baoshan iron & steel co.,ltd. 3q15 results

October 2015

Baoshan Iron & Steel Co.,Ltd.3Q15 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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3Q Results3Q Results3Q Results3Q Results

Industry Dynamics

Contents

Unit 3Q15 YoY 9M15 YoYSales Volume million tons 5.4 ↑ 0.7% 16.1 ↓ 2.9%

Total Operating Income billion RMB 41.5 ↓ 9.9% 122.4 ↓ 14.9%

Operating Cost billion RMB 38.5 ↓ 6.4% 110.0 ↓ 14.9%

Gross Profit billion RMB 2.9 ↓ 40.9% 12.2 ↓ 14.8%

Gross Margin % 7.02 ↓ 3.68ppts 9.96 ↑ 0.01ppts

Total Profit billion RMB -1.45 ↓ 159% 2.95 ↓ 57.5%

Net Profit billion RMB -0.92 ↓ 150% 2.25 ↓ 55.0%

Net CFO billion RMB 6.0 ↓ 24.4% 15.4 ↓ 30.6%

EPS RMB/share -0.06 ↓ 0.17ppts 0.14 ↓ 0.16ppts

Weighted ROE % -0.80 ↓ 2.47ppts 1.98 ↓ 2.50ppts

Unit end of Sep. YoY

BVPS RMB/share 6.92 ↑ 0.4%

Leverage % 48 ↓ 1.81ppts

Operation OverviewOperation OverviewOperation OverviewOperation Overview

Baosteel VS CISA membersBaosteel VS CISA membersBaosteel VS CISA membersBaosteel VS CISA members

Total Profit (unit: billion RMB)

Note: Baosteel is not included in the Members• CISA members in 9M15, crude steel output: 460mnt, 1.2% YoY

total profit: RMB -28.1bncore business profit: RMB -55.3bn

2.95-0.31 -0.10公司会员企业平均千万吨以上会员企业平均Baosteel Members Average Members Average(over 10m tons capacity)

178.8

-69.7 -74.0公司会员企业平均千万吨以上会员企业平均

Total Profit per ton (unit: RMB/ton)

Maintain Best PerformanceMaintain Best PerformanceMaintain Best PerformanceMaintain Best Performance

Baosteel Members Average Members Average(over 10m tons capacity)

World Debut --New grade of 3rd generation auto sheet: QP1180GAAuto sheet

Silicon steel

PipeExplore Overseas Market --Turkey project“TANAP”; Oman project“BP”

New Energy Vehicle and EV --Acquire new energy vehicle certification from BYD, replace imported material

Heavy plateMarine Engineering --YAMAL project; supply high grade marine engineering steel for CIMC

High End Markets

HighlightsHighlightsHighlightsHighlights

Ignition of 1# BF of Zhanjiang Steel on 25 Sep• Started in May 2013, took over 2 years• 2016-2018: final products come out• Designed capacity: iron 8.23mnt, crude steel 8.75mnt,

steel product 6.9mnt


“Internet+Steel”, Steel Ecosystem

欧冶材料Ouyeel Steel TradingOuyeel Finance Ouyeel Logistics3rd party steel trading platform9M trade volume: 5.1mnt，up 64% YoY;trade volume climbed up month by monthRegistered clients: 41 thousand, up 32% YoY

Own financial licenses of settlement, mortgage, factoring3rd party settlement of “Oriental Pay”in 9M: RMB 34.2bnAcquire RMB 162.7bn credit line from 13 banks

Modernized logistics and warehousing systemAffiliated warehouses near 200, with domestic turnover capacity of 50mnt4th party“Ouyeel Logistics Platform”on line


Unit: Unit: Unit: Unit:

million tonsmillion tonsmillion tonsmillion tons

3Q153Q153Q153Q15 QoQQoQQoQQoQ YoYYoYYoYYoY

Crude SteelCrude SteelCrude SteelCrude Steel

OutputOutputOutputOutput

5.5 ↑ 1.7% ↑ 4.0%

Operating ResultsOperating ResultsOperating ResultsOperating Results

Unit:Unit:Unit:Unit:

million tonsmillion tonsmillion tonsmillion tons


SalesSalesSalesSales 5.4 ↓ 1.1% ↑ 0.7%

Including:Including:Including:Including:

exportexportexportexport

0.7 ↑ 41.6% ↑ 12.9%


billion RMBbillion RMBbillion RMBbillion RMB


Total Operating Total Operating Total Operating Total Operating

IncomeIncomeIncomeIncome

41.5 ↑ 5.2% ↓ 9.9%

Unit:Unit:Unit:Unit:



Operation CostOperation CostOperation CostOperation Cost 38.5 ↑ 10.4% ↓ 6.4%

5.3 5.4 5.5

3Q14 2Q15 3Q15

5.4 5.5 5.4

0.6 0.5 0.73Q14 2Q15 3Q15

46.1 39.5 41.5

3Q14 2Q15 3Q15

41.2 34.9 38.5

3Q14 2Q15 3Q15




Gross ProfitGross ProfitGross ProfitGross Profit 2.9 ↓ 35.3% ↓ 40.9%

Gross MarginGross MarginGross MarginGross Margin 7.0% ↓ 4.4ppts ↓ 3.7ppts

Gross ProfitGross ProfitGross ProfitGross Profit

4.94.5

2.910.7% 11.4%

7.0%

3Q14 2Q15 3Q15

HRCHRCHRCHRC 39%39%39%39%

CRCCRCCRCCRC 43%43%43%43%

OthersOthersOthersOthers 5555%%%%

TubeTubeTubeTube 8888%%%%

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

14.8%16.3% 15.5%

14.9 %

3.7%

-0.3%

10.0%

-0.4%-2.7%

-4.8%■ 9M14■ 9M15



RevenueRevenueRevenueRevenue YoYYoYYoYYoY GrossGrossGrossGross

MarginMarginMarginMargin

YoYYoYYoYYoY

SteelSteelSteelSteel MakingMakingMakingMaking 75.2 ↓ 19.4% 10.3% ↑ 0.03 ppts

DistributionDistributionDistributionDistribution 107.5 ↓ 18.0% 3.1% ↑ 0.7 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 12.7 ↑ 19.8% 0.4% ↓ 0.4 ppts

ChemicalsChemicalsChemicalsChemicals 5.9 ↓ 18.8% 9.3% ↓ 3.7 ppts

ITITITIT 2.7 ↑ 5.2% 28.6% ↓ 2.2 ppts

FinanceFinanceFinanceFinance 0.5 ↑ 3.9% 53.1% ↓ 2.0 ppts

93.2

131.1

75.2107.5

steel making distribution9M14 9M15

10.6

7.2

2.60.5

12.7

5.92.7

0.5

E-commerce chemicals IT finance9M14 9M15

“Steel price”: HRC price 22%CRC price 12%

（Shanghai base ASP in 9M）

“FX loss”：RMB -2.04bn

“Impairment loss of Baotong Steel”

Net profit estimated down 50%-100% YoY

Alert of Alert of Alert of Alert of 2015 Full 2015 Full 2015 Full 2015 Full Year ResultsYear ResultsYear ResultsYear Results

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3Q15 Results

Industry DynamicsIndustry DynamicsIndustry DynamicsIndustry Dynamics

Contents

GDP CPI

• GDP up 6.9% in 9M, first time below 7% in past 6 years.

• Economy restructuring is at the critical stage.

• CPI up 1.4% in 9M, much lower than the annual target of 3%.

• CPI growth has been lower than 2% in the past 14 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%6.9%

2011 2012 2013 2014 9M15

5.4%

2.6% 2.6%2.0%

1.4%

2011 2012 2013 2014 9M15

Unit: million tons 9M159M159M159M15 YoYYoYYoYYoY

Output 609 ↓ 2.1%

Net export 76 ↑ 31.8%

Apparent consumption 533 ↓ 4.9%

• Crude steel output was 609mn tons in 9M, down 2.1% YoY.• 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

609765 739

533

2013 2014 9M15Output Apparent Consumption

-2.0%

-2.1%

-5.9%

• Steel industry FAI was RMB 311bn in 9M, down 13.6% 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: Wind

506 479

311-2.1%

-5.9%

-13.6%

2013 2014 9M15Steel Industry FAI YoY

• In 9M, China exported 83.1mn tons(+27.2% YoY); imported 9.73mn tons(-11.6% YoY). Net export were 73.38mn tons, up 35% YoY.

• Export growth slowed down but still high.

• Domestic steel price hit new record low, causing a lower export price. In 9M, average export price was USD 585/ton, down 25.4% 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

Data source: Custom Statistics48.3

79.3 73.4

14.7%

64.4%

35.0%

2013 2014 9M15Net export YoY

FAIFAIFAIFAI

20.6%19.6%

15.7%

• FAI totaled RMB 39 trillion in 9M, up 10.3% 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

39

19.6% 15.7%10.3%

2013 2014 9M15

Investment New Start and Sales Growth

• Investment and new start grew at 2.6% and -12.6% YoY respectively in 9M, growth rate in downward trend.

• Stimulated by the interest rate cuts, real estate sales growth rebounded to 7.5% in 9M.


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

Unit: trillion RMB

Data source: Wind

8.6 9.5

7.1

19.8%10.5%

2.6%

2013 2014 9M15

13.5%

-10.7%-12.6%

17.3%

-7.6%

7.5%

2013 2014 9M15New start Sales

Output Sales

• Output and sales were 17.09, 17.06mn units, down 0.8% and up 0.3% YoY respectively in 9M. Auto industry was under great pressure, growth slowed down.

• Passenger car sales up 2.8% YoY, outperformed commercial car(down 11.8% YoY).

• We expect 2015 auto sales to grow at 0-2%, 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

17.09 14.8%

7.3%

-0.8%2013 2014 9M15

21.98 23.49

17.06 13.9%

6.9%

0.3%

2013 2014 9M15

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 and TV outperformed in 9M.• 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 53.68.2% -3.3% 3.4%2013 2014 9M1593.4 88.0 71.410.6% -1.0% -1.7%2013 2014 9M15

143.3 144.6 123.911.6% 11.5% 1.0%2013 2014 9M15140.3 141.3 116.2-0.2%

6.2% 5.9%2013 2014 9M15


----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, electrical equipment climbed slowly and 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 Sep-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 and new order were 29.4(+12.7% YoY) and 18.2 (-65.4% YoY)mn tonnages respectively in 9M, carrying order was 133(-9.2% YoY)mn tonnages by the end of Sep, down 10.8% Ytd.

• 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, 9.6mn tons by 30 Oct, down 6% MoM and down 8% YoY.

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

• Steel mills inventory was up 4% YoY and up 14% Ytd in early Oct.

0510152025

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

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

Raw MaterialRaw MaterialRaw MaterialRaw Material

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

Data source: Wind• Imported iron ore 700mn tons in 9M, slightly decreased. Average import price USD 62.3/ton, down 42% YoY.

• Entering 2015, Platts was still in downward trend and dropped to historical low USD 44.5/ton on 8 July. Platts was USD 48.6/ton by 2 Nov, down 32% Ytd and down 38% YoY.

• 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 Aug-14 Nov-14 Mar-15 Jun-15 Oct-15Coke Scrap

Iron Ore InventoryIron Ore InventoryIron Ore InventoryIron Ore Inventory

Port Inventory Unit: million tons

Data source: Mysteel

• Port inventory declined slowly in 9M, but remained high position.

• 84.5mn tons by 30 Oct, down 16% Ytd and down 21% YoY.

020406080100120

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-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 9M. According to CISA, member steel mills’ total profit was RMB -28.1bn, about 49% of which lost money. The industry lost RMB 55.3bn in main business.

• Full year profit is expected negative, the industry is entering “cold winter”.

180023002800330038004300

Jan-14 Apr-14 Aug-14 Nov-14 Mar-15 Jun-15 Oct-15HRC 3.0 CRC 1.0 Rebar HRB400 250035004500550065007500

Jan-14 Apr-14 Aug-14 Nov-14 Mar-15 Jun-15 Oct-15CRC 1.0 Galvanized 1.0 Prepainted 0.476 Silicon 600

baoshan iron & steel co.,ltd. 3q15 results

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