.7% -33.6% 11.9% 3.8%Korea, South 14.1% 3.9% 4.0% -0.2% 6.6% 8.2% 6.1% -23.1% 13.0% 8.0%Taiwan 17.0% -2.6% 11.0% -9.7% -0.5% 8.2% -17.2% -32.0% 16.0% 10.0%Other Asia 13.6% -9.9% 11.1% 19.5% -2.8% 5.1% 26.6% -12.0% 10.0% 10.0%

As ia 13.0% 13.7% 10.7% 14.1% 6.3% 10.0% 4.5% 8.3% 10.7% 7.7%Oceania 14.3% 4.2% 6.7% -1.3% 0.0% 8.9% -11.5% -30.0% 25.0% 10.0%

World 8.6% 7.2% 10.5% 6.4% 9.1% 7.1% -0.6% -6.7% 12.1% 8.6%World ex-C hin a 0.0% 0.0% 8.9% 0.9% 9.2% 4.3% -3.1% -24.3% 13.7% 9.5%

Crude steel production (million tonnes)2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E

US 91.6 93.7 99.7 94.9 98.6 98.1 91.4 58.1 71.5 80.5Other North America 31.4 32.5 34.3 32.7 33.2 34.5 33.2 24.1 29.2 32.7 North America 122.9 126.2 134.0 127.6 131.8 132.6 124.5 82.3 100.7 113.1B razil 29.6 31.1 32.9 31.6 30.9 33.8 33.7 26.5 31.8 35.6Other Americas 11.3 11.9 13.0 13.7 14.4 14.5 13.6 11.3 13.6 15.2Central & South America 40.9 43.0 45.9 45.3 45.3 48.2 47.4 37.8 45.4 50.8EU-27 188.3 192.5 202.3 195.1 206.3 209.7 198.0 139.1 162.8 181.5Europe-other 19.3 21.3 24.0 25.0 28.2 30.6 31.3 28.8 31.7 34.9R uss ia 59.8 61.5 65.6 66.1 70.8 72.4 68.7 61.2 65.8 73.3Other CIS 41.4 45.0 47.8 47.0 49.1 51.8 45.3 38.5 41.6 46.1CIS 101.2 106.5 113.4 113.1 119.9 124.2 114.0 99.7 107.4 119.4Middle E as t 12.5 13.4 14.3 15.3 15.4 16.0 16.0 16.6 17.9 20.1

Africa 15.8 16.3 16.7 17.9 18.8 18.8 16.7 14.8 16.6 18.6China 182.2 222.4 280.5 355.8 422.7 489.9 502.0 568.3 646.0 685.0India 28.8 31.8 32.6 45.8 49.5 53.1 55.1 56.6 62.3 68.5

J apan 107.7 110.5 112.7 112.5 116.2 120.2 118.7 87.5 108.0 108.9Korea, South 45.4 46.3 47.5 47.8 48.5 51.5 53.6 48.8 53.7 57.4Other Asia 30.7 31.4 36.7 36.2 39.4 47.2 20.1 15.5 17.0 18.7

As ia 394.9 442.4 510.0 598.1 676.2 761.9 749.5 776.7 886.9 938.6Oceania 8.3 8.4 8.3 8.6 8.7 8.8 8.4 6.0 6.9 7.6

World 904.1 970.0 1069.1 1146.7 1251.2 1351.3 1329.7 1201.8 1382.7 1517.2

YoY c hange 0.1 0.1 0.1 0.1 0.1 0.1 0.0 -0.1 0.2 0.1

Crude s teel production (% change year on year)2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E

US 1.7% 2.3% 6.4% -4.8% 3.9% -0.5% -6.9% -36.4% 23.0% 12.5%Other North America 9.7% 3.6% 5.7% -4.7% 1.5% 3.9% -3.9% -27.3% 21.0% 12.0%North America 3.6% 2.6% 6.2% -4.8% 3.3% 0.6% -6.1% -33.9% 22.4% 12.4%B razil 10.9% 5.2% 5.7% -3.9% -2.2% 9.3% -0.2% -21.4% 20.0% 12.0%Other Americas -4.6% 5.7% 9.0% 5.7% 5.0% 0.4% -5.6% -17.1% 20.0% 12.0%Central & South America 6.1% 5.3% 6.6% -1.2% 0.0% 6.5% -1.8% -20.1% 20.0% 12.0%EU-27 18.8% 2.2% 5.1% -3.6% 5.7% 1.7% -5.6% -29.7% 17.0% 11.5%Europe-other 8.8% 10.5% 12.7% 4.1% 12.9% 8.5% 2.2% -7.9% 10.0% 10.0%R uss ia 1.3% 2.8% 6.7% 0.9% 7.1% 2.2% -5.1% -10.9% 7.5% 11.4%Other CIS 1.8% 8.6% 6.2% -1.7% 4.4% 5.5% -12.5% -15.0% 8.0% 11.0%CIS 1.5% 5.2% 6.5% -0.2% 6.0% 3.6% -8.2% -12.5% 7.7% 11.2%Middle E as t 6.8% 7.3% 6.7% 7.0% 0.5% 4.3% 0.0% 3.5% 8.0% 12.0%

Africa 6.1% 3.1% 2.5% 7.2% 4.9% -0.1% -10.8% -11.3% 12.0% 12.0%China 27.9% 22.0% 26.1% 26.8% 18.8% 15.9% 2.5% 13.2% 14.8% 10.0%India 5.5% 10.4% 2.5% 40.4% 8.0% 7.3% 3.7% 2.8% 10.0% 10.0%

J apan 4.7% 2.6% 2.0% -0.2% 3.3% 3.4% -1.2% -26.3% 23.3% 0.9%Korea, South 3.5% 2.0% 2.6% 0.6% 1.3% 6.3% 4.1% -9.0% 10.0% 7.0%Other Asia 5.8% 2.1% 16.8% -1.2% 8.8% 19.9% -57.5% -23.0% 10.0% 10.0%

As ia 14.3% 12.0% 15.3% 17.3% 13.1% 12.7% -1.6% 3.6% 15.0% 8.7%Oceania 5.0% 1.3% -1.2% 4.2% 0.5% 1.1% -4.1% -28.6% 15.0% 10.0%

World 11.2% 7.3% 10.2% 7.3% 9.1% 8.0% -1.6% -9.6% 15.0% 9.7%World ex-C hin a 7.6% 3.6% 5.5% 0.3% 4.8% 4.0% -3.9% -23.5% 15.3% 9.5%

Source: World Steel Association, Nomura estimates


4/24



News in focus

1. China's Hegang to buy shares in five privately owned mills. Chinas leading

steel maker Hebei Iron & Steel Group (Hegang) in Hebei province signed

consolidation agreements with five privately owned steel mills in its home province

on 11 November. Under the agreements, Hegang will found a new holding

company to secure a 10% stake in each mill in exchange for sharing Hegangs

management, technology and sales network with the targeted companies. The fivecompanies are Hebei Jingye Iron & Steel, Tangshan Songting Iron & Steel, Xingtai

Longhai Iron & Steel, Yongyang Iron & Steel and Hebei Jitai Special Shaped Steel.

All the mills concerned have crude steel capacities, excluding Hebei Jitai, totalling

over 10mn tonnes/year. As new members of Hegang, output from these mills will

be included in the groups total production data. Hegangs crude output in 2009

was around 40m t, according to the China Iron & Steel Association (SBB,

12 November 2010)

2. Taiwanese mills keep rebar prices flat on poor demand. Two major Taiwanese

rebar producers, Feng Hsin Iron & Steel and Hai Kwang Enterprise Corp, have

decided to keep their rebar prices unchanged for this week, given the current

falling demand and weakening US dollar. Both Feng Hsin and Hai Kwang raisedtheir rebar prices by NT$300/t ($10/t) last week to reflect rising scrap prices.

However, after the price increases, buying activities among end-users have shown

signs of declining as most end-users are reluctant to accept the higher prices,

according to an official with Hai Kwang. Given the weak demand, both companies

decided to leave prices flat for this week in a bid to further observe buyers

reaction. Therefore, Feng Hsins list price for medium-sized SD280 rebar remains

NT$19,200/tonne (US$636/t) for this week, while Hai Kwangs price of the similar

material is still at NT$18,700/t. (SBB, 9 November 2010)

3. Baosteel keeps its December prices flat. Chinas Baosteel announced its

December list prices on 11 November, keeping all of its flat steel prices

unchanged for the month. As such, it Q235 5.5mm hot-rolled coil price remainedat RMB 4,492/tonne (US$674/t). Its DC01 1.0mm cold rolled coil stays at

RMB 5,136/t, and its CR sheet at RMB 5,335/t. All prices exclude 17% VAT. (SBB

5 November 2010)

Nomuras view: While spot flat prices recovered 1-3% in the past two weeks,

Baosteel decided to keep its December prices unchanged in order to maintain

good relationship with end-users, according to our checks with the company.

While demand from Baosteels major downstream sectors, auto and home

appliances etc., should remain solid in 4Q, we believe there is lack of substantial

catalysts in the near term supporting price hikes by Baosteel in December.

Demand for Baosteels staple products, CRC and HRC, remains solid as the

utilization rate for both is still 100%.

4. CISA official urges mills to use more scrap. Chinese mills should make efforts

to lower their pig iron/steel ratio by using more steel scrap in steel-making during

the countrys 12th Five-Year Plan (2011-2015), Wu Xichun, honorary chairman of

the China Iron & Steel Association (CISA), suggested at a recent scrap

conference. According to CISA data, during January-September, the global

average iron/steel ratio was 0.741 while the ratio was 0.947 in China and 0.57 in

developed countries. CISA data also show that there has been a decline in scrap

consumption per tonne of steel in Chinas electric arc furnaces (EAFs). In 2008,

the average steel scrap consumed per tonne of steel was 629.15kg while that in

2009 was 520.35kg. During January-September this year, the average steel scrap

consumption per tonne of steel was only 425kg. The major reason for the declineis that mills with EAFs increased their use of primary iron to cut costs, according to

CISA. (SBB, 9 November 2010).

Hegang acquired a 10% stake infive privately owned steel mills inHebei

Taiwan rebar producers keep

rebar prices flat due to soft

demand

Baosteels December prices

unchanged from November

CISA encourages more use of

scrap to reduce reliance on iron

ore


5/24



Weekly steel data points

Iron ore

Exhibit 5. Weekly iron ore inventory at port

0

20,000

40,000

60,000

80,000

Jun

-06

Sep

-06

Dec

-06

Mar-07

Jun

-07

Sep

-07

Dec

-07

Mar-08

Jun

-08

Sep

-08

Dec

-08

Mar-09

Jun

-09

Sep

-09

Dec

-09

Mar-10

Jun

-10

Sep

-10

(kt)


Exhibit 6. Iron ore inventory vs estimated consumption (monthly)

-

10

20

30

40

50

60

70

80

Jun-06

Aug-06

Oct-06

Dec-06

Feb-07

Apr-07

Jun-07

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

Apr-10

Jun-10

Aug-10

Oct-10

mnt

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4(x)Iron ore inventory (mn t) inventory vs est. consumption

Source: CEIC, Mysteel, Nomura research

Exhibit 7. Iron ore price at Qingdao, China vs imports from India

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Jun-06

Sep-06

Dec-06

Ma

r-07

Jun-07

Sep-07

Dec-07

Ma

r-08

Jun-08

Sep-08

Dec-08

Ma

r-09

Jun-09

Sep-09

Dec-09

Ma

r-10

Jun-10

Sep-10

RMB/t

50

70

90

110

130

150

170

190

210

230

Iron Ore Import Px at Qingdao Po rt (LHS)

Import Indian Iron ore 63% Fe Px (RHS) US$/t

Source: Bloomberg, Nomura research

Iron ore inventory at ports still

less than one months

requirement

Iron ore inventory up 1.4% w-w at

68.7mn tonnes, as of 12

November 2010

Spot iron ore price up 4.2% w-w to

RMB1,250/tonne for domestic

Qingdao Port spot, and up 2.7% w-w

to US$160/tonne for Indian imports

as of 12 Nov 2010


6/24



Exhibit 8. Monthly domestic iron ore production

-

20

40

60

80

100

120

Jan/04

Jul/04

Jan/05

Jul/05

Jan/06

Jul/06

Jan/07

Jul/07

Jan/08

Jul/08

Jan/09

Jul/09

Jan/10

Jul/10

mnt

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

Iron ore output y-y%(RHS)


Exhibit 9. Monthly iron ore import volume

-

10

20

30

40

50

60

70

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

mnt

-40%

0%

40%

80%

120%Iron ore imports

y-y% (RHS)


Exhibit 10. Monthly Australia iron ore export volume

-

5

10

15

20

25

30

35

40

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

mnt

-30%

0%

30%

60%

90%Iron ore exports y-y%(RHS)


Domestic iron ore production

reached 95mn tonnes in

October up 14% y-y and 2%

m-m

Iron ore imports in China up 1%

y-y (down 13% m-m) to 45.7mntonnes in Oct. 2010

Iron ore exports from Australia up

6.7% y-y (up 5% m-m) to 34.8mn

tonnes in Sept 2010


7/24



Coking coal, coke and nickel

Exhibit 11. China domestic coking coal prices

1,000

1,200

1,400

1,600

1,800

2,000

2,200

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

RMB/tChina Main Coking Coal

Pingdingshan Price

China First Coking Coal Spot

Guangzhou

China Second Grade Coki ng

Coal Shanghai Pri ce

China First Grade Coking Coal

Taiyuan Price


Exhibit 12. Coke export Tianjin prices

0

100

200

300

400

500

600

700

800

900

Jun-06

Aug-06

Oct-06

Dec-06

Feb-07

Apr-07

Jun-07

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

Apr-10

Jun-10

Aug-10

Oct-10

US$/t

Average=334


Exhibit 13. Global nickel spot prices

0

10,000

20,000

30,000

40,000

50,000

60,000

Jan-04

May-04

Sep-04

Jan-05

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

US$/t

Average=21,010


Domestic coking coal prices were

flat w-w across major markets in

China on 12 Nov 2010

Chinas domestic coke exportprice was up 3% w-w at

US$385/tonne at the Tianjin port

on 12 Nov 2010

Nickel price at US$22,614/tonne

was down 7.3% w-w, on 12 Nov

2010


8/24



Exhibit 14. China domestic heavy scrap prices

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

RMB/t

China Domestic Heavy Scrap ( incl 17%VAT)

Average=2,693


Steel prices

Exhibit 15. China domestic spot steel prices snapshot

RMB/t 12-Nov-10 5-Nov-10 change QTD 3Q10 % change YTD 2009 % change

Iron ore 1,250 1,200 4.2% 1,196 1,128 6.0% 1,142 684 66.9%

HRC 4,532 4,486 1.0% 4,457 4,325 3.0% 4,363 3,803 14.7%

CRC 5,394 5,344 0.9% 5,357 5,248 2.1% 5,543 4,749 16.7%

Medium plate 4,539 4,424 2.6% 4,454 4,353 2.3% 4,367 3,639 20.0%

Galvanized 5,397 5,379 0.3% 5,387 5,210 3.4% 5,318 4,703 13.1%

Rebar 4,547 4,407 3.2% 4,336 4,100 5.8% 4,139 3,705 11.7%

Wire Rod 4,646 4,499 3.3% 4,446 4,201 5.8% 4,211 3,681 14.4%

Weekly average Quarterly average Yearly average


Exhibit 16. Hot-rolled coil (HRC) prices, since 2004

HRC

0

2,000

4,000

6,000

8,000

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

(Rmb/t)

Current price=4,532

Average price=4,354


Exhibit 17. Cold-rolled coil (CRC) prices, since 2004

CRC

0

2,000

4,000

6,000

8,000

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

(Rmb/t) Current price=5,394

Average price=5,419


Exhibit 18. Rebar prices, since 2004

0

2,000

4,000

6,000

Jan-0

4

Jul-0

4

Jan-0

5

Jul-0

5

Jan-0

6

Jul-0

6

Jan-0

7

Jul-0

7

Jan-0

8

Jul-0

8

Jan-0

9

Jul-0

9

Jan-1

0

Jul-1

0

(Rmb/t)

Current price=4,547

Average price=3,747

Rebar


Exhibit 19. Wire rod prices, since 2004

0

2,000

4,000

6,000

8,000

Jan-04

Aug-04

Mar-05

Oct-05

May-06

Dec-06

Jul-07

Feb-08

Sep-08

Apr-09

Nov-09

Jun-10

(Rmb/t)

Current price=4,646

Average price=3,830

Wire rod


Chinas domestic scrap price was

up 4.0% w-w to RMB3,125/tonne

on 9 Nov 2010


9/24



Exhibit 21. HRC prices: global comparison

0

200

400

600

800

1000

1200

1400

Jan03

May03

Sep03

Jan04

May04

Sep04

Jan05

May05

Sep05

Jan06

May06

Sep06

Jan07

May07

Sep07

Jan08

May08

Sep08

Jan09

May09

Sep09

Jan10

10-May

10-Sep

US$/t

N.Europe domestic Ex-Works

N.America domestic FOB US M idwest mill

China domest ic Shanghai (incl. 17%vat)

Japan domestic (To kyo Steel) FOT

Source: SBB, CEIC, Mysteel, Nomura research

Exhibit 22. China domestic stainless HRC prices (including 17% VAT)

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Apr-05

Jul-05

Oct-05

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

RMB/t

Average=23,742


Exhibit 20. HRC spot prices vs estimated cash profit, China

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

RMB/t

-200

0

200

400

600

800

1000

1200

1400RMB/tEstimated cash profit (RHS) HRC


Chinese steel producers have

been generating cash profits

since early July 2010 given steel

price hikes

HRC prices were down 3% and

5% m-m in Europe and the US,

respectively; they were flat m-m

in China, but up 3% m-m in Japan

in Oct 2010

Stainless HRC priced at

RMB21,450/tonne was up 0.7%

m-m in Oct 2010


10/24



Steel production

Exhibit 23. China domestic pig iron production

0

30

60

Feb/06

Jun/06

Oct/06

Feb/07

Jun/07

Oct/07

Feb/08

Jun/08

Oct/08

Feb/09

Jun/09

Oct/09

Feb/10

Jun/10

kt

-30%

0%

30%

60%Pig iron y-y% (RHS)


Exhibit 24. China domestic finished steel production

0

20

40

60

80

Jan/06

Apr/06

Jul/06

Oct/06

Jan/07

Apr/07

Jul/07

Oct/07

Jan/08

Apr/08

Jul/08

Oct/08

Jan/09

Apr/09

Jul/09

Oct/09

Jan/10

Apr/10

Jul/10

mnt

-50%

0%

50%

100%Finished Steel y-y% (RHS)


Exhibit 25. China domestic HRC production

0200400600800

10001200

Jan/06

May/06

Sep/06

Jan/07

May/07

Sep/07

Jan/08

May/08

Sep/08

Jan/09

May/09

Sep/09

Jan/10

May/10

kt

-100%

0%

100%

200%

300%400%

HRC y-y% (RHS)


Exhibit 26. China domestic CRC production

0

500

1000

1500

20002500

Jan/06

May/06

Sep/06

Jan/07

May/07

Sep/07

Jan/08

May/08

Sep/08

Jan/09

May/09

Sep/09

Jan/10

May/10

kt

-50%

0%

50%

100%

CRC y-y% (RHS)


Exhibit 27. China domestic rebar production

-

3,000

6,000

9,000

12,000

15,000

Jan/06

May/06

Sep/06

Jan/07

May/07

Sep/07

Jan/08

May/08

Sep/08

Jan/09

May/09

Sep/09

Jan/10

May/10

kt

-20%

0%

20%

40%

60%

Rebar y-y% (RHS)


Exhibit 28. China domestic large section production

0

300

600

900

1200

Feb/06

Jun/06

Oct/06

Feb/07

Jun/07

Oct/07

Feb/08

Jun/08

Oct/08

Feb/09

Jun/09

Oct/09

Feb/10

Jun/10

kt

-100%

-50%

0%

50%

100%

150%

Large section y-y% (RHS)



11/24



Steel consumption

Exhibit 29. Finished steel monthly consumption (China domestic)

0

5

10

15

20

25

3035

40

Jan-07

Mar-07

May-07

Jul-07

Sep-07

Nov-07

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

mnt

-30%

0%

30%

60%

y-y% (RHS)


Steel inventory

Exhibit 30. Total steel product inventory

-

3,0006,000

9,000

12,000

15,000

18,000

21,000

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

(k tonnes)


Exhibit 31. Total steel product inventory vs steel supply and consumption

0%

10%

20%

30%

40%

50%

Jan-07

Mar-07

May-07

Jul-07

Sep-07

Nov-07

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Inventory as % of supply Inventory as % of apparent consumption

Average=23%

Average=24%


Estimated domestic steel

consumption was down 13% y-y

in Oct 2010

Flat steel inventory was down

0.8% w-w at 8.2mn tonnes, as of

12 Nov 2010

Long steel inventory was down

7.1% w-w to 5.9mn tonnes, as of

12 Nov 2010

Total steel inventory was down

3.5% w-w to 14.1mn tonnes, as of

12 Nov 2010

Both ratios dropped in October as

a result of inventory destocking


12/24



Exhibit 32. Hot-rolled coil inventory

0

1000

2000

3000

4000

5000

6000

7000

Jan-07

Jun-07

Nov-07

Apr-08

Sep-08

Feb-09

Jul-09

Dec-09

May-10

Oct-10

ktHRC

Average=2,869


Exhibit 33. Cold-rolled coil inventory

0200

400600800

1000120014001600

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

ktCRC

Average=1,134


Exhibit 34. Wire rod inventory

0

500

1000

1500

2000

2500

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

ktWire rod

Average=1,118


Exhibit 35. Rebar inventory

010002000300040005000600070008000

Jan-07

Jun-07

Nov-07

Apr-08

Sep-08

Feb-09

Jul-09

Dec-09

May-10

Oct-10

ktRebar

Average=3,708


Exhibit 36. Long product total inventory

-

2,000

4,000

6,000

8,000

10,000

12,000

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

ktLong steel

Average=4,826


Exhibit 37. Flat product total inventory

-

2,000

4,000

6,000

8,000

10,000

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

kt Flat steel

Average=5,163


Exhibit 38. Flat product inventory total vs HRC price

1,000

3,000

5,000

7,000

9,000

11,000

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

kt

2000

4000

6000

8000

RMB/tFlat steel HRC Spot Price


Exhibit 39. Long product inventory vs rebar price

1,000

3,000

5,000

7,000

9,000

11,000

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

kt

2000

4000

6000

8000

RMB/tLong Steel Rebar Spot Price



13/24



Steel trade

Exhibit 40. Finished steel product imports

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jul/04

Dec

/04

May

/05

Oc

t/05

Mar

/06

Aug/

06

Jan

/07

Jun

/07

Nov

/07

Apr/

08

Sep

/08

Feb

/09

Jul/09

Dec

/09

May

/10

mn tonnes

-60%

-40%

-20%

0%

20%

40%

60%

80%

Finished Steel Import Volume y-y% (RHS)


Exhibit 41. Finished steel product exports

0.01.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Jul/04

Dec/

04

May

/05

Oc

t/05

Mar/

06

Aug/

06

Jan

/07

Jun

/07

Nov/

07

Apr/

08

Sep

/08

Feb/09

Jul/09

Dec/

09

May

/10

mn tonnes

-100%-50%

0%

50%

100%

150%

200%

250%

300%

350%

Finished Steel Export Volume y-y% (RHS)


Exhibit 42. Finished steel product net imports

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

Jan-04

Apr-04

Jul-04

Oct-04

Jan-05

Apr-05

Jul-05

Oct-05

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

kt Finished Finished + Semi-f inished


Chinas steel imports decreased

23% y-y and 14% m-m to 1.14mn

tonnes in October 2010

Exports rose 6% y-y but

decreased 5% m-m to 2.86mn

tonnes in October 2010

China remains a net steel

exporter, with net exports of

finished steel at 1.7mn tonnes in

October 2010, up 1.2% m-m


14/24



Steel demand indicators

Exhibit 43. China quarterly FAI

-

5.0

10.0

15.0

20.0

25.0

Jun/05

Sep/05

Dec/05

Mar/06

Jun/06

Sep/06

Dec/06

Mar/07

Jun/07

Sep/07

Dec/07

Mar/08

Jun/08

Sep/08

Dec/08

Mar/09

Jun/09

Sep/09

Dec/09

Mar/10

Jun/10

Sep/10

Trillion RMB

0%

5%

10%

15%

20%

25%

30%

35%

40%

Accumulated Quarterly FAI YoY (RHS)

Source: Wind, Nomura research

Exhibit 44. New housing construction floor area

0

200

400

600

800

1,000

1,200

1,400

Feb/05

May/05

Aug/05

Nov/05

Feb/06

May/06

Aug/06

Nov/06

Feb/07

May/07

Aug/07

Nov/07

Feb/08

May/08

Aug/08

Nov/08

Feb/09

May/09

Aug/09

Nov/09

Feb/10

May/10

Aug/10

mn m2

-40%

-20%

0%

20%

40%

60%

80%Accumulated Monthly New Housing Construction Areas

YoY (RHS)


Exhibit 45. Listed China property developer index

0

1,000

2,000

3,000

4,000

5,000

6,000

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

China property index


Chinas new housing

construction gross floor area

reached 1,318mn sqm as of Oct,

up 62% y-y

Chinas fixed asset investment in

1-3Q10 was RMB19.2tn, up 24%

y-y

Chinas listed property index was

down 9% w-w on 12 Nov 2010


15/24



Exhibit 46. China auto output

-200

400600

8001,0001,200

1,4001,600

1,8002,000

2005/01

2005/05

2005/09

2006/01

2006/05

2006/09

2007/01

2007/05

2007/09

2008/01

2008/05

2008/09

2009/01

2009/05

2009/09

2010/01

2010/05

2010/09

Thousand Units

-50%

0%

50%

100%

150%

200%

Auto Output Auto Output y-y (RHS)


Currency

Exhibit 47. RMB/US$

6.5

6.8

7.1

7.4

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

RMB/US$


Exhibit 48. RMB/

7

9

11

13

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

RMB/


Exhibit 49. RMB/A$

2.5

3.5

4.5

5.5

6.5

7.5

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

RMB/A$


Exhibit 50. A$/US$

0

0.4

0.8

1.2

1.6

2

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

A$/US$


Exhibit 51. A$/

1

1.2

1.4

1.6

1.8

2

2.2

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

A$/


Exhibit 52. US$/

0.5

0.7

0.9

1.1

1.3

1.5

1.7

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

US$/


Chinas total auto output climbed

22% y-y but dropped 3% m-m to

1.5mn units in Oct 2010


16/24



Share price performance

Exhibit 53. Global steel companies performance

11/12/2010

Company Name Ticker Price Chg % 1d Chg % 5d Chg % 1m Chg % 3m Chg % 6m Chg % 1yr Chg % YTDNorth America

U.S. Steel X US USD 47.80 0.0% -1.5% 6.6% 5.9% -13.1% 22.4% -13.3%

Nucor NUE US USD 40.64 0.0% 0.6% 1.9% 5.4% -13.1% 0.1% -12.9%

Gerdau GGB US USD 13.45 0.0% 0.4% 0.7% -5.1% -10.9% -16.1% -21.0%Wtd. Avg. 0.0% 0.1% 2.2% 0.3% -12.0% -4.0% -17.0%

Asia

POSCO 005490 KS KRW 36,344 2.2% -1.1% -9.4% -4.4% 3.1% -11.8% -23.9%

Hyundai Steel 004020 KS KRW 8,929 -0.8% 7.3% -1.3% 10.3% 31.1% 50.3% 36.4%

Dongkuk Steel 001230 KS KRW 1,442 -0.4% -3.8% -4.9% 12.2% 17.7% 4.4% -2.6%

Nippon Steel 5401 JP JPY 22,493 -1.4% 1.1% -0.7% -4.2% -17.6% -19.0% -27.5%

JFE Steel 5411 JP JPY 20,191 0.9% 1.3% 2.9% 1.9% -11.9% -11.6% -25.9%

Sumitomo Metal 5405 JP JPY 12,027 0.5% 3.5% 3.5% -1.0% -15.2% -11.2% -17.3%

China Steel 2002 TT NTD 31.85 -0.8% 0.2% 1.8% 3.6% 3.8% 9.5% -0.3%

Angang Steel 347 HK HKD 12.38 -3.0% -4.2% -8.6% 8.6% 13.4% -19.5% -27.7%

Baoshan Iron & Steel 600019 CH CNY 6.97 -5.0% -5.0% -1.8% 10.5% 7.4% -8.9% -27.8%

Maanshan Iron & Steel 323 HK HKD 4.64 -2.7% -1.9% -6.3% 14.3% 25.1% -7.2% -18.3%

Wuhan Iron & Steel 600005 CH CNY 4.83 -6.4% -7.6% -1.4% 3.9% -5.8% -39.1% -41.7%

Tata Steel TATA IN INR 631.05 -3.8% -2.3% -4.2% 16.7% 3.8% 18.5% -1.7%

SAIL SAIL IN INR 197.05 -2.8% -2.0% -13.4% -0.4% -10.1% 8.7% -20.7%

Wtd. Avg. -1.2% -0.7% -3.8% 2.7% -0.7% -4.7% -18.4%

Europe

ArcelorMittal MT NA EUR 25.40 -2.3% -0.7% 3.0% 6.9% -9.5% 2.6% -21.1%

ThyssenKrupp TKA GY EUR 28.09 -1.0% 1.8% 9.5% 22.0% 15.5% 18.1% 5.3%

Wtd. Avg. -1.9% 0.0% 4.7% 10.9% -2.9% 6.7% -14.1%

Russia

Evraz EVR LI USD 32.47 -1.4% -2.4% 9.1% 29.3% -0.7% 20.5% 13.3%

Severstal CHMF RU USD 14.50 -2.1% 1.8% -5.8% 15.1% 16.9% 85.1% 71.8%

Wtd. Avg. -1.8% -0.3% 1.5% 22.1% 8.3% 53.5% 43.2%

Mining

Vale Common VALE US USD 33.38 0.0% -1.3% 4.2% 20.5% 15.3% 23.1% 15.0%

Rio Tinto RIO LN GBP 44.02 -1.3% -0.1% 12.5% 33.0% 31.9% 40.1% 28.1%

BHP Billiton BLT LN GBP 24.13 -1.6% -3.1% 11.6% 22.3% 22.1% 31.9% 19.0%

Wtd. Avg. -1.0% -1.7% 9.5% 24.6% 22.6% 31.3% 20.1%

Index

NYSE Index NYA INDEX 7,723 -0.5% -1.5% 2.6% 11.7% 5.0% 8.8% 7.0%Hang Seng index HSI INDEX 24,223 -1.9% -2.6% 4.8% 14.8% 19.8% 8.1% 10.7%

Hang Seng China Ent. Index HSCEI INDEX 13,663 -3.0% -3.1% 5.3% 17.8% 18.7% 2.5% 6.8%

Shanghai SE Composite SHCOMP INDEX 2,985 -5.2% -4.6% 5.1% 15.9% 12.4% -5.9% -8.9%

TAIEX Index TWSE INDEX 8,316 -1.4% -1.6% 2.8% 6.2% 9.4% 8.4% 1.6%

NIKKEI 225 Index NKY INDEX 9,725 -1.4% 1.0% 3.6% 5.6% -6.4% -0.8% -7.8%

Kospi Index KOSPI INDEX 1,913 -0.1% -1.3% 2.4% 11.1% 15.0% 21.6% 13.7%

BSE SENSEX 30 Index SENSEX INDEX 20,589 -2.1% -4.0% -0.2% 11.5% 17.2% 20.7% 15.4%

FTSE Index UKX INDEX 5,815 -0.1% -1.2% 2.6% 10.3% 7.9% 10.1% 7.3%

Russian RTS Index RTSI$ INDEX 1,630 -0.9% 0.7% 2.6% 11.6% 8.8% 13.4% 11.8%

Prices as of 12 Nov. 2010



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Valuation

Exhibit 54. Historical P/BV of major steel companies since 2003

5.14 5.09

3.713.39 3.38

2.53

4.143.81

2.32

6.34

0.46 0.47 0.680.85 0.78 0.63 0.83

1.93 2.09

0.99 0.500.17

0.180.72 0.48

0.400.9

1.5

1.72.5

1.2 0.9 0.91.6

1.3

1.2 1.1 1.11.6

2.6

ArcelorMittal*

USSteel

Nucor

AKSteel

POSCO*

NipponSteel*

JFESteel*

ChinaSteel*

AngangSteel*

Baoshan*

Maanshan*

Wugang

ThyssenKrupp*

Evraz*

High P/B (x) Low P/B (x) Current P/B (x)223 9.39

Asterisked stocks are based on Nomura estimates, otherwise based on Bloomberg consensus. Prices as of 12 Nov. 2010 market close.


Exhibit 55. Historical P/E of major steel companies since 2003

55.9 54.3

15.8

18.5

78.165.3

52.350.4

23.0

17.5

0.8

2.7

3.84.5 2.7 4.7 4.9 4.3 2.0 5.1 1.5 3.4 5.4 0.7

7.9

33.9

14.8 17.7 8.89.5

7.9 12.7 11.1

16.1

7.9

74.8

9.5

ArcelorMittal*

USSteel

Nucor

AKSteel

POSCO*

NipponSteel*

JFESteel*

ChinaSteel*

AngangSteel*

Baoshan*

Maanshan*

Wugang

ThyssenKrupp*

Evraz*

High P/E (x) Low P/E (x) Current P/E (x)

12,24615,067453

412

361

Note: Asterisked stocks are based on Nomura estimates, otherwise based on Bloomberg consensus. Prices as of 12 Nov. 2010 market close.



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Exhibit 56. Global steel peers valuationBloomberg Price Nomura

Company Name Code rating 2009 2010F 2011F 2009 2010F 2011F 2009 2010F 2011F 2009 2010F 2011F 2009 2010F 2011F

North America

U.S. Steel (h) X US USD 47.80 NR na 33.9 13.5 n.a 7.3 4.2 na 23 31 216 229 229 0.6 0.5 0.4

Nucor (h) NUE US USD 40.64 NR na 14.8 10.0 7.5 4.0 2.9 73 26 32 549 506 506 1.3 1.0 0.8

Gerdau (h) GGB US USD 13.45 NR 20.6 12.6 6.3 7.9 5.8 4.6 104 24 45 823 737 737 1.4 1.3 1.1

Average 20.6 20.4 9.9 7.7 5.7 3.9 88 24 36 529 490 490 1.1 0.9 0.8

Asia

POSCO (b) 005490 KS KRW 470,000 BUY 12.9 8.8 8.6 8.8 5.7 5.5 111 167 173 971 935 919 1.7 1.4 1.3

Hyundai Steel (b) 004020 KS KRW 118,000 BUY 9.8 13.7 10.9 17.2 11.7 9.6 58 62 76 989 740 725 1.9 1.4 1.1

Dongkuk Steel (b) 001230 KS KRW 26,300 BUY 26.2 5.1 4.9 10.0 4.0 3.8 66 164 173 658 766 781 0.6 0.6 0.6

Nippon Steel (c) 5401 JP JPY 272.00 BUY na 9.5 7.4 9.6 4.9 4.6 94 179 194 896 808 749 0.8 0.7 0.6JFE Steel (c) 5411 JP JPY 2,705.00 BUY 47.7 7.9 7.2 8.1 4.8 4.8 116 193 193 935 837 753 1.0 0.8 0.7

Sumitomo Metal (c) 5405 JP JPY 206.00 BUY na 8.7 6.8 15.8 6.6 6.1 93 220 239 1,477 1394 1363 1.5 1.2 1.1

China Steel ( d) 2002 TT NTD 31.85 BUY 21.3 12.7 12.9 21.6 9.8 10.0 58 106 103 1,292 1077 1070 1.9 2.9 1.9

Angang Steel (d) 347 HK HKD 12.38 BUY 98.4 15.8 11.7 13.2 5.9 5.2 49 96 109 739 659 663 1.7 1.2 1.0

Baoshan Iron & Steel (d) 600019 CH CNY 6.97 NEUTRAL 21.0 11.1 10.3 7.1 5.2 4.8 136 180 192 958 945 916 1.1 0.8 0.6

Maanshan Iron & Steel (d) 323 HK HKD 4.64 NEUTRAL 75.3 16.1 13.9 6.3 5.0 4.2 41 49 56 327 316 309 1.0 0.7 0.6

Wuhan Iron & Steel (h) 600005 CH CNY 4.83 NR 9.8 7.9 6.8 4.7 3.6 3.3 81 104 116 379 341 280 0.7 0.6 0.4

Tata Steel (e) TATA IN INR 631.05 BUY 5.0 na 7.0 5.5 13.0 5.7 127 54 111 701 635 589 0.7 0.9 0.8

SAIL (e) SAIL IN INR 197.05 BUY 13.2 13.0 13.6 6.5 6.4 5.6 167 170 192 1,084 1193 1275 1.6 1.9 1.8

Average 31.0 10.8 9.4 10.3 6.7 5.6 92 134 148 877 819 799 1.2 1.1 1.0

Europe

ArcelorMittal (g) MT NA EUR 25.40 BUY na 7.9 5.5 11.6 4.9 3.7 91 148 171 1,057 727 585 1.1 0.7 0.6

ThyssenKrupp (g) TKA GY EUR 28.09 BUY na 74.8 9.8 na 7.5 3.8 na 163 254 1,239 1,443 1,194 0.4 0.4 0.4

Average na 41.3 7.6 11.6 6.2 3.7 91 155 212 1,148 1,085 890 0.7 0.6 0.5

Russia

Evraz (f) EVR LI USD 32.47 BUY na 9.5 5.3 6.2 5.7 4.0 11 42 34 1,220 1,151 961 2.2 1.4 1.0

Severstal (f) CHMF RU USD 14.50 BUY na 5.2 3.8 5.1 4.3 3.6 4 31 36 680 653 612 1.4 0.9 0.7

Average na 7.4 4.6 5.7 5.0 3.8 7.5 36.8 34.9 950.1 901.8 786.3 1.8 1.1 0.8

Mining

Vale Common (a) VALE US USD 33.38 BUY 33.4 17.9 11.6 18.7 11.3 8.0 na na na na na na 7.8 5.8 4.7

Rio Tinto (a) Rio LN GBP 44.02 BUY 23.2 15.2 11.4 13.3 8.7 6.5 na na na na na na 3.9 3.5 3.0

BHP Billiton (a) BLT LN GBP 24.13 REDUCE 20.9 15.4 11.9 11.3 8.1 6.2 na na na na na na 4.5 4.5 3.7

Average 25.8 16.1 11.7 14.4 9.3 6.9 na na na na na na 5.4 4.6 3.8Group Average 25.8 19.2 8.6 9.9 6.6 4.8 69.7 87.7 107.9 876.2 824.0 741.4 2.1 1.7 1.4

Bloomberg Price Nomura

Company Name Code rating 2009 2010F 2011F 2009 2010F 2011F 2009 2010F 2011F 2009 2010F 2011F 2009 2010F 2011F

North America

U.S. Steel (h) X US USD 47.80 NR 1.4 1.5 1.3 0.8 0.4 0.4 (7.3) 6.4 10.1 (12.8) 1.1 3.8 na 4.5 10.0

Nucor (h) NUE US USD 40.64 NR 1.7 1.7 1.4 3.4 3.5 3.5 17.5 26.2 30.1 (3.4) 11.8 17.3 na 11.3 14.3

Gerdau (h) GGB US USD 13.45 NR 2.0 1.8 na 0.6 1.7 2.5 18.2 22.0 24.2 8.2 14.0 22.5 9.6 14.6 na

Average 1.7 1.7 1.4 1.6 1.8 2.1 9.5 18.2 21.4 (2.6) 9.0 14.5 9.6 10.1 12.1

Asia

POSCO (b) 005490 KS KRW 470,000 BUY 1.4 1.2 1.1 1.7 2.1 2.1 19.3 25.2 24.3 11.7 18.4 17.6 10.5 13.7 12.7

Hyundai Steel (b) 004020 KS KRW 118,000 BUY 1.7 1.5 1.3 0.4 0.4 0.4 11.0 11.5 11.7 7.2 8.4 8.4 17.5 11.2 12.3

Dongkuk Steel (b) 001230 KS KRW 26,300 BUY 0.7 0.6 0.5 2.9 2.9 2.9 6.0 13.1 12.7 2.6 9.4 9.1 2.5 11.8 11.0

Nippon Steel (c) 5401 JP JPY 272.00 BUY 1.0 0.9 0.8 0.7 2.2 2.9 8.5 14.8 15.9 0.5 7.9 9.3 0.6 9.4 11.0

JFE Steel (c) 5411 JP JPY 2,705.00 BUY 1.0 0.9 0.8 0.7 2.6 3.0 12.0 18.1 18.8 3.4 10.7 11.3 2.2 11.7 11.8

Sumitomo Metal (c) 5405 JP JPY 206.00 BUY 1.2 1.1 0.9 2.4 2.9 3.9 9.5 18.8 19.0 0.0 10.8 11.7 na 12.1 13.7

China Steel ( d) 2002 TT NTD 31.85 BUY 1.7 1.6 1.6 3.3 5.6 5.5 12.9 19.1 17.6 5.0 13.3 12.1 8.1 13.1 12.4

Angang Steel (d) 347 HK HKD 12.38 BUY 1.4 1.3 1.3 0.6 2.5 3.4 11.3 16.8 17.1 2.3 8.1 9.2 1.4 8.7 11.1

Baoshan Iron & Steel (d) 600019 CH CNY 6.97 NEUTRAL 1.3 1.2 1.1 2.3 4.4 4.7 15.7 14.9 12.9 5.5 7.3 6.3 6.2 11.1 11.1

Maanshan Iron & Steel (d) 323 HK HKD 4.64 NEUTRAL 1.1 1.1 1.0 1.0 0.0 0.0 12.5 11.2 11.5 2.7 4.4 4.7 1.5 6.8 7.4

Wuhan Iron & Steel (h) 600005 CH CNY 4.83 NR 1.2 1.1 1.0 4.8 5.2 6.3 15.1 17.3 18.1 9.2 10.7 10.7 12.3 13.8 14.3

Tata Steel (e) TATA IN INR 631.05 BUY 1.6 1.5 1.4 2.1 2.1 2.1 12.4 7.5 14.7 9.5 3.2 11.1 32.7 n.a. 20.0

SAIL (e) SAIL IN INR 197.05 BUY 3.0 2.7 2.5 1.5 1.5 1.5 24.7 27.0 27.2 21.8 23.8 23.8 22.5 20.9 18.1

Average 1.4 1.3 1.2 1.9 2.6 3.0 13.1 16.6 17.0 6.3 10.5 11.2 9.8 12.0 12.8

Europe

ArcelorMittal (g) MT NA USD 25.40 BUY 0.9 0.9 0.8 2.1 2.1 5.4 9.3 15.1 17.3 3.7 11.4 12.3 0.2 10.9 13.9

ThyssenKrupp (g) TKA GY EUR 28.09 BUY 1.6 1.6 1.4 1.1 0.4 0.0 (0.8) 4.4 8.0 (1.6) 3.9 6.3 na 2.2 14.4

Average 1.3 1.2 1.1 1.6 1.2 2.7 4.3 9.8 12.6 1.1 7.6 9.3 na 6.5 14.2

Russia

Evraz (f) EVR LI USD 32.47 BUY 3.7 2.6 1.8 5.6 0.0 0.0 13.2 26.1 32.1 13.2 26.1 32.1 (26.3) 27.8 33.5

Severstal (f) CHMF RU USD 14.50 BUY 1.9 1.5 1.2 3.5 0.0 3.7 6.3 21.8 21.8 6.3 21.8 21.8 na 28.4 31.0

Average 2.8 2.1 1.5 4.5 0.0 1.2 9.7 23.9 27.0 9.7 23.9 27.0 (26.3) 28.1 32.3

Mining

Vale Common (a) VALE US USD 33.38 BUY 3.9 3.3 2.7 1.4 1.4 1.4 41.9 51.5 60.7 31.9 38.5 37.9 11.6 18.7 23.1

Rio Tinto (a) Rio LN GBP 44.02 BUY 3.6 3.3 2.7 1.2 1.3 1.3 na na na 23.8 30.0 32.2 15.7 21.8 23.3

BHP Billiton (a) BLT LN GBP 24.13 REDUCE 4.9 4.1 3.3 2.1 2.2 2.2 na na na 34.9 35.2 40.0 23.6 26.9 27.8

Average 4.2 3.6 2.9 1.6 1.6 1.6 41.9 51.5 60.7 30.2 34.6 36.7 17.0 22.5 24.7

Group Average 2.3 2.0 1.6 2.2 1.5 2.1 15.7 24.0 27.8 8.9 17.1 19.7 2.5 15.9 19.2

EV/Sales (X)P/E (x) EV/EBITDA (x) EBITDA/t (US$/t) EV/t (US/t)

P/B (x) Dividend Yield (%) ROE (%)EBITDA Margin (%) EBIT Margin

Notes: Lead coverage by: (a) Paul Cliff, (b) Cindy Park, (c) Y.Matsumoto, (d) Josephine Ho, (e) Prabhat Awasthi , (f) Vladimir Zhukov; (g) Jeff Largey and (h)Bloomberg estimates for not rated stocks.

Source: Bloomberg consensus estimates for Not rated stocks, Nomura estimates; Prices as of 12 Nov 2010


19/24



Valuation methodologies and investment risks

Maanshan (323 HK): We reiterate our NEUTRAL rating on Maanshan and our PT of

HK$5.00, based on 1.2x FY11F P/BV (one standard deviation above its historical

average). Downside risks include a delayed price recovery, disappointment in the

supply-demand balance, a lag in M&A, and poor execution of Chinas stimulus

package. Upside risks include a big drop in raw materials prices and favourable

government policies.Angang (347 HK): We reiterate our BUY on Angang and price target of HK$16.00,

based on 1.7x FY11F P/BV. Risks include a delay in price recovery, disappointing

supply-demand balance, and poor execution of stimulus programme elements.

BaoSteel (600019 CH): We maintain our NEUTRAL on Baosteel with a price target of

RMB7.00, based on the regional average of 1.2x FY11F P/BV (implied 11x P/E for

FY11F). Downside risks include a delay in price recovery, disappointment in supply-

demand balance, deviations in nickel and stainless steel price assumptions, and asset

injection. Upside risks include faster steel price increases and bigger drop in iron ore

prices.

China Steel (2002 TT): Our price target of NT$37.00 is based on 1.8x FY11F P/BV,the mid-cycle multiple. Risks include a delay in price recovery, disappointment in

supply-demand balance, disposal gains and the impact from Dragon Steel.


20/24



ANALYST CERTIFICATIONS

We, Josephine Ho and Jialong Shi, hereby certify (1) that the views expressed in this Research reportaccurately reflect our personal views about any or all of the subject securities or issuers referred to inthis Research report, (2) no part of our compensation was, is or will be directly or indirectly related tothe specific recommendations or views expressed in this Research report and (3) no part of ourcompensation is tied to any specific investment banking transactions performed by Nomura SecuritiesInternational, Inc., Nomura International plc or any other Nomura Group company.

ISSUER SPECIFIC REGULATORY DISCLOSURESIssuer Ticker Price

(as at last close)Closing Price Date Rating Disclosures

Angang Steel 347 HK 12.16 HKD 15 Nov 2010 Buy 7

Baoshan Iron & Steel 600019 CH 6.84 CNY 15 Nov 2010 Neutral

China Steel Corp 2002 TT 31.60 TWD 15 Nov 2010 Buy

Maanshan Iron & Steel 323 HK 4.63 HKD 15 Nov 2010 Neutral

Disclosures required in the European Union

7 Significant financial interestsNomura International plc or its affiliates in the global Nomura group has a significant financialinterest in the issuer.

Previous Ratings

Issuer Previous Rating Date of change

Angang Steel Reduce 15 Jun 2009

Baoshan Iron & Steel Buy 20 Sep 2010

China Steel Corp Neutral 18 Aug 2009

Maanshan Iron & Steel Buy 20 Sep 2010

Online availability of research and additional conflict-of-interest disclosuresNomura Japanese Equity Research is available electronically for clients in the US on NOMURA.COM,REUTERS, BLOOMBERG and THOMSON ONE ANALYTICS. For clients in Europe, Japan andelsewhere in Asia it is available on NOMURA.COM, REUTERS and BLOOMBERG.Important disclosures may be accessed through the left hand side of the Nomura Disclosure web pagehttp://www.nomura.com/research or requested from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please email [email protected] fortechnical assistance.The analysts responsible for preparing this report have received compensation based upon variousfactors including the firm's total revenues, a portion of which is generated by Investment Bankingactivities.Industry Specialists identified in some Nomura research reports are senior employees within the Firmwho are responsible for the sales and trading effort in the sector for which they have coverage. IndustrySpecialists do not contribute in any manner to the content of research report in which their namesappear.Distribution of ratings (Global)Nomura Global Equity Research has 1878 companies under coverage.48% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified asa Buy rating; 41% of companies with this rating are investment banking clients of the Nomura Group*. 37% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classifiedas a Hold rating; 54% of companies with this rating are investment banking clients of the NomuraGroup*.13% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classifiedas a Sell rating; 16% of companies with this rating are investment banking clients of the NomuraGroup*.

As at 30 September 2010.*The Nomura Group as defined in the Disclaimer section at the end of this report.Explanation of Nomura's equity research rating system in Europe, Middle East andAfrica, US and Latin America for ratings published from 27 October 2008The rating system is a relative system indicating expected performance against a specific benchmarkidentified for each individual stock. Analysts may also indicate absolute upside to price target definedas (fair value - current price)/current price, subject to limited management discretion. In most cases,

the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using anappropriate valuation methodology such as discounted cash flow or multiple analysis, etc. STOCKS

A rating of 'Buy',indicates that the analyst expects the stock to outperform the Benchmark over thenext 12 months.


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A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmarkover the next 12 months.

A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark overthe next 12 months.

A rating of 'RS-Rating Suspended', indicates that the rating and target price have been suspendedtemporarily to comply with applicable regulations and/or firm policies in certain circumstances includingwhen Nomura is acting in an advisory capacity in a merger or strategic transaction involving thecompany.Benchmarks are as follows: United States/Europe: Please see valuation methodologies forexplanations of relevant benchmarks for stocks (accessible through the left hand side of the NomuraDisclosure web page: http://www.nomura.com/research);Global Emerging Markets (ex-Asia): MSCIEmerging Markets ex-Asia, unless otherwise stated in the valuation methodology.SECTORS

A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark duringthe next 12 months.

A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmarkduring the next 12 months.

A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmarkduring the next 12 months.Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; GlobalEmerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.Explanation of Nomura's equity research rating system for Asian companies undercoverage ex Japan published from 30 October 2008 and in Japan from 6 January

2009

STOCKSStock recommendations are based on absolute valuation upside (downside), which is defined as (PriceTarget - Current Price) / Current Price, subject to limited management discretion. In most cases, thePrice Target will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriatevaluation methodology such as discounted cash flow, multiple analysis, etc.

A 'Buy' recommendation indicates that potential upside is 15% or more.A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than5%.

A 'Reduce' recommendation indicates that potential downside is 5% or more.A rating of 'RS' or 'Rating Suspended' indicates that the rating and target price have been suspendedtemporarily to comply with applicable regulations and/or firm policies in certain circumstances includingwhen Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subjectcompany.Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regularresearch coverage of the Nomura entity identified in the top banner. Investors should not expect

continuing or additional information from Nomura relating to such securities and/or companies.

SECTORSA 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation ofthe stocks under coverage is) a positive absolute recommendation.

A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation ofthe stocks under coverage is) a neutral absolute recommendation.

A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation ofthe stocks under coverage is) a negative absolute recommendation.Explanation of Nomura's equity research rating system in Japan published prior to 6January 2009 (and ratings in Europe, Middle East and Africa, US and Latin Americapublished prior to 27 October 2008)STOCKS

A rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform theBenchmark by 15% or more over the next six months.

A rating of '2' or 'Buy', indicates that the analyst expects the stock to outperform the Benchmark by 5%or more but less than 15% over the next six months. A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform orunderperform the Benchmark by less than 5% over the next six months.

A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform the Benchmarkby 5% or more but less than 15% over the next six months.

A rating of '5' or 'Sell', indicates that the analyst expects the stock to underperform the Benchmark by15% or more over the next six months.Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage.Nomura might not publish additional research reports concerning this company, and it undertakes noobligation to update the analysis, estimates, projections, conclusions or other information containedherein.SECTORS

A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark duringthe next six months.

A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmarkduring the next six months.A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmarkduring the next six months.Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World TechnologyHardware & Equipment; Europe, by sector - Hardware/Semiconductors: FTSE W Europe IT Hardware;


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Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe;Auto &Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe ITHardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging Markets:MSCI Emerging Markets ex-Asia.Explanation of Nomura's equity research rating system for Asian companies undercoverage ex Japan published prior to 30 October 2008STOCKSStock recommendations are based on absolute valuation upside (downside), which is defined as (Fair

Value - Current Price)/Current Price, subject to limited management discretion. In most cases, the FairValue will equal the analyst's assessment of the current intrinsic fair value of the stock using anappropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, ifthe analyst doesn't think the market will revalue the stock over the specified time horizon due to a lackof events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases,therefore, our recommendation is an assessment of the difference between current market price andour estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unlessspecified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside ordownside based on the prevailing market price to differ from the upside or downside implied by therecommendation.

A 'Strong buy' recommendation indicates that upside is more than 20%.A 'Buy' recommendation indicates that upside is between 10% and 20%.A 'Neutral' recommendation indicates that upside or downside is less than 10%.A 'Reduce' recommendation indicates that downside is between 10% and 20%.A 'Sell' recommendation indicates that downside is more than 20%.SECTORS

A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation ofthe stocks under coverage is) a positive absolute recommendation.

A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation ofthe stocks under coverage is) a neutral absolute recommendation.

A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation ofthe stocks under coverage is) a negative absolute recommendation.Price targetsPrice targets, if discussed, reflect in part the analyst's estimates for the company's earnings. Theachievement of any price target may be impeded by general market and macroeconomic trends, andby other risks related to the company or the market, and may not occur if the company's earnings differfrom estimates.

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