baoshan iron & steel co.,ltd. 1h15 resultsdemand and supply...

August 2015

Baoshan Iron & Steel Co.,Ltd.1H15 Results

Disclaimer

The following presentation distributed herewith includes forward-looking statements. All statements, other than statements of historical facts, that address activities, events or developments that Baoshan Iron & Steel Co.,Ltd.(Baosteel) expects or anticipates will or may occur in the future are forward-looking statements.

Baosteel’s actual results or developments may differ materially from those indicated by these forward-looking statements as a result of various factors and uncertainties, including but not limited to price fluctuations, actual demand, exchange rate fluctuations, competition and other risks and factors beyond our control.

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1H Results1H Results1H Results1H Results

Industry Dynamics

Contents

Unit 1H15 HoH YoYCrude Steel Output million tons 11.0 ↑5.9% ↓1.4%

Sales Volume million tons 10.7 ↑0.9% ↓4.6%

Total Operating Income billion RMB 80.9 ↓10.1% ↓17.2%

Operating Cost billion RMB 71.5 ↓11.4% ↓18.9%

Gross Profit billion RMB 9.3 ↑ 0.9% ↓1.1%

Gross Margin % 11.47 ↑1.24 ppts ↑ 1.86 ppts

Total Profit billion RMB 4.4 ↑15.6% ↓1.6%

EPS RMB/share 0.19 ↑18.8% -

BVPS RMB/share 6.98 ↑0.6% ↑2.8%

Weighted ROE % 2.76 ↑0.43 ppts ↓0.07 ppts

Leverage % 46.78 ↓1.1 ppts -

Operation OverviewOperation OverviewOperation OverviewOperation Overview

1H Highlights1H Highlights1H Highlights1H Highlights

Note:“median and large sized steel mills” refers to 101 CISA member steel millsData source: CISA, Company statistics

� Maintain best performanceBaosteel created 270% of total profit of median and large sized steel mills with only 3.4% of crude steel output in 1H

RMB 4.4bn

RMB 1.6bn

RMB -21.7bn

Total Profit Total Profit Main BusinessProfit

Proportion of loss makers: 42.6%

Baosteel median and large sized steel mills


� Overall preparation for BF ignition of Zhanjiang project

2013

April, 2015

2014

June, 2015

July, 2015

September, 2015

First iron ore ship berthed in Zhanjiang raw material port

1# and 2# units of power plant under operation

1B coke oven put into operation

1# BF ignition

� Breakthrough in high end products

World debut of new grade of 3rd generation auto sheet: QP1180GAAuto sheetNon-oriented silicon steel

UOE pipe Supply in batches for the first European order ”Turkey TANAP project”

Oil pipe

Acquire new energy vehicle certification from BYD, replace imported material

Drill pipe Supply super high tenacity drill pipe for CNPC Tarim oilfield, with record breaking drill depth of 8038m

Marine engineering steel

Supply high grade marine engineering steel for CIMC, support offshore oil exploration in the South China Sea

Supply high standard oil pipe for BP project in Oman


� “internet + steel”, to build an ecosystem for steel industry

Ouyeel steel trading

Ouyeel Commerce

Baosteel Baosteel Group51% 49%

Ouyeel logistics3rd party steel trading platform

1H trade volume 2.9mn tons, up 63% YoY；registered clients 35thousand (RMB 2bn)

Modernized logistics and warehousing systemAffiliated warehouses near 200, with domestic turnover capacity of 50mn tons

Ouyeel financeOwn financial licenses of settlement, mortgage, factoring3rd party settlement of “Oriental pay”in 1H: RMB 18.5bn；strategic cooperation agreement with 13 banks, acquire RMB 162.7bn credit line

Ouyeel materialBuild technical protocols from grade to spare parts, invite over 500 traders to join the platform


Unit: Unit: Unit: Unit:

million tonsmillion tonsmillion tonsmillion tons

1H151H151H151H15 HoHHoHHoHHoH YoYYoYYoYYoY

Crude SteelCrude SteelCrude SteelCrude Steel

OutputOutputOutputOutput

11.0 ↑ 5.9% ↓ 1.4%

Operating ResultsOperating ResultsOperating ResultsOperating Results

11.1 10.4 11.0

1H14 2H14 1H15

11.2 10.6 10.7

1.0 1.2 1.11H14 2H14 1H15

Unit:Unit:Unit:Unit:

million tonsmillion tonsmillion tonsmillion tons


SalesSalesSalesSales 10.7 ↑ 0.9% ↓ 4.6%

Including:Including:Including:Including:

exportexportexportexport

1.1 ↓ 13.0% ↑ 4.0%

97.8 90.0 80.9

1H14 2H14 1H15

88.2 80.7 71.5

1H14 2H14 1H15Unit: Unit: Unit: Unit:

billion RMBbillion RMBbillion RMBbillion RMB


Total Operating Total Operating Total Operating Total Operating

IncomeIncomeIncomeIncome

80.9 ↓ 10.1% ↓ 17.2%

Unit:Unit:Unit:Unit:



Operation CostOperation CostOperation CostOperation Cost 71.5 ↓ 11.4% ↓ 18.9%




Gross ProfitGross ProfitGross ProfitGross Profit 9.3 ↑ 0.9% ↓ 1.1%

Gross MarginGross MarginGross MarginGross Margin 11.5% ↑ 1.2ppts ↑ 1.9ppts

Gross ProfitGross ProfitGross ProfitGross Profit

9.4 9.2 9.3

9.6% 10.2% 11.5%

1H14 2H14 1H15

HRCHRCHRCHRC 39%39%39%39%

CRCCRCCRCCRC 43%43%43%43%

OthersOthersOthersOthers 6%6%6%6%

TubeTubeTubeTube 7%7%7%7%

PlatePlatePlatePlate 5%5%5%5%

Sales BreakdownSales BreakdownSales BreakdownSales Breakdown

Gross Margin by ProductGross Margin by ProductGross Margin by ProductGross Margin by Product

HRC

Others Tube

Plate

CRC

14.5%17.7% 14.9% 17.0%

2.6%

-1.3%

11.1%

0.4%

-10.5%-5.8%■ 1H14

■ 1H15



RevenueRevenueRevenueRevenue YoYYoYYoYYoY GrossGrossGrossGross

MarginMarginMarginMargin

YoYYoYYoYYoY

SteelSteelSteelSteel MakingMakingMakingMaking 51.4 ↓ 20.5% 12.2% ↑ 2.5 ppts

DistributionDistributionDistributionDistribution 72.8 ↓ 18.4% 3.1% ↑ 0.8 ppts

Revenue and Gross MarginRevenue and Gross MarginRevenue and Gross MarginRevenue and Gross Margin

----Steel and Diversified BusinessSteel and Diversified BusinessSteel and Diversified BusinessSteel and Diversified Business



RevenueRevenueRevenueRevenue YoYYoYYoYYoY Gross Gross Gross Gross

Margin Margin Margin Margin

YoYYoYYoYYoY

EEEE----commercecommercecommercecommerce 7.7 ↑ 27.1% 0.02% ↓ 0.4 ppts

ChemicalsChemicalsChemicalsChemicals 3.9 ↓ 21.7% 6.3% ↓ 2.6 ppts

ITITITIT 1.6 ↑ 0.2% 27.8% ↓ 3.0 ppts

FinanceFinanceFinanceFinance 0.3 ↑ 5.9% 53.2% ↑ 0.2 ppts

64.789.3

51.472.8

steel making distribution1H14 1H15

6.15.0

1.60.3

7.7

3.9

1.60.3

E-commerce chemicals IT finance1H14 1H15

Alert of 1Alert of 1Alert of 1Alert of 1----3Q Results3Q Results3Q Results3Q Results

The Company enjoyed over RMB 10bnprofit from offshore financing during the past 10 years, benefiting from RMB appreciation and lower financing cost.

RMB depreciated sharply by over 3% in 2 days in August, the Company decided to hedge the offshore foreign debt exposure and thus incur an estimated FX loss of RMB 2bn in 3Q.

Alert:1-3Q net profit is expected to decline 50%-60% YoY

6.16.26.36.4

1月 2月 3月 4月 5月 6月 7月 8月

USD against RMB trend in 2015

Jan Feb Mar Apr May Jun Jul Aug

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1H15 Results

Industry DynamicsIndustry DynamicsIndustry DynamicsIndustry Dynamics

Contents

GDP CPI

• GDP up 7.0% in 1H, economy restructuring is at the critical stage.

• GDP growth maintained 7.0% for 2 consecutive quarters, showing a stabilized trend.

• CPI up 1.3% in 1H. Pork price rose fast while overall price level was stable, much lower than the annual target of 3%.

• CPI growth has been lower than 2% in the past 11 months, leaving room for further monetary policy change.

Macro EconomyMacro EconomyMacro EconomyMacro Economy

Data source: National Bureau of Statistics

9.5%

7.7% 7.7% 7.4%7.0%

2011 2012 2013 2014 1H15

5.4%

2.6% 2.6%2.0%

1.3%

2011 2012 2013 2014 1H15

Unit: million tons 1H151H151H151H15 YoYYoYYoYYoY

Output 410 ↓ 1.3%

Net export 49 ↑ 34.9%

Apparent consumption 361 ↓ 4.7%

• Crude steel output was 410mn tons in 1H, down 1.3% YoY, first decrease in the past 20 years.• Apparent consumption remained negative growth, oversupplied situation was still serious. Large increase in export absorbed excess output.

Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis----SupplySupplySupplySupply

Crude Steel Output and Apparent Consumption

Data source: National Bureau of Statistics, Customs Statistics

816 823

410

765 739

361

2013 2014 1H15Output Apparent Consumption

-2.0%

-2.1%

-5.9%

• Steel industry FAI was RMB 229.4bn in 1H, down 12.3% YoY.• Investment fell rapidly under a weakening fundamental.

Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis----SupplySupplySupplySupply

Steel Industry FAIUnit: billion RMB

Data source: Wind1Q2015

506 479

229

-2.1%-5.9%

-12.3%

2013 2014 1H15Steel Industry FAI Ytd,YoY

• In 1H, China exported 52.4mn tons(+27.8% YoY); imported 6.65mn tons(-8.2% YoY). Net export were 45.75mn tons, up 35.5% YoY.

• Export growth slowed down but still high.

• Domestic steel price hit new record low, causing a lower export price. In 1H, average export price was USD 621/ton, down 21.7 % YoY.

Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis----Import & ExportImport & ExportImport & ExportImport & Export

Net Export of Steel ProductsUnit: million tons

Net export YoYData source: Custom Statistics48.3

79.3

45.8

14.7%

64.4%

35.5%

2013 2014 1H15Net export YoY

FAIFAIFAIFAI

20.6%19.6%

15.7%

• FAI totaled RMB 24 trillion in 1H, up 11.4% YoY, growth continued to slow down.

Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis

----Demand(infrastructure)Demand(infrastructure)Demand(infrastructure)Demand(infrastructure)

Unit: trillion RMB

Data source: Wind

4450

2419.6% 15.7% 11.4%

2013 2014 1H15

Investment New Start and Sales Growth

• Investment and new start grew at 4.3% and -16.8% YoY respectively in 1H, growth rate in downward trend.

• As the stock market risk released, real estate sales growth rebounded to 6.1% in 1H.


----Demand(real estate)Demand(real estate)Demand(real estate)Demand(real estate)

Unit: trillion RMB

Data source: Wind

8.6 9.5

5.319.8%

10.5%4.3%

2013 2014 1H15

13.5%

-10.7%-16.8%

17.3%

-7.6%

6.1%

2013 2014 1H15New start Sales

Output Sales

• Output and sales were 12.10, 11.85mn units, up 2.6% and 1.4% YoY respectively in 1H. Auto industry was under great pressure, growth slowed down.

• Passenger car sales up 4.8% YoY, outperformed commercial car(down 14.4% YoY).

• We expect 2015 auto sales to grow at 2%, considering macro economy and auto makers’ destocking pressure.


----Demand(auto)Demand(auto)Demand(auto)Demand(auto)

Unit: million units Unit: million units

Data source: CAAM

22.12 23.72

12.10 14.8%

7.3%2.6%

2013 2014 1H15

21.98 23.49

11.85 13.9%

6.9%

1.4%

2013 2014 1H15

Washing Machine Refrigerator

Air-conditioner TV


----Demand(home appliances)Demand(home appliances)Demand(home appliances)Demand(home appliances)Unit: million units Unit: million units

Unit: million units Unit: million units

Data source: Wind• Washing machine outperformed in 1H.• Consumption upgrade will continue, smart appliances is expected to boost new demand.• Expected growth rate of white goods in 2015: 5% for washing machine and air-conditioner,

0% for refrigerator.

72.0 71.1 34.68.2% -3.3% 4.3%2013 2014 1H1593.4 88.0 49.310.6% -1.0% 0%2013 2014 1H15

143.3 144.6 90.011.6% 11.5% 2.8%2013 2014 1H15140.3 141.3 70.6-0.2%

6.2% 2.7%2013 2014 1H15


----Demand(machinery)Demand(machinery)Demand(machinery)Demand(machinery)

Value Added Growth, YoY

Data source: National Bureau of Statistics

• Transportation equipment’s growth fell from a high position, other sub-sectors remained low.

• Future trend is not optimistic due to excess capacity and depressed related industries.

• Growth downside is expected limited in 2H15, industry average 6% for the full year.

-5%0%5%10%15%20%25%30%

2014 May-14 Aug-14 Nov-14 Mar-15 Jun-15

General EquipmentSpecial EquipmentElectrical equipmentTransportation Equipment


----Demand(ship building)Demand(ship building)Demand(ship building)Demand(ship building)

CompletionUnit: million tonnages

Data source: CANSI

• Completion, new order and carrying order were 18.5(+6.3% YoY), 11.2(-72.6% YoY) and 138(-9.2% YoY)mn tonnages respectively in 1H.

• Completion growth declined, new orders and carrying orders decreased every month.

• Ship making industry was still weak due to the sluggish shipping market and marine engineering market caused by low oil price.

123456

2013 2014 2015

Steel InventorySteel InventorySteel InventorySteel Inventory

Social Inventory Steel Mills InventoryUnit: million tons Unit: million tons

Data source: Mysteel Data source: CISA• Overall inventory level is lower in 2015, 11mn tons by 14 Aug, down 2% MoM and down 14% YoY.

• As transferred from social inventory, steel mills inventory was in upward trend, while fell back since late June.

• Steel mills inventory was up 7% YoY and up 14% Ytd in late July.

0510152025

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15Total Long Products Flat Products 12141618

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15

Raw MaterialRaw MaterialRaw MaterialRaw Material

Platts（62% Fe） Coke and Scrap PriceUnit: RMB/ton

Data source: Wind• Imported iron ore 450mn tons in 1H, down 0.9% YoY. Average import price USD 63.8/ton, down 46% YoY.

• Entering 2015, Platts was still in downward trend and dropped to historical low USD 44.5/ton on 8 July. Platts was USD 56.75/ton by 19 Aug, down 21% Ytd and down 39% YoY.

• Iron ore price is expected USD 50-60/ton in 2015.• Coke price is still in downward trend and expected to continue in 2015.

44.5406080100120140160

1月 2月 4月 5月 7月 8月 10月 11月2013 2014 2015Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 50010001500200025003000

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15Coke Scrap

Iron Ore InventoryIron Ore InventoryIron Ore InventoryIron Ore Inventory

Port Inventory Unit: million tons

Data source: Mysteel

• Port inventory declined slowly in 1H, but remained high position.

• 81.7mn tons by 14 Aug, down 19% Ytd and down 26% YoY.02040

6080100120

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15Total Australia Brazil India

Steel MarketSteel MarketSteel MarketSteel Market

HRC, CRC and Rebar Price CRC Products PriceUnit: RMB/ton Unit: RMB/ton

Data source: Wind• Due to weak downstream demand and losing support from raw material, steel price has decreased to the 20 years low.

• Industry’s profit decreased significantly in 1H. According to CISA, median and large sized steel mills’ total profit was RMB 1.6bn, down 78% YoY, about 42.6% of which lost money. The industry lost RMB 21.7bn in main business, down RMB 16.8bn YoY.

• Main business loss is unlikely reversed in 2H, industry is still expected quite weak.

180023002800330038004300

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15HRC 3.0 CRC 1.0 Rebar HRB400 250035004500550065007500

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15CRC 1.0 Galvanized 1.0 Prepainted 0.476 Silicon 600

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