Neil T. Dhar, Managing Director, Noble Group Limited

1. Supplying China
Examining the Role of China in Global Steel Markets
Neil T. Dhar
Managing Director
Hard Commodities Division
Noble Group Limited
March 2012

2. New frontiers
1. About Noble
2

3. Who we are
Noble is a market leader in managing the global supply chain of agricultural, industrial and energy products.
Our “hands on” approach to business has seen us grow to become a world leader in supply chain management in just 20
years.
We specialize in the origination and delivery of strategic raw materials, adding value at each stage of the supply chain.
3

4. What we do
4

5. Our Group’s Business Strategy
5

6. Our Global Reach
6
Operating
Income

7. Our Global Reach
7

8. New frontiers
2. China’s Steel Market
8

9. Steel
9
2000-2010: booming decade for Chinese Steel, driven by domestic demand, infrastructure, growth in heavy industry.
Steel production and domestic consumption is expected to peak this decade in 2015
Evolution of the Chinese Economy towards growth in services (rather than heavy industry) should stabilize long term
domestic demand
Steel consumption likely to grow 6%-7% this year (vs. 8% in 2011) as housing construction cools.

10. Steel
10
China has historically been both a net Importer and a net Exporter of Steel.
However, overall trend has been evolution from Net Importer to Net Exporter and since 2005, China always been net Exporter
The % of overall steel production going to the Export markets has traditionally been rather low (ranging from 7% to 15%) with a
high emphasis on priority servicing of the domestic market.

11. Steel
11
China is currently below global averages on the use of metal recycling in steel production; and there is currently no clear trend higher
Steel is produced mostly using blast furnaces in China, with only 8% of crude steel output from Electric Arc Furnace [EAF] ,versus a
28% global average
China’s average of ~14% scrap per steel used per tonne is currently below the 30%+ global average.
Important to note that EAFs can be up to 22% cheaper to operate than blast furnaces, and can process more scrap

12. Scrap
12
China could significantly save on Iron ore imports by catching up to global average in use of EAFs and scrap utilization
Government recently addressed this issue with new sector policies:
• Targeting of 20% scrap usage rate (200kg scrap / tonne steel)
• Consolidation of industry and additional licenses for dismantling and recyling vehicles/ships to increase domestic
supply of scrap
• Notably silent on any policies to drive larger overseas imports of scrap

13. Iron Ore
13
The growth in global iron ore trading and domestic iron ore production during the last decade has been fueled almost
exclusively by the Chinese steel industry.
Chinese Iron Ore production represents significant % of total global production but most of it consumed domestically.
Chinese reserves of raw iron ore are large, but of lower quality and thus relatively limited when adjusted for actual iron
content (7.2Bt) and also limited relative to Demand / Production.

14. Iron Ore
14
China currently imports accounts for about 60% of all global seaborne iron ore trade
There is a high reliance on Australia, with more Iron Ore projects being developed in Australia (Western Australia) to
supply the China market.
China will continue to sustain seaborne iron ore imports (despite large domestic production) as China will increasingly
face depletion of domestic high-quality deposits.
Rapid escalation of mining costs prevalent in China due to relatively lower quality of the mineral deposits make imports
the most viable long-term option to keeping steel industry competitive

15. Ferroalloys
15
China is the largest ferroalloys-producing and exporting country (followed by South Africa, India, Kazakhstan and Russia).
Leading producer and exporter of Ferrochromium and Ferrotungsten
Leading producer and exporter of Ferromanganese (overseas market share > 50%)
China is becoming more dependent on imports for its raw materials (e.g. Nickel ores, Chromites).
But vertical integration with mine acquisition abroad and strategic alliances between steel and ferroalloy industries
developing to maintain a secure supply

16. Metallurgical Coke
16
China is currently the worlds largest producers of Coke (~366Mt) accounting
for about 65% of global production.
China used to be the largest seaborne coke exporter, but exports receded in
2008 after the central government raised coke export duties to 40%, from
the previous 25% level.
Chinese Coke exports remain intermittent and for niche qualities (maximum
7% of global seaborne trade)
In recent years, Chinese Coke production is shifting from inland provinces
(e.g. Shanxi) over to the coast where steel capacity is being added

17. Metallurgical Coal
17
China is slowly but steadily developing into a more liquid domestic Metallurgical Coal marketplace, with the ability to
trade a wide range of qualities
Published indices are becoming more reliable and widespread, increasing transparency
As Chinese Steel Mills and Cokeries come to rely on seaborne market for long-term supply, Chinese Metallurgical Coal
traders can no longer remain passive opportunistic players, but now seek to engage (and influence) the seaborne market
Consolidation of Metallurgical Coke capacity has allowed focused growth in Metallurgical Coal supply but structurally
tight supply situation is likely to remain.

18. Metallurgical Coal
18
Metallurgical Coal imports represent about 44m Mt (2010), making
China the second largest global importer of coking coal (after Japan).
Domestic Metallurgical Coal production probably can’t grow fast enough
to satisfy demand - imports expected to increase
Rising production cost and the RMB appreciation may keep price floor at
relatively high levels.
Mongolia could soon become China’s largest Metallurgical Coal supplier

19. New frontiers
3. Noble’s Strategy
19

20. Noble’s Sourcing Strategy
Core strategy is to build integrated “pipelines” to control the critical stages of the supply process. We seek origination
from low-cost production markets, and then add value and capture margin – at each subsequent step of the supply chain
process.
20
Value Added by Noble
Mining Haulage Blending Shipping Marketing Delivery
Supplier
diversification
Pre-financing Owned vessels give
competitive freight
rates
Product
optimization
Market
knowledge and
pricing
Infrastructure
development

21. Noble’s Competitive Advantages
International and Global Company with strong links to China
Strong Brand Name with wide recognition and prestige in China
The appropriate mix of Asset-based and third-party sourcing
A global trading network with strong international pipelines
Logistical capabilities at sourcing point and delivery point
Product blending as well as product beneficiation expertise
Range of Steel Raw Materials product platform (one-stop-shop)
Expertise in off take agreements to secure supply and support customers
Successful at cooperating with partners through strategic alliances and JV’s
21

22. Noble’s Presence
In 2011 we supplied about 10Mt
of coal, 21Mt of iron ore, and
about 200kt of Special ores and
Alloys to China;
Second largest importer of
Metallurgical Coal in China;
Managed portfolio of over 12 coal
products sold to major steel mills
and coke producers throughout
China;
Regional offices in Shanghai,
Beijing, Baoshan and Mongolia;
Securing Metcoal offtake and
building Sino-Mongolian supply
chain.
22
Beitai
Benxi
Anshan
Jiachen
Guofeng
Sinomet
Jianlong
Ruifeng
Capital
Shijiazhuang
Wuhan
Xiangtan
Xinyegang
Wuhan
Xiangtan
Xinyegang
Rizhao
Huaxi
Taishan
Shiheng
Jiuyang
Yuanli
Baosteel
Masteel
Shangang
Zenith
Nanjing

23. Conclusions
China is currently and will remain, a key demand side driver for the global steel markets
Input supply side constraint domestically or internationally likely continue for some time
China’s steel industry participants become international players and our future partners
Any structural changes in China’s steel industry (consolidation etc) have a global impact
Noble well positioned as a “one-stop shop” and supplier of choice to Chinese steel sector
23

24. Thank you very much !