Iron Ore Presentation

1. Indian Commodity Exchange Limited Presentation : Iron Ore Derivatives 1

2. What are Derivatives Derivative is a financial instrument (or, more simply, an agreement between two parties) that has a value, based on the expected future price movements of the asset to which it is linked—called the underlying asset — as a share or a currency or a commodity Most common derivatives are swaps, futures, and options Derivatives are usually broadly categorized by: the type of underlying asset (e.g., equity derivatives, foreign exchange derivatives, interest rate derivatives, commodity derivatives or credit derivatives); the relationship between the underlying asset and the derivative (e.g., forward, option, swap); the market in which they trade (e.g., exchange-traded or over-the-counter); their pay-off profile. 2

3. Why Commodity Derivatives… Dynamic Price Discovery Transparency – Information Dissemination Hedging Tool Even smaller players reap same advantage as big ones Takes care of counter party default Easy to sell / buy in liquid market Leverage 3

4. Iron Ore Derivatives 4

6. The mining and transport of this raw material is capital intensive, which leads to supply constraints not readily filled by other materials.

7. These factors thus expose the steel mills not only to supply constraints, but also to transport uncertainties, which can lead to volatile price fluctuations.

8. Demand is expected to rise with the continual growth of emerging markets.

9. China produces nearly one-half of the world’s finished steel, making it the premier destination for seaborne iron ore shipments.5

10. What Impacts Iron Ore Prices? Steel-making Demand for Iron Ore Quality and Grade Specifications Available Supply Seaborne Freight 6

11. World Steel Scenario Global Crude Steel Production (Mt) 7

13. Output increased mainly in four major producing countries- Brazil, Australia, China & India.

14. China’s Iron Ore import was 628 million tons – 70% of seaborne trade.8

15. World Iron Ore Scenario….contd It is anticipated that around 685-million tons of new production capacity may come on stream between 2010 and 2012. It is predicted that the world iron-ore market would be characterized by tight conditions over the short term, but that supply would gradually catch up with demand and that prices would decline from current levels, although they would stay higher than in the period before 2008. 9

16. Global: Production, Consumption & Trade 10

17. Top 5 Iron Ore Producing Countries 1. China 2. Brazil 3. Australia 4. India 5. South Africa Top 5 Iron Ore Consuming Countries 1. China 2. Japan 3. India 4. Russia 5. USA Top 5 Iron Ore Exporting Countries 1. Australia 2. Brazil 3. India 4. South Africa 5. Canada Top 5 Iron Ore Importing Countries 1. China 2. Japan 3. South Korea 4. Germany 5. Taiwan Iron Ore : World Scenario 11

19. 4th largest producing country–218 Mt (FY 2009-10)

20. 3rd Largest exporting country–117 Mt (FY 2009-10)12

21. Major & Intermediate ports for Iron Ore Exports 13

22. Iron Ore : Indian Scenario 14

23. Direction Of Trade 15

25. After decades, annual benchmark pricing is dismantled.

26. Quarterly; Monthly; Spot; Index- A new era has started.

27. Prices have moved from US$ 17 to US$ 170 in 7 years: Higher returns = Greater risks

28. Price risk management no longer optional.16

29. Volatility & Changing Pricing Landscape.. 17

30. …. Iron Ore is moving in the direction of setting prices as Copper, Nickel or other base metals are on a completely transparent Exchange under the full control against any type of manipulations …. Source: Iron Ore Market 2009-2011 (UNCTAD) 18

31. Daily Price Volatility (IO-TSI62%Fe) 19

32. Example - Hedging It is January 2011 and the price for iron ore CFR China 62% Fe fines currently stands at $ 174.60/dmt. Buyer (Steel mill) A steel mill in China expects to import iron ore 62% Fe fines of a Cape size shipload of 75,000 metric tons (mt) in March 2011 and wishes to fix this cost as they have just clinched a major deal to supply flat steel products in 2011. To hedge this position, this steel mill will bid at $169.00/dmt for March 2011 Iron Ore Swap on CFR China 62% Fe Fines. Seller (Iron ore trader) At the same time, an iron ore trader with an inventory of iron ore wishes to hedge against a possible decline in stock value from drop in iron ore rates. The trader would like to lock-in the iron ore price of $169.00/dmt. 20

33. Example - Hedging Buyer: Steel mill Seller: Iron ore trader Product: Iron Ore CFR China 62% Fe Fines Quantity: 75,000mt (750 lots) Contract Price: $169.00/dmt Settlement Date: 31st March 2011 Settlement Basis: Average of the spot price assessments of the contract month Due to natural calamity in Japan, the price of iron ore CFR China 62% Fe fines falls from $174.60/dmt to $169.36/dmt in March 2011. As a result, the steel mill doesn’t suffer an increase in input cost. 21

34. Hedge Result Buyer Steel Miller Physical Ease in cost = $2,62,000 [(174.6-169.36)*500*100] Futures Payoffs = $ 18,000 [(169.36-169.00)*500*100] Net P/L = $ 2,80,000 [262000+18000] Seller – Iron Ore Trader Physical Rise in Value = $2,25,000 [(109-106)*500*100] Futures Payoffs = -$2,62,000 [(105.5-109)*500*100] Net P/L = -$ 37,500 [225000-262000] 22

36. Any gain or loss in the spot market offset (partially if not fully)with the loss or gain respectively in the derivatives market.

37. For a stable and manageable balance sheet of a company, hedging in indispensible. 23

38. Iron ore impacting steel margin 24

40. Steel buyers can access the iron Ore swaps market to hedge (with basis risk) a portion of their price risk

41. … this is similar to airlines hedging jet fuel exposure using crude oil contracts

42. … or steel contracts which meets the needs of buyers in different parts of the world

43. There are several steel contracts available at Exchanges (LME, DGCX etc). Volumes are increasing.25

44. Iron ore and steel 3-4 years from now Iron Ore Miners Steel Mills Steel Users Spot Iron Ore Spot Steel Locked in Price (Margin) Locked in Price (Margin) Locked in Margin Iron Ore Swaps and others Buyers and sellers of Iron Ore use Iron Ore swaps and FFAs (Freight swaps) to lock in forward prices, effectively hedging against adverse movements in the price of Iron Ore and ocean freight. This achieves predictable pricing and allows P+L planning in a spot trading environment. Iron ore & Steel Swaps and Futures Buyers and sellers of Steel products use Iron Ore swaps and different steel swaps and steel futures contracts to lock in the forward price of Steel, which will fluctuate according to the cost of delivered Iron Ore (Ore/Freight combination) supply/demand pressure of steel and the marginal operating environment of steel mills. 26

45. INDIAN World’s 1st Exchange to launch an Iron Ore Future Contract… 27

46. About ICEX Recognition granted by Govt. of India on 9th October 2009 Operations Commenced on 27th November 2009 Currently Trading in 11 Commodities Over 450 memberships with more than 1000 TWS spread across India 28

47. Key Stakeholders 29

48. Key Stakeholders Reliance Exchange Next Ltd - A wholly owned subsidiary of Reliance Capital, represents Reliance entry into Exchange vertical. R Next aims to be present across asset classes in the Exchange space MMTC Ltd - Leading exporter of Minerals, largest buyer of Fertilizers, biggest importer of Bullion & Non- Ferrous Metals in India and active player in agro-products Indiabulls- Top ranked business houses in India with business interests in Real Estate, Infrastructure, Financial Services, Retail, Multiplex and Power KRIBHCO -World’s premier fertilizer producing Cooperative Society IDFC- Specialized financial intermediary for infrastructure development IPL - Biggest canalizing agency for import of Urea and other fertilizers on behalf of GOI 30

49. Indian Commodity Exchange Iron Ore Future Contracts 31

50. Indian Commodity Exchange Iron Ore Future Contracts 32

51. Our Associations – Our Strengths 33

53. Export Demand for Iron Ore

54. Steel industry growth

55. Sea Freight rates

56. Govt. Regulations (EXIM and Mining)

57. Big Players (Big – Trio) Decision in Pricing Mechanism

58. Growth of BRICI34

60. Price stabilization-in times of violent price fluctuation

61. Easy to own/sell iron-ore

62. Standardized contracts guarantee the quality and quantity of iron.

63. The exchange guarantees performance of the contract irrespective of buyer and/or seller

64. The Exchange has set up a SGF-Settlement guaranteed

65. Daily MTM Settlement35

66. Thank You For more information, please visit our website at www.icexindia.com