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

NOMURA INTERNATIONAL (HK) LIMITED

Josephine Ho

+852 2252 2177

josephine.ho@nomura.com

BULLISH

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.

Steel Weekly (Nov. 15): Crude output continues to slide in October


c Steel prices grow while inventory destocking continues
Both 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). Coldrolled 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.

Analysts
Josephine Ho +852 2252 2177 josephine.ho@nomura.com Jialong Shi (Researcher) +852 2252 1594 jialong.shi@nomura.com

Weekly/Quarterly steel price movement


RMB/t Iron ore HRC CRC Medium plate 12-Nov-10 1,250 4,532 5,394 4,539 4,547 4,646 5-Nov-10 1,200 4,486 5,344 4,424 4,407 4,499 Change (%) 4.2 1.0 0.9 2.6 3.2 3.3

d Monthly data review


Chinas 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 power rationing 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.

Rebar Wire Rod

RMB/t Iron ore HRC CRC Medium plate Rebar Wire Rod

QTD 1,196 4,457 5,357 4,454 4,336 4,446

3Q10 1,128 4,325 5,248 4,353 4,100 4,201

Change (%) 6.0 3.0 2.1 2.3 5.8 5.8

Source: Mysteel, Nomura research

e Weekly news in focus


1) 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 prices flat; and 4) CISA official urges mills to use more scrap.

f Steel equities down on bearish sentiment


Steel 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).

Any authors named on this report are research analysts unless otherwise indicated. See the important disclosures and analyst certifications on pages 20 to 23.
Nomura 1 15 November 2010

Steel | China/Taiwan

Josephine Ho

Exhibit 1. Summary of coverage


Company Baosteel Angang Steel Maanshan Iron&Steel China Steel Company Baosteel y-y chg Angang Steel y-y chg Maanshan Iron&Steel y-y chg China Steel y-y chg Ticker 600019 CH 347 HK 323 HK 2002 TT Market Cap US$ mn 18,391 9,850 4,391 14,300 Price 6.97 12.38 4.64 31.85 Currency RMB HK$ HK$ NT$ EBITDA (mn) 10F 32,106 38% 15,561 97% 7,649 21% 46,386 118% Rating NEUTRAL BUY NEUTRAL BUY Price target 7.0 16.0 5.0 37.0 Upside /Downside 0% 29% 8% 16% EPS 11F 34,267 7% 17,776 14% 8,747 14% 45,236 -2% 09 0.33 -10% 0.10 -75% 0.05 -51% 1.50 -22% 10F 0.63 90% 0.65 522% 0.24 369% 2.50 67% 11F 0.67 7% 0.88 35% 0.28 15% 2.46 -2% Analyst Josephine Ho Josephine Ho Josephine Ho Josephine Ho

09 23,247 -20% 7,910 -14% 6,299 -10% 21,271 -62%

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
Spot Iron Ore (fines) (CY) China Spot CIF ($/t) Realized Aus FOB ($/t) 140 128 71 46 126 51 158 84 84 71 147 115 169 159 160 150 130 128 80 70 2006 2007 2008 2009 2010E 2011E 2012E 2013E Long term

Australian Coal Hard Coking (CY) ($/t) Thermal (JFY) ($/t) 205 94 119 53 103 56 253 125 173 70 191 98 241 110 250 120 220 100 140 80

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 Y-o-Y Crude Steel Production Y-o-Y chg chng Crude Steel Utilization Rate

502 9.7% 421 21.1% 73 84.0%

540 7.6% 488 15.7% 66 90.3%

660 22.2% 502 2.9% 14 76.1%

710 7.6% 568 13.1% 66 80.0%

760 7.0% 646 13.7% 78 85.0%

800 5.3% 685 6.0% 39 85.6%

830 3.8% 739 8.0% 55 89.1%

Finished steel production* Y-o-Y chg

386 18.2%

454 17.7%

469 3.4%

542 15.4%

616 13.8%

653 6.0%

705 8.0%

Imports Y-o-Y chg Exports Y-o-Y chg Net Imports/(exports) Y-o-Y chg

19 -28.4% 43 109.6% -25 -559.8%

17 -8.9% 63 45.7% -46 87.1%

15 -8.5% 59 -5.6% -44 -4.5%

18 14.2% 25 -58.5% -7 -84.1%

18 0.3% 43 74.9% -25 263.3%

18 0.0% 35 -18.6% -17 -31.6%

18 0.0% 50 42.9% -32 86.6%

Finished Steel Apparent Consumption* Y-o-Y chg

361 8.9%

408 13.0%

426 4.3%

535 25.6%

591 10.5%

636 7.6%

673 5.9%

*Double counts might exist for finished steel output. Source: China Iron and Steel Association, Nomura estimates

Nomura

15 November 2010

Steel | China/Taiwan

Josephine Ho

Exhibit 4. Global supply-demand outlook


North Am eric a B razil Other Americas C en tral & S ou th Am eric a E U-27 E urope-oth er R us s ia Ukraine Other CIS C IS Middle E as t Afric a China India J apan Korea, S outh T aiwan Other As ia As ia Oc eania World 2002 137.5 16.5 11.2 27.7 158.7 17.5 24.9 5.5 3.6 34.0 24.1 19.1 191.3 28.9 72.7 43.7 20.4 42.4 399.4 7.2 825.2 2003 131.3 16.0 11.6 27.6 160.1 19.9 25.3 8.2 3.5 37.0 28.9 18.3 240.5 33.1 77.1 45.4 19.9 38.2 454.2 7.5 884.8 2004 150.8 18.3 14.7 33.0 172.4 22.6 26.3 7.2 4.6 38.1 29.8 19.9 275.8 36.4 79.1 47.2 22.1 42.5 503.0 8.0 977.6 2005 138.3 16.8 15.7 32.5 165.5 25.1 29.3 7.2 5.0 41.5 33.5 21.5 331.8 41.4 83.1 47.1 19.9 50.8 574.1 7.9 1039.9 2006 155.7 18.5 17.9 36.4 188.6 28.9 34.9 7.1 6.9 48.9 34.9 22.9 361.3 46.1 83.3 50.2 19.8 49.3 610.1 7.9 1134.3 2007 141.3 22.1 19.8 41.9 198.1 31.6 39.5 9.5 7.6 56.6 40.3 25.1 408.3 50.3 86.3 54.3 20.2 51.9 671.3 8.6 1214.8 2008 129.0 24.0 20.3 44.3 181.3 25.3 37.3 6.9 4.7 48.9 43.1 26.2 425.7 52.6 83.1 57.6 16.7 65.7 701.4 7.6 1207.0 2009 83.8 19.2 15.2 34.4 123.3 21.0 25.6 4.0 4.0 33.5 39.2 26.4 535.0 55.8 55.2 44.3 11.4 57.8 759.4 5.3 1126.4 2010F 103.1 22.1 17.5 39.6 141.8 23.5 27.4 4.3 4.2 35.9 43.1 28.5 591.0 61.3 61.7 50.1 13.2 63.6 840.9 6.7 1263.1 2011F 115.5 24.7 19.6 44.3 155.9 25.4 29.6 4.6 4.6 38.8 47.4 31.4 636.0 67.5 64.1 54.1 14.5 69.9 906.1 7.3 1372.2

Apparent s teel c on s um ption (% c han ge year on year) 2002 2003 North Am eric a 2.4% -4.5% B razil -1.2% -3.0% Other Americas -8.2% 3.6% C en tral & S ou th Am eric a -4.2% -0.4% E U-27 10.2% 0.9% 7.4% 13.7% E urope-oth er R us s ia -7.4% 1.6% Ukraine -5.2% 49.1% Other CIS 9.1% -2.8% C IS -5.6% 8.8% Middle E as t 4.3% 19.9% Afric a 8.5% -4.2% China 21.1% 25.7% India 5.5% 14.6% J apan -3.1% 6.1% Korea, S outh 14.1% 3.9% T aiwan 17.0% -2.6% Other As ia 13.6% -9.9% As ia 13.0% 13.7% Oc eania 14.3% 4.2% World World ex-C h ina C rude s teel produc tion (m illion tonnes ) US Other North America North America B razil Other Am eric as C en tral & S ou th Am eric a E U-27 E urope-other R us s ia Other C IS C IS Middle E as t Africa China India J apan Korea, S outh Other As ia As ia Oc eania World Y oY c hange 2002 91.6 31.4 122.9 29.6 11.3 40.9 188.3 19.3 59.8 41.4 101.2 12.5 15.8 182.2 28.8 107.7 45.4 30.7 394.9 8.3 904.1 0.1 2003 93.7 32.5 126.2 31.1 11.9 43.0 192.5 21.3 61.5 45.0 106.5 13.4 16.3 222.4 31.8 110.5 46.3 31.4 442.4 8.4 970.0 0.1 8.6% 0.0% 7.2% 0.0%

2004 14.9% 14.4% 26.7% 19.6% 7.7% 13.6% 4.0% -12.2% 31.4% 3.0% 3.1% 8.7% 14.7% 9.8% 2.6% 4.0% 11.0% 11.1% 10.7% 6.7% 10.5% 8.9%

2005 -8.3% -8.2% 6.8% -1.5% -4.0% 11.1% 11.4% 0.0% 8.7% 8.9% 12.4% 8.0% 20.3% 13.9% 5.1% -0.2% -9.7% 19.5% 14.1% -1.3% 6.4% 0.9%

2006 12.6% 10.1% 14.0% 12.0% 14.0% 15.1% 19.1% -1.4% 38.0% 17.8% 4.2% 6.5% 8.9% 11.4% 0.2% 6.6% -0.5% -2.8% 6.3% 0.0% 9.1% 9.2%

2007 -9.2% 19.5% 10.6% 15.1% 5.0% 9.3% 13.2% 33.8% 10.1% 15.7% 15.5% 9.6% 13.0% 9.0% 3.6% 8.2% 8.2% 5.1% 10.0% 8.9% 7.1% 4.3%

2008 -8.7% 8.6% 2.4% 5.7% -8.5% -19.9% -5.6% -27.0% -38.0% -13.5% 6.8% 4.3% 4.3% 4.6% -3.7% 6.1% -17.2% 26.6% 4.5% -11.5% -0.6% -3.1%

2009 -35.0% -20.0% -25.0% -22.3% -32.0% -17.0% -31.5% -42.0% -16.0% -31.5% -9.0% 1.0% 25.7% 6.0% -33.6% -23.1% -32.0% -12.0% 8.3% -30.0% -6.7% -24.3%

2010E 23.0% 15.0% 15.0% 15.0% 15.0% 12.0% 7.2% 7.0% 7.0% 7.2% 10.0% 8.0% 10.5% 10.0% 11.9% 13.0% 16.0% 10.0% 10.7% 25.0% 12.1% 13.7%

2011E 12.0% 12.0% 12.0% 12.0% 10.0% 8.0% 8.0% 8.0% 8.0% 8.0% 10.0% 10.0% 7.6% 10.0% 3.8% 8.0% 10.0% 10.0% 7.7% 10.0% 8.6% 9.5%

2004 99.7 34.3 134.0 32.9 13.0 45.9 202.3 24.0 65.6 47.8 113.4 14.3 16.7 280.5 32.6 112.7 47.5 36.7 510.0 8.3 1069.1 0.1

2005 94.9 32.7 127.6 31.6 13.7 45.3 195.1 25.0 66.1 47.0 113.1 15.3 17.9 355.8 45.8 112.5 47.8 36.2 598.1 8.6 1146.7 0.1

2006 98.6 33.2 131.8 30.9 14.4 45.3 206.3 28.2 70.8 49.1 119.9 15.4 18.8 422.7 49.5 116.2 48.5 39.4 676.2 8.7 1251.2 0.1

2007 98.1 34.5 132.6 33.8 14.5 48.2 209.7 30.6 72.4 51.8 124.2 16.0 18.8 489.9 53.1 120.2 51.5 47.2 761.9 8.8 1351.3 0.1

2008 91.4 33.2 124.5 33.7 13.6 47.4 198.0 31.3 68.7 45.3 114.0 16.0 16.7 502.0 55.1 118.7 53.6 20.1 749.5 8.4 1329.7 0.0

2009 58.1 24.1 82.3 26.5 11.3 37.8 139.1 28.8 61.2 38.5 99.7 16.6 14.8 568.3 56.6 87.5 48.8 15.5 776.7 6.0 1201.8 -0.1

2010E 71.5 29.2 100.7 31.8 13.6 45.4 162.8 31.7 65.8 41.6 107.4 17.9 16.6 646.0 62.3 108.0 53.7 17.0 886.9 6.9 1382.7 0.2

2011E 80.5 32.7 113.1 35.6 15.2 50.8 181.5 34.9 73.3 46.1 119.4 20.1 18.6 685.0 68.5 108.9 57.4 18.7 938.6 7.6 1517.2 0.1

C rude s teel produc tion (% c han ge year on year) 2002 US 1.7% Other North America 9.7% 3.6% North America B razil 10.9% Other Am eric as -4.6% C en tral & S ou th Am eric a 6.1% 18.8% E U-27 8.8% E urope-other R us s ia 1.3% Other C IS 1.8% C IS 1.5% Middle E as t 6.8% 6.1% Africa China 27.9% India 5.5% J apan 4.7% Korea, S outh 3.5% Other As ia 5.8% As ia 14.3% Oc eania 5.0% World World ex-C h ina 11.2% 7.6%

2003 2.3% 3.6% 2.6% 5.2% 5.7% 5.3% 2.2% 10.5% 2.8% 8.6% 5.2% 7.3% 3.1% 22.0% 10.4% 2.6% 2.0% 2.1% 12.0% 1.3% 7.3% 3.6%

2004 6.4% 5.7% 6.2% 5.7% 9.0% 6.6% 5.1% 12.7% 6.7% 6.2% 6.5% 6.7% 2.5% 26.1% 2.5% 2.0% 2.6% 16.8% 15.3% -1.2% 10.2% 5.5%

2005 -4.8% -4.7% -4.8% -3.9% 5.7% -1.2% -3.6% 4.1% 0.9% -1.7% -0.2% 7.0% 7.2% 26.8% 40.4% -0.2% 0.6% -1.2% 17.3% 4.2% 7.3% 0.3%

2006 3.9% 1.5% 3.3% -2.2% 5.0% 0.0% 5.7% 12.9% 7.1% 4.4% 6.0% 0.5% 4.9% 18.8% 8.0% 3.3% 1.3% 8.8% 13.1% 0.5% 9.1% 4.8%

2007 -0.5% 3.9% 0.6% 9.3% 0.4% 6.5% 1.7% 8.5% 2.2% 5.5% 3.6% 4.3% -0.1% 15.9% 7.3% 3.4% 6.3% 19.9% 12.7% 1.1% 8.0% 4.0%

2008 -6.9% -3.9% -6.1% -0.2% -5.6% -1.8% -5.6% 2.2% -5.1% -12.5% -8.2% 0.0% -10.8% 2.5% 3.7% -1.2% 4.1% -57.5% -1.6% -4.1% -1.6% -3.9%

2009 -36.4% -27.3% -33.9% -21.4% -17.1% -20.1% -29.7% -7.9% -10.9% -15.0% -12.5% 3.5% -11.3% 13.2% 2.8% -26.3% -9.0% -23.0% 3.6% -28.6% -9.6% -23.5%

2010E 23.0% 21.0% 22.4% 20.0% 20.0% 20.0% 17.0% 10.0% 7.5% 8.0% 7.7% 8.0% 12.0% 14.8% 10.0% 23.3% 10.0% 10.0% 15.0% 15.0% 15.0% 15.3%

2011E 12.5% 12.0% 12.4% 12.0% 12.0% 12.0% 11.5% 10.0% 11.4% 11.0% 11.2% 12.0% 12.0% 10.0% 10.0% 0.9% 7.0% 10.0% 8.7% 10.0% 9.7% 9.5%

Source: World Steel Association, Nomura estimates

Nomura

15 November 2010

Steel | China/Taiwan

Josephine Ho

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 five companies 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) 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 raised their 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) 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 remained at 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 decline is that mills with EAFs increased their use of primary iron to cut costs, according to CISA. (SBB, 9 November 2010).
CISA encourages more use of scrap to reduce reliance on iron ore Hegang acquired a 10% stake in five privately owned steel mills in Hebei

2.

Taiwan rebar producers keep rebar prices flat due to soft demand

3.

Baosteels December prices unchanged from November

Nomura

15 November 2010

Steel | China/Taiwan

Josephine Ho

Weekly steel data points


Iron ore
Exhibit 5. Weekly iron ore inventory at port
Iron ore inventory up 1.4% w-w at 68.7mn tonnes, as of 12 November 2010

80,000

(kt)

60,000

40,000

20,000

0 Mar-07 Mar-08 Mar-09 Dec-06 Dec-07 Dec-08 Dec-09 Mar-10 Jun-06 Jun-07 Jun-08 Jun-09 Sep-06 Sep-07 Sep-08 Sep-09 Jun-10 Sep-10

Source: Mysteel, Nomura research

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


Iron ore inventory (mn t) 80 70 60 50 40 30 20 10 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 0.6 0.4 0.2 mnt inventory vs est. consumption (x) 1.4 1.2 1.0 0.8

Iron ore inventory at ports still less than one months requirement

Source: CEIC, Mysteel, Nomura research

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


Iro n Ore Impo rt P x at Qingdao P o rt (LHS)

1,800 1,600 1,400 1,200 1,000 800 600 400 200

RMB/t

230
Impo rt Indian Iro n o re 63% Fe P x (RHS)

US$/t

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

210 190 170 150 130 110 90 70 50

Mar-09

Mar-10

Jun-09

Dec-06

Dec-07

Dec-08

Dec-09

Mar-07

Mar-08

Jun-06

Jun-07

Jun-08

Jun-10

Source: Bloomberg, Nomura research

Nomura

Sep-06

Sep-07

Sep-08

Sep-09

Sep-10
5

15 November 2010

Steel | China/Taiwan

Josephine Ho

Exhibit 8. Monthly domestic iron ore production


Iron ore output y-y%(RHS)

Domestic iron ore production reached 95mn tonnes in October up 14% y-y and 2% m-m
70% 60% 50% 40% 30% 20% 10% 0% -10% -20%

120 100 80 60 40 20 -

mnt

Jul/04

Jul/05

Jul/06

Jul/07

Jul/08

Jul/09

Jan/04

Jan/05

Jan/06

Jan/07

Jan/08

Jan/09

Source: Mysteel, Nomura research

Jan/10

Jul/10

Exhibit 9. Monthly iron ore import volume


70 mnt 60 50 40 40% 30 20 10 Oct-06 Oct-07 Oct-08 Oct-09 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Oct-10 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 -40% 0%
Iro n o re impo rts y-y% (RHS)

120%

Iron ore imports in China up 1% y-y (down 13% m-m) to 45.7mn tonnes in Oct. 2010

80%

Source: Mysteel, Nomura research

Exhibit 10. Monthly Australia iron ore export volume


40 35 30 25 20 15 10 5 Oct-06 Oct-07 Oct-08 Oct-09 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Jul-10 -30% 0% 30% 60% mnt
Iron ore exports y-y%(RHS)

90%

Iron ore exports from Australia up 6.7% y-y (up 5% m-m) to 34.8mn tonnes in Sept 2010

Source: Bloomberg, Nomura research

Nomura

15 November 2010

Steel | China/Taiwan

Josephine Ho

Coking coal, coke and nickel


Exhibit 11. China domestic coking coal prices
2,200 2,000 1,800 1,600 1,400 1,200 1,000 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Aug-10 Sep-10 Oct-10 Apr-09 May-09 Apr-10 May-10 Jun-10 Jul-10 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10
China First Grade Coking Coal Taiyuan Price China Second Grade Coking Coal Shanghai Price China First Coking Coal Spot Guangzhou

RMB/t
China M ain Coking Coal Pingdingshan Price

Domestic coking coal prices were flat w-w across major markets in China on 12 Nov 2010

Source: Bloomberg, Nomura research

Exhibit 12. Coke export Tianjin prices


900 800 700 600 500 400 300 200 100 0 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 Average=334 US$/t

Chinas domestic coke export price was up 3% w-w at US$385/tonne at the Tianjin port on 12 Nov 2010

Source: Bloomberg, Nomura research

Exhibit 13. Global nickel spot prices


60,000 US$/t 50,000 40,000 30,000 20,000 10,000 0 May-04 May-05 May-06 May-07 May-08 May-09 May-10 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Jan-10 Sep-10 Average=21,010

Nickel price at US$22,614/tonne was down 7.3% w-w, on 12 Nov 2010

Source: Bloomberg, Nomura research

Nomura

15 November 2010

Steel | China/Taiwan

Josephine Ho

Exhibit 14. China domestic heavy scrap prices


4,500 4,000 3,500 3,000 2,500 2,000 1,500 Oct-06 Oct-07 Oct-08 Oct-09 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Apr-06 Apr-07 Apr-08 Apr-09 Jan-10 Apr-10 Average=2,693
China Domestic Heavy Scrap ( incl 1 7%VAT)

Chinas domestic scrap price was up 4.0% w-w to RMB3,125/tonne on 9 Nov 2010

RMB/t

Source: Bloomberg, Nomura research

Steel prices
Exhibit 15. China domestic spot steel prices snapshot
Weekly average 12-Nov-10 5-Nov-10 change 1,250 1,200 4.2% 4,532 4,486 1.0% 5,394 5,344 0.9% 4,539 4,424 2.6% 5,397 5,379 0.3% 4,547 4,407 3.2% 4,646 4,499 3.3% Quarterly average QTD 3Q10 % change 1,196 1,128 6.0% 4,457 4,325 3.0% 5,357 5,248 2.1% 4,454 4,353 2.3% 5,387 5,210 3.4% 4,336 4,100 5.8% 4,446 4,201 5.8% Yearly average YTD 2009 % change 1,142 684 66.9% 4,363 3,803 14.7% 5,543 4,749 16.7% 4,367 3,639 20.0% 5,318 4,703 13.1% 4,139 3,705 11.7% 4,211 3,681 14.4%

RMB/t Iron ore HRC CRC Medium plate Galvanized Rebar Wire Rod

Source: Mysteel, Nomura research

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


8,000 6,000 4,000 2,000 0 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 (Rm b/t) Current price=4,532 Average price=4,354 HRC

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


8,000 6,000 4,000 2,000 0 Jul-04 Jul-05 Jan-06 Jul-06 Jul-07 Jul-08 Jul-09 Jan-10 Jul-10
Nov-09 Jun-10

(Rm b/t) Current price=5,394 Average price=5,419

CRC

Jan-04

Jan-05

Jan-07

Jan-08

Source: Mysteel, Nomura research

Source: Mysteel, Nomura research

Exhibit 18. Rebar prices, since 2004


6,000 4,000 2,000 0 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 (Rm b/t) Current price=4,547 Average price=3,747 Rebar

Exhibit 19. Wire rod prices, since 2004


8,000 6,000 4,000 2,000 0 Oct-05 Mar-05 May-06 Dec-06 Feb-08 Jan-04 Jul-07 Sep-08 Aug-04 Apr-09 (Rm b/t) Wire rod Current price=4,646 Average price=3,830

Source: Mysteel, Nomura research

Source: Mysteel, Nomura research

Nomura

15 November 2010

Jan-09

Steel | China/Taiwan

Josephine Ho

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

7,000 6,000 5,000 4,000 3,000 2,000 1,000 0

RMB/t

Estimated cash profit (RHS)

HRC

RMB/t

1400 1200 1000 800 600 400 200 0 -200

Chinese steel producers have been generating cash profits since early July 2010 given steel price hikes

Nov-08

Nov-09

Mar-08

May-08

Mar-09

May-09

Mar-10

May-10

Source: CEIC, Mysteel, Nomura research

Nov-10

Jan-08

Jan-09

Sep-08

Sep-09

Jan-10

Sep-10

Jul-08

Jul-09

Jul-10

Exhibit 21. HRC prices: global comparison


N.Europe domest ic Ex-Works N.America domest ic FOB US M idwest mill

1400 1200 1000 800 600 400 200 0 May 03 May 04 May 05

China domest ic Shanghai (incl. 17%vat )

US$/t

Japan domest ic (Tokyo St eel) FOT

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

May 06

May 07

May 08

May 09

Jan 03

Jan 04

Jan 05

Jan 06

Jan 07

Jan 08

Jan 09

Jan 10

10-May

Sep 03

Sep 04

Sep 05

Sep 06

Sep 07

Sep 08

Sep 09

Source: SBB, CEIC, Mysteel, Nomura research

10-Sep

Exhibit 22. China domestic stainless HRC prices (including 17% VAT)
45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Oct-10 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Average=23,742 RMB/t

Stainless HRC priced at RMB21,450/tonne was up 0.7% m-m in Oct 2010

Source: Bloomberg, Nomura research

Nomura

15 November 2010

Steel | China/Taiwan

Josephine Ho

Steel production
Exhibit 23. China domestic pig iron production
kt
P ig iro n y-y% (RHS)

Exhibit 24. China domestic finished steel production


mnt
Finished Steel y-y% (RHS)

60

60% 30%

80 60 40 20 0

100% 50% 0% -50%

30 0% 0 Oct/06 Oct/07 Oct/08 Feb/06 Feb/07 Feb/08 Feb/09 Oct/09 Feb/10 Jun/06 Jun/07 Jun/08 Jun/09 Jun/10 -30%

Source: Mysteel, Nomura research

Source: Mysteel, Nomura research

Exhibit 25. China domestic HRC production


kt
HRC y-y% (RHS)

Exhibit 26. China domestic CRC production


kt
CRC y-y% (RHS)

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/10 400% 300% 200% 100% 0% -100% 2500 2000 1500 1000 500 0 Jan/06 100% 50% 0% -50% May/06 May/07 May/08 May/09 May/10 150% 100% 50% 0% -50% -100% Oct/06 Oct/07 Oct/08 Feb/07 Feb/08 Feb/09 Oct/09 Feb/10 Jun/07 Jun/08 Jun/09 Jun/10 Jan/07 Jan/08 Jan/09 Sep/06 Sep/07 Sep/08 Sep/09 Jan/10
Source: Mysteel, Nomura research

1200 1000 800 600 400 200 0 Jan/06

May/06

May/07

May/08

May/09

Source: Mysteel, Nomura research

Exhibit 27. China domestic rebar production


kt 15,000 12,000 9,000 6,000 3,000 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
Rebar y-y% (RHS)

May/10

Jan/07

Jan/08

Jan/09

Sep/06

Sep/07

Sep/08

Sep/09

Jan/10

Exhibit 28. China domestic large section production


kt
Large sectio n y-y% (RHS)

60% 40% 20% 0% -20%

1200 900 600 300 0 Feb/06

Source: Mysteel, Nomura research

Source: Mysteel, Nomura research

Nomura

Jun/06

10

15 November 2010

Steel | China/Taiwan

Josephine Ho

Steel consumption
Exhibit 29. Finished steel monthly consumption (China domestic)
y-y% (RHS) 40 35 30 25 20 15 10 5 0 May-07 Mar-08 May-08 May-09 May-10 Mar-07 Jan-09 Mar-09 Jul-07 Sep-07 Nov-07 Nov-08 Nov-09 Jan-10 Mar-10 Jul-08 Jul-09 Jul-10 Sep-10 Jan-07 Jan-08 Sep-08 Sep-09 -30% 0% 30% m nt 60%

Estimated domestic steel consumption was down 13% y-y in Oct 2010

Source: CEIC, Mysteel, Nomura research

Steel inventory
Exhibit 30. Total steel product inventory
21,000 18,000 15,000 12,000 9,000 6,000 3,000 Apr-07 Apr-08 Apr-09 Apr-10 Oct-07 Oct-08 Oct-09 Jan-07 Jan-08 Jan-09 Jan-10 Oct-10 Jul-07 Jul-08 Jul-09 Jul-10
Total steel inventory was down 3.5% w-w to 14.1mn tonnes, as of 12 Nov 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

(k tonnes)

Source: Mysteel, Nomura research

Exhibit 31. Total steel product inventory vs steel supply and consumption
Inventory as % of supply 50% 40% 30% 20% Average=23% 10% 0% Mar-07 May-07 Mar-08 May-08 Mar-09 May-09 Mar-10 May-10 Nov-07 Nov-08 Nov-09 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Sep-07 Sep-08 Sep-09 Jul-10 Sep-10 Average=24% Inventory as % of apparent consumption

Both ratios dropped in October as a result of inventory destocking

Source: Mysteel, Nomura research

Nomura

11

15 November 2010

Steel | China/Taiwan

Josephine Ho

Exhibit 32. Hot-rolled coil inventory


7000 6000 5000 4000 3000 2000 1000 0 Jan-07 kt HRC

Exhibit 33. Cold-rolled coil inventory


1600 1400 1200 1000 800 600 400 200 0 Jan-07 May-10 kt CRC Average=1,134

Average=2,869

Oct-07

Oct-08

Oct-09

Apr-07

Apr-08

Apr-09

Nov-07

Feb-09

Source: Mysteel, Nomura research

Dec-09

Sep-08

Apr-08

Oct-10

Jun-07

Source: Mysteel, Nomura research

Exhibit 34. Wire rod inventory


2500 2000 1500 1000 500 0 Oct-07 Oct-08 Oct-09 Apr-07 Apr-08 Apr-09 Apr-10 Oct-10 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 kt Wire rod Average=1,118

Exhibit 35. Rebar inventory


8000 7000 6000 5000 4000 3000 2000 1000 0 Jan-07 kt Rebar

Average=3,708

Apr-10

Oct-10
8000 6000 4000 2000

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-09

Jul-10 May-10

Feb-09

Nov-07

Source: Mysteel, Nomura research

Source: Mysteel, Nomura research

Exhibit 36. Long product total inventory


12,000 10,000 8,000 6,000 4,000 2,000 Oct-07 Jan-08 Oct-08 Oct-09 Apr-08 Jul-08 Jan-07 Apr-07 Jan-09 Apr-09 Jul-09 Jan-10 Apr-10 Jul-10 Oct-10 Jul-07 Average=4,826 kt Long steel

Exhibit 37. Flat product total inventory


10,000 8,000 6,000 4,000 2,000 Oct-07 Oct-08 Oct-09 Apr-07 Apr-08 Apr-09 Apr-10 Oct-10 Jul-07 Jul-08 Jul-09 Jan-07 Jan-08 Jan-09 Jan-10 Jul-10 Average=5,163 kt Flat steel

Source: Mysteel, Nomura research

Source: Mysteel, Nomura research

Exhibit 38. Flat product inventory total vs HRC price


kt 11,000 9,000 7,000 5,000 3,000 1,000 Flat steel HRC Spot Price RMB/t 8000 6000 4000 2000 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

Exhibit 39. Long product inventory vs rebar price


kt 11,000 9,000 7,000 5,000 3,000 1,000 Long Steel Rebar Spot Price RMB/t

Source: Mysteel, Nomura research

Source: Mysteel, Nomura research

Nomura

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
12 15 November 2010

Sep-08

Dec-09

Jun-07

Apr-08

Oct-10

Jul-09

Steel | China/Taiwan

Josephine Ho

Steel trade
Exhibit 40. Finished steel product imports
Finished Steel Import Volume 3.0 2.5 2.0 1.5 1.0 0.5 Aug/06 Dec/04 Nov/07 Apr/08 0.0 Oct/05 May/05 Mar/06 Jul/04 Dec/09 Jun/07 Sep/08 Feb/09 May/10 Jan/07 Jul/09 mn tonnes y-y% (RHS) 80% 60% 40% 20% 0% -20% -40% -60%

Chinas steel imports decreased 23% y-y and 14% m-m to 1.14mn tonnes in October 2010

Source: Mysteel, Nomura research

Exhibit 41. Finished steel product exports


Finished Steel Export Volume 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Dec/04 Oct/05 May/05 Mar/06 Jul/04 mn tonnes y-y% (RHS) 350% 300% 250% 200% 150% 100% 50% 0% -50% -100% Dec/09 Sep/08 Feb/09 May/10 Jul/09

Exports rose 6% y-y but decreased 5% m-m to 2.86mn tonnes in October 2010

Aug/06

Source: Mysteel, Nomura research

Nov/07

Apr/08

Jun/07

Jan/07

Exhibit 42. Finished steel product net imports


kt 4,000 2,000 0 -2,000 -4,000 -6,000 -8,000
Source: Mysteel, Nomura research

Finished

Finished + Semi-finished

China remains a net steel exporter, with net exports of finished steel at 1.7mn tonnes in October 2010, up 1.2% m-m

Nomura

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
13

15 November 2010

Steel | China/Taiwan

Josephine Ho

Steel demand indicators


Exhibit 43. China quarterly FAI
Accumulated Quarterly FAI 25.0 20.0 15.0 10.0 5.0 Mar/06 Mar/07 Mar/08 Mar/09 Mar/10 Jun/05 Jun/06 Jun/07 Jun/08 Jun/09 Dec/05 Dec/06 Dec/07 Dec/08 Dec/09 Sep/05 Sep/06 Sep/07 Sep/08 Sep/09 Jun/10 Sep/10 Trillion RMB YoY (RHS) 40% 35% 30% 25% 20% 15% 10% 5% 0%

Chinas fixed asset investment in 1-3Q10 was RMB19.2tn, up 24% y-y

Source: Wind, Nomura research

Exhibit 44. New housing construction floor area


Accumulated Monthly New Housing Construction Areas

1,400 1,200 1,000 800 600 400 200 0 Nov/05 mn m2

YoY (RHS)

80% 60% 40% 20% 0% -20% -40%

Chinas new housing construction gross floor area reached 1,318mn sqm as of Oct, up 62% y-y

Nov/06

Aug/07 Nov/07

Nov/08 Feb/09

May/05 Aug/05

May/06 Aug/06

Nov/09 Feb/10

Aug/08

Aug/09

May/07

May/08

May/09

Source: Wind, Nomura research

May/10

Aug/10

Feb/05

Feb/06

Feb/07

Feb/08

Exhibit 45. Listed China property developer index


6,000 5,000 4,000 3,000 2,000 1,000 0 Jan-06 Jan-07 Jan-08 Jan-09 May-06 May-07 May-08 May-09 Jan-10 May-10 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10
China property index

Chinas listed property index was down 9% w-w on 12 Nov 2010

Source: Wind, Nomura research

Nomura

14

15 November 2010

Steel | China/Taiwan

Josephine Ho

Exhibit 46. China auto output


Auto Output Auto Output y-y (RHS)

Chinas total auto output climbed 22% y-y but dropped 3% m-m to 1.5mn units in Oct 2010
200% 150% 100% 50% 0% -50%

2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 2005/01

Thousand Units

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

Source: Wind, Nomura research

Currency
Exhibit 47. RMB/US$
7.4 7.1 6.8 6.5 RMB/US$

Exhibit 48. RMB/


13 11 9 7

RMB/

2010/09
Sep-08

Sep-09

Sep-08

Sep-09

Sep-10

May-08

May-09

May-08

May-09

Source: Bloomberg, Nomura research

May-10

Source: Bloomberg, Nomura research

Exhibit 49. RMB/A$


7.5 6.5 5.5 4.5 3.5 2.5 RMB/A$

Exhibit 50. A$/US$


2 1.6 1.2 0.8 0.4 0

A$/US$

Sep-08

Sep-09

May-08

May-09

May-10

Sep-10

Jan-08

Jan-09

Jan-10

Sep-08

Sep-09

May-10
May-10 May-10

May-08

Source: Bloomberg, Nomura research

Source: Bloomberg, Nomura research

Exhibit 51. A$/


2.2 2 1.8 1.6 1.4 1.2 1

Exhibit 52. US$/


US$/
1.7 1.5 1.3 1.1 0.9 0.7 0.5

A$/

Sep-08

May-09

Sep-09

Sep-08

Sep-09

Sep-10

May-08

May-08

May-09

Source: Bloomberg, Nomura research

May-10

Source: Bloomberg, Nomura research

Nomura

15

May-09

15 November 2010

Sep-10

Jan-08

Jan-09

Jan-08

Jan-09

Jan-10

Jan-10

Sep-10

Jan-08

Jan-09

Jan-10

Sep-10

Jan-08

Jan-09

Jan-08

Jan-09

Jan-10

Jan-10

Steel | China/Taiwan

Josephine Ho

Share price performance


Exhibit 53. Global steel companies performance
11/12/2010 Company Name North America U.S. Steel Nucor Gerdau Wtd. Avg. Asia POSCO Hyundai Steel Dongkuk Steel Nippon Steel JFE Steel Sumitomo Metal China Steel Angang Steel Baoshan Iron & Steel Maanshan Iron & Steel Wuhan Iron & Steel Tata Steel SAIL Wtd. Avg. Europe ArcelorMittal ThyssenKrupp Wtd. Avg. Russia Evraz Severstal Wtd. Avg. Mining Vale Common Rio Tinto BHP Billiton Wtd. Avg. Index NYSE Index Hang Seng index Hang Seng China Ent. Index Shanghai SE Composite TAIEX Index NIKKEI 225 Index Kospi Index BSE SENSEX 30 Index FTSE Index Russian RTS Index Ticker X US NUE US GGB US Price USD 47.80 USD 40.64 USD 13.45

Chg % 1d
0.0% 0.0% 0.0% 0.0%

Chg % 5d
-1.5% 0.6% 0.4% 0.1%

Chg % 1m
6.6% 1.9% 0.7% 2.2%

Chg % 3m
5.9% 5.4% -5.1% 0.3%

Chg % 6m
-13.1% -13.1% -10.9% -12.0%

Chg % 1yr Chg % YTD


22.4% 0.1% -16.1% -4.0% -13.3% -12.9% -21.0% -17.0%

005490 KS 004020 KS 001230 KS 5401 JP 5411 JP 5405 JP 2002 TT 347 HK 600019 CH 323 HK 600005 CH TATA IN SAIL IN

KRW 36,344 KRW 8,929 KRW 1,442 JPY 22,493 JPY 20,191 JPY 12,027 NTD 31.85 HKD 12.38 CNY 6.97 HKD 4.64 CNY 4.83 INR 631.05 INR 197.05

2.2% -0.8% -0.4% -1.4% 0.9% 0.5% -0.8% -3.0% -5.0% -2.7% -6.4% -3.8% -2.8% -1.2%

-1.1% 7.3% -3.8% 1.1% 1.3% 3.5% 0.2% -4.2% -5.0% -1.9% -7.6% -2.3% -2.0% -0.7%

-9.4% -1.3% -4.9% -0.7% 2.9% 3.5% 1.8% -8.6% -1.8% -6.3% -1.4% -4.2% -13.4% -3.8%

-4.4% 10.3% 12.2% -4.2% 1.9% -1.0% 3.6% 8.6% 10.5% 14.3% 3.9% 16.7% -0.4% 2.7%

3.1% 31.1% 17.7% -17.6% -11.9% -15.2% 3.8% 13.4% 7.4% 25.1% -5.8% 3.8% -10.1% -0.7%

-11.8% 50.3% 4.4% -19.0% -11.6% -11.2% 9.5% -19.5% -8.9% -7.2% -39.1% 18.5% 8.7% -4.7%

-23.9% 36.4% -2.6% -27.5% -25.9% -17.3% -0.3% -27.7% -27.8% -18.3% -41.7% -1.7% -20.7% -18.4%

MT NA TKA GY

EUR 25.40 EUR 28.09

-2.3% -1.0% -1.9%

-0.7% 1.8% 0.0%

3.0% 9.5% 4.7%

6.9% 22.0% 10.9%

-9.5% 15.5% -2.9%

2.6% 18.1% 6.7%

-21.1% 5.3% -14.1%

EVR LI CHMF RU

USD 32.47 USD 14.50

-1.4% -2.1% -1.8%

-2.4% 1.8% -0.3%

9.1% -5.8% 1.5%

29.3% 15.1% 22.1%

-0.7% 16.9% 8.3%

20.5% 85.1% 53.5%

13.3% 71.8% 43.2%

VALE US RIO LN BLT LN

USD 33.38 GBP 44.02 GBP 24.13

0.0% -1.3% -1.6% -1.0%

-1.3% -0.1% -3.1% -1.7%

4.2% 12.5% 11.6% 9.5%

20.5% 33.0% 22.3% 24.6%

15.3% 31.9% 22.1% 22.6%

23.1% 40.1% 31.9% 31.3%

15.0% 28.1% 19.0% 20.1%

NYA INDEX HSI INDEX HSCEI INDEX SHCOMP INDEX TWSE INDEX NKY INDEX KOSPI INDEX SENSEX INDEX UKX INDEX RTSI$ INDEX

7,723 24,223 13,663 2,985 8,316 9,725 1,913 20,589 5,815 1,630

-0.5% -1.9% -3.0% -5.2% -1.4% -1.4% -0.1% -2.1% -0.1% -0.9%

-1.5% -2.6% -3.1% -4.6% -1.6% 1.0% -1.3% -4.0% -1.2% 0.7%

2.6% 4.8% 5.3% 5.1% 2.8% 3.6% 2.4% -0.2% 2.6% 2.6%

11.7% 14.8% 17.8% 15.9% 6.2% 5.6% 11.1% 11.5% 10.3% 11.6%

5.0% 19.8% 18.7% 12.4% 9.4% -6.4% 15.0% 17.2% 7.9% 8.8%

8.8% 8.1% 2.5% -5.9% 8.4% -0.8% 21.6% 20.7% 10.1% 13.4%

7.0% 10.7% 6.8% -8.9% 1.6% -7.8% 13.7% 15.4% 7.3% 11.8%

Prices as of 12 Nov. 2010 Source: Bloomberg, Nomura research

Nomura

16

15 November 2010

Steel | China/Taiwan

Josephine Ho

Valuation
Exhibit 54. Historical P/BV of major steel companies since 2003
223 High P/B (x) Low P/B (x) Current P/B (x) 6.34 5.14 5.09 3.71 1.7 1.5 0.9 0.46 US Steel Arcelor Mittal* 0.99 0.47 Nucor AK Steel 0.68 POSCO* 2.5 1.93 1.2 0.50 Nippon Steel* 4.14 3.39 0.9 0.85 JFE Steel* 3.38 0.9 0.78 China Steel* 2.53 1.6 0.63 Baoshan* Angang Steel* 1.3 0.17 1.2 0.83 Maanshan* 3.81 2.32 1.1 0.18 Wugang 1.1 0.72 ThyssenKrupp* 2.09 1.6 0.48 Evraz*
17.5 23.0 7.9 3.4 ThyssenKrupp* Wugang 5.4 Evraz* 9.5 0.7

9.39

2.6 0.40

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

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


High P/E (x) 412 453 12,246 15,067 Low P/E (x) Current P/E (x)

361

78.1 33.9 7.9 US Steel Arcelor Mittal* 0.8 2.7 Nucor 55.9 14.8 AK Steel 3.8 17.7 4.5 POSCO* 65.3 18.5 8.8 2.7 Nippon Steel* 9.5 4.7 JFE Steel* 54.3 7.9 4.9 China Steel* 15.8 2.0 Angang Steel* Baoshan* 52.3 16.1 12.7 4.3 11.1 5.1 Maanshan* 1.5 50.4

74.8

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

Nomura

17

15 November 2010

Steel | China/Taiwan

Josephine Ho

Exhibit 56. Global steel peers valuation


Company Name North America U.S. Steel (h) Nucor (h) Gerdau (h) Average Asia POSCO (b) Hyundai Steel (b) Dongkuk Steel (b) Nippon Steel (c) JFE Steel (c) Sumitomo Metal (c) China Steel ( d) Angang Steel (d) Baoshan Iron & Steel (d) Maanshan Iron & Steel (d) Wuhan Iron & Steel (h) Tata Steel (e) SAIL (e) Average Europe ArcelorMittal (g) ThyssenKrupp (g) Average Russia Evraz (f) Severstal (f) Average Mining Vale Common (a) Rio Tinto (a) BHP Billiton (a) Average Group Average Bloomberg Code X US NUE US GGB US Price Nomura rating USD 47.80 USD 40.64 USD 13.45 NR NR NR 2009 na na 20.6 20.6 P/E (x) 2010F 33.9 14.8 12.6 20.4 2011F 13.5 10.0 6.3 9.9 EV/EBITDA (x) 2009 2010F n.a 7.5 7.9 7.7 7.3 4.0 5.8 5.7 2011F 4.2 2.9 4.6 3.9 EBITDA/t (US$/t) 2009 2010F na 73 104 88 23 26 24 24 2011F 31 32 45 36 2009 216 549 823 529 EV/t (US/t) 2010F 229 506 737 490 2011F 229 506 737 490 2009 0.6 1.3 1.4 1.1 EV/Sales (X) 2010F 0.5 1.0 1.3 0.9 2011F 0.4 0.8 1.1 0.8

005490 KS 004020 KS 001230 KS 5401 JP 5411 JP 5405 JP 2002 TT 347 HK 600019 CH 323 HK 600005 CH TATA IN SAIL IN

KRW 470,000 BUY KRW 118,000 BUY KRW 26,300 BUY JPY 272.00 BUY JPY 2,705.00 BUY JPY 206.00 BUY NTD 31.85 BUY HKD 12.38 BUY CNY 6.97 NEUTRAL HKD 4.64 NEUTRAL CNY 4.83 NR INR 631.05 BUY INR 197.05 BUY

12.9 9.8 26.2 na 47.7 na 21.3 98.4 21.0 75.3 9.8 5.0 13.2 31.0

8.8 13.7 5.1 9.5 7.9 8.7 12.7 15.8 11.1 16.1 7.9 na 13.0 10.8

8.6 10.9 4.9 7.4 7.2 6.8 12.9 11.7 10.3 13.9 6.8 7.0 13.6 9.4

8.8 17.2 10.0 9.6 8.1 15.8 21.6 13.2 7.1 6.3 4.7 5.5 6.5 10.3

5.7 11.7 4.0 4.9 4.8 6.6 9.8 5.9 5.2 5.0 3.6 13.0 6.4 6.7

5.5 9.6 3.8 4.6 4.8 6.1 10.0 5.2 4.8 4.2 3.3 5.7 5.6 5.6

111 58 66 94 116 93 58 49 136 41 81 127 167 92

167 62 164 179 193 220 106 96 180 49 104 54 170 134

173 76 173 194 193 239 103 109 192 56 116 111 192 148

971 989 658 896 935 1,477 1,292 739 958 327 379 701 1,084 877

935 740 766 808 837 1394 1077 659 945 316 341 635 1193 819

919 725 781 749 753 1363 1070 663 916 309 280 589 1275 799

1.7 1.9 0.6 0.8 1.0 1.5 1.9 1.7 1.1 1.0 0.7 0.7 1.6 1.2

1.4 1.4 0.6 0.7 0.8 1.2 2.9 1.2 0.8 0.7 0.6 0.9 1.9 1.1

1.3 1.1 0.6 0.6 0.7 1.1 1.9 1.0 0.6 0.6 0.4 0.8 1.8 1.0

MT NA TKA GY

EUR 25.40 EUR 28.09

BUY BUY

na na na

7.9 74.8 41.3

5.5 9.8 7.6

11.6 na 11.6

4.9 7.5 6.2

3.7 3.8 3.7

91 na 91

148 163 155

171 254 212

1,057 1,239 1,148

727 1,443 1,085

585 1,194 890

1.1 0.4 0.7

0.7 0.4 0.6

0.6 0.4 0.5

EVR LI CHMF RU

USD 32.47 USD 14.50

BUY BUY

na na na

9.5 5.2 7.4

5.3 3.8 4.6

6.2 5.1 5.7

5.7 4.3 5.0

4.0 3.6 3.8

11 4 7.5

42 31 36.8

34 36 34.9

1,220 680 950.1

1,151 653 901.8

961 612 786.3

2.2 1.4 1.8

1.4 0.9 1.1

1.0 0.7 0.8

VALE US Rio LN BLT LN

USD 33.38 BUY GBP 44.02 BUY GBP 24.13 REDUCE

33.4 23.2 20.9 25.8 25.8

17.9 15.2 15.4 16.1 19.2 P/B (x) 2010F 1.5 1.7 1.8 1.7

11.6 11.4 11.9 11.7 8.6

18.7 13.3 11.3 14.4 9.9

11.3 8.7 8.1 9.3 6.6

8.0 6.5 6.2 6.9 4.8

na na na na 69.7

na na na na 87.7

na na na na 107.9

na na na na 876.2

na na na na 824.0 EBIT Margin 2010F 1.1 11.8 14.0 9.0

na na na na 741.4

7.8 3.9 4.5 5.4 2.1

5.8 3.5 4.5 4.6 1.7 ROE (%) 2010F 4.5 11.3 14.6 10.1

4.7 3.0 3.7 3.8 1.4

Company Name North America U.S. Steel (h) Nucor (h) Gerdau (h) Average Asia POSCO (b) Hyundai Steel (b) Dongkuk Steel (b) Nippon Steel (c) JFE Steel (c) Sumitomo Metal (c) China Steel ( d) Angang Steel (d) Baoshan Iron & Steel (d) Maanshan Iron & Steel (d) Wuhan Iron & Steel (h) Tata Steel (e) SAIL (e) Average Europe ArcelorMittal (g) ThyssenKrupp (g) Average Russia Evraz (f) Severstal (f) Average Mining Vale Common (a) Rio Tinto (a) BHP Billiton (a) Average Group Average

Bloomberg Code X US NUE US GGB US

Price Nomura rating USD 47.80 USD 40.64 USD 13.45 NR NR NR

2009 1.4 1.7 2.0 1.7

2011F 1.3 1.4 na 1.4

Dividend Yield (%) 2009 2010F 0.8 3.4 0.6 1.6 0.4 3.5 1.7 1.8

2011F 0.4 3.5 2.5 2.1

EBITDA Margin (%) 2009 2010F 2011F (7.3) 17.5 18.2 9.5 6.4 26.2 22.0 18.2 10.1 30.1 24.2 21.4

2009 (12.8) (3.4) 8.2 (2.6)

2011F 3.8 17.3 22.5 14.5

2009 na na 9.6 9.6

2011F 10.0 14.3 na 12.1

005490 KS 004020 KS 001230 KS 5401 JP 5411 JP 5405 JP 2002 TT 347 HK 600019 CH 323 HK 600005 CH TATA IN SAIL IN

KRW 470,000 BUY KRW 118,000 BUY KRW 26,300 BUY JPY 272.00 BUY JPY 2,705.00 BUY JPY 206.00 BUY NTD 31.85 BUY HKD 12.38 BUY CNY 6.97 NEUTRAL HKD 4.64 NEUTRAL CNY 4.83 NR INR 631.05 BUY INR 197.05 BUY

1.4 1.7 0.7 1.0 1.0 1.2 1.7 1.4 1.3 1.1 1.2 1.6 3.0 1.4

1.2 1.5 0.6 0.9 0.9 1.1 1.6 1.3 1.2 1.1 1.1 1.5 2.7 1.3

1.1 1.3 0.5 0.8 0.8 0.9 1.6 1.3 1.1 1.0 1.0 1.4 2.5 1.2

1.7 0.4 2.9 0.7 0.7 2.4 3.3 0.6 2.3 1.0 4.8 2.1 1.5 1.9

2.1 0.4 2.9 2.2 2.6 2.9 5.6 2.5 4.4 0.0 5.2 2.1 1.5 2.6

2.1 0.4 2.9 2.9 3.0 3.9 5.5 3.4 4.7 0.0 6.3 2.1 1.5 3.0

19.3 11.0 6.0 8.5 12.0 9.5 12.9 11.3 15.7 12.5 15.1 12.4 24.7 13.1

25.2 11.5 13.1 14.8 18.1 18.8 19.1 16.8 14.9 11.2 17.3 7.5 27.0 16.6

24.3 11.7 12.7 15.9 18.8 19.0 17.6 17.1 12.9 11.5 18.1 14.7 27.2 17.0

11.7 7.2 2.6 0.5 3.4 0.0 5.0 2.3 5.5 2.7 9.2 9.5 21.8 6.3

18.4 8.4 9.4 7.9 10.7 10.8 13.3 8.1 7.3 4.4 10.7 3.2 23.8 10.5

17.6 8.4 9.1 9.3 11.3 11.7 12.1 9.2 6.3 4.7 10.7 11.1 23.8 11.2

10.5 17.5 2.5 0.6 2.2 na 8.1 1.4 6.2 1.5 12.3 32.7 22.5 9.8

13.7 11.2 11.8 9.4 11.7 12.1 13.1 8.7 11.1 6.8 13.8 n.a. 20.9 12.0

12.7 12.3 11.0 11.0 11.8 13.7 12.4 11.1 11.1 7.4 14.3 20.0 18.1 12.8

MT NA TKA GY

USD 25.40 EUR 28.09

BUY BUY

0.9 1.6 1.3

0.9 1.6 1.2

0.8 1.4 1.1

2.1 1.1 1.6

2.1 0.4 1.2

5.4 0.0 2.7

9.3 (0.8) 4.3

15.1 4.4 9.8

17.3 8.0 12.6

3.7 (1.6) 1.1

11.4 3.9 7.6

12.3 6.3 9.3

0.2 na na

10.9 2.2 6.5

13.9 14.4 14.2

EVR LI CHMF RU

USD 32.47 USD 14.50

BUY BUY

3.7 1.9 2.8

2.6 1.5 2.1

1.8 1.2 1.5

5.6 3.5 4.5

0.0 0.0 0.0

0.0 3.7 1.2

13.2 6.3 9.7

26.1 21.8 23.9

32.1 21.8 27.0

13.2 6.3 9.7

26.1 21.8 23.9

32.1 21.8 27.0

(26.3) na (26.3)

27.8 28.4 28.1

33.5 31.0 32.3

VALE US Rio LN BLT LN

USD 33.38 BUY GBP 44.02 BUY GBP 24.13 REDUCE

3.9 3.6 4.9 4.2 2.3

3.3 3.3 4.1 3.6 2.0

2.7 2.7 3.3 2.9 1.6

1.4 1.2 2.1 1.6 2.2

1.4 1.3 2.2 1.6 1.5

1.4 1.3 2.2 1.6 2.1

41.9 na na 41.9 15.7

51.5 na na 51.5 24.0

60.7 na na 60.7 27.8

31.9 23.8 34.9 30.2 8.9

38.5 30.0 35.2 34.6 17.1

37.9 32.2 40.0 36.7 19.7

11.6 15.7 23.6 17.0 2.5

18.7 21.8 26.9 22.5 15.9

23.1 23.3 27.8 24.7 19.2

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

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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 supplydemand 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.

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

ISSUER SPECIFIC REGULATORY DISCLOSURES


Issuer Angang Steel Baoshan Iron & Steel China Steel Corp Ticker 347 HK Price (as at last close) 12.16 HKD Closing Price Date Rating 15 Nov 2010 15 Nov 2010 15 Nov 2010 15 Nov 2010 Buy Neutral Buy Neutral Disclosures 7

600019 CH 6.84 CNY 2002 TT 31.60 TWD 4.63 HKD

Maanshan Iron & Steel 323 HK

Disclosures required in the European Union


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

Previous Ratings
Issuer Angang Steel Baoshan Iron & Steel China Steel Corp Maanshan Iron & Steel Previous Rating Date of change Reduce Buy Neutral Buy 15 Jun 2009 20 Sep 2010 18 Aug 2009 20 Sep 2010

Online availability of research and additional conflict-of-interest disclosures


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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 as a 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 classified as a Hold rating; 54% of companies with this rating are investment banking clients of the Nomura Group*. 13% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 16% of companies with this rating are investment banking clients of the Nomura Group*. 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 and Africa, US and Latin America for ratings published from 27 October 2008
The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to price target defined as (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 an appropriate 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 the next 12 months.

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Josephine Ho

A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'RS-Rating Suspended', indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://www.nomura.com/research);Global Emerging Markets (ex-Asia): MSCI Emerging 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 during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.

Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published from 30 October 2008 and in Japan from 6 January 2009
STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Price Target - Current Price) / Current Price, subject to limited management discretion. In most cases, the Price Target will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation 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 than 5%. 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 suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research 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. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.

Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and ratings in Europe, Middle East and Africa, US and Latin America published prior to 27 October 2008)
STOCKS A rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark 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 or underperform 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 Benchmark by 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 by 15% 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 no obligation to update the analysis, estimates, projections, conclusions or other information contained herein. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months. Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & 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 IT Hardware; 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 under coverage ex Japan published prior to 30 October 2008
STOCKS Stock 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 Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of 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 and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. 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 of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.

Price targets
Price targets, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any price target may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.

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companies mentioned herein, or related securities or derivatives. In addition, the Nomura Group, excluding NSI, may act as a market maker and principal, willing to buy and sell certain of the securities of companies mentioned herein. Further, the Nomura Group may buy and sell certain of the securities of companies mentioned herein, as agent for its clients. Investors should consider this report as only a single factor in making their investment decision and, as such, the report should not be viewed as identifying or suggesting all risks, direct or indirect, that may be associated with any investment decision. Please see the further disclaimers in the disclosure information on companies covered by Nomura analysts available at www.nomura.com/research under the 'Disclosure' tab. 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Steel | China/Taiwan

Josephine Ho

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15 November 2010