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Frost Report Pty Ltd

Wednesday, 12 December 2012

The Frost Market Report

Chinese Market Editorial
Back in 2011 the chairman of Baosteel Group made this profound statement; Towards 2012, the era of meager profit for the iron and steel industry is likely to carry on and the global economic downturn will continue to exert noticeable influence upon Chinas export-oriented iron & steel industry, as well as its downstream industries such as shipbuilding, home appliances manufacturing and machinery. As the economic growth pattern of the world changes, developed countries are reaching down while emerging economies are striving to catch up, and the manufacturing industry of China will face pressure coming from both sides. 1 Qinfa Group who are the largest private buyer of coal in china released the following very interesting information in there 2012 interim report. 2

Coal Results 2012

Average Coal sales price RMB / Ton

2009
493 579

2010
618

2011
574

2012

Average monthly handling and trading volume

569

910

1,327

1,394

The above table is interesting reading as it starkly shows the distinct lack of growth in volume in 2012 compared to the exponential growth in volume from 2010 to 2011. In 2013 the new leadership will face the challenge of balancing growth by shifting its focus from export and more to wards domestic consumption. Private enterprises are on the increase and with anticipated stimulus injections it is reasonable to expect a increased GDP in 2013. 3 Canberra-based Bureau of Resources and Energy Economics said in a report today. Prices are set to average $128 a ton in 2012 from $126 a ton forecast in September, the bureau said. Australias exports may total 481 million tons in 2012 and 543 million tons in 2013, from 483 million tons and 528 million tons predicted in September, it said. 4
1 2 3 4

http://tv.baosteel.com/web/plc/csr/2011CSR_E.pdf The 2011 Baosteel Annual Report http://www.qinfagroup.com/file_pdf/LTN20120924130.pdf Qinfa Group Interim Report 2012 www.goldmansachs.com Chinas Economic Outlook Bloomberg Business Week 12th December 2012 Australia Raises 2013 Iron Ore Price Outlook on China Demand

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Coal Sales

Guangzhou Coal highlights and market snapshot 12th December 2012. 5, 6

Origin
Indonesia Indonesia Indonesia Indonesia Australia Australia South Africa 10 5 8 5 20 25 14

ash%

s%
0.6 0.31 0.9 0.8 0.7 0.4 0.6

kcal/kg
5500 4800 4200 3800 5500 6000 6000 595 490 430 400 620 722 730

rmb/t

Change
no change no change no change no change no change no change no change

Coal Sales

Qinhuandao thermal coal spot prices as of 12th December 2012 7 , 8, 9

Origin
Shanxi blend Shanxi blend Shanxi blend Shanxi blend 5800 5500 5000 4500

kcal/kg
685 640 560 465

rmb/t
no change no change no change no change

Analysis

In a solid day with good turnovers the coal prices stayed solid today and didnt slide as expected by many commentators. The Bureau of Resources and Energy Economics has predicted that coal prices will fall by as much as 11% in 2013. 10 My own personal early prediction is that volumes and prices will average slightly higher than 2012.

5 6 7 8 9

www.umetal.com Simon Lui Source Yahoo Finance www.umetal.com Simon Lui Source Yahoo Finance A private Hong Kong Coal Trader Bureau of Resources and Energy Economics

10

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Coal Index History

Historical Price information from the different indices, prices are in USD. 11

100 NEWC DES ARA RB

95

90

85

80 May 12

Jun 12

Jul 12

Aug 12

Sep 12

Oct 12

Nov 12

Iron Ore Sales

Highlights from imported sales of iron ore as of 12th December 2012. 12, 13

Origin
Australia Australia Australia Australia Brazil Brazil India Iran Russia Russia

Product
Robe River Fines Newman Lumps Mac Lumps Robe River Fines Lumps Pellets Fines Hematites Concentrate Pellets

FE%
61.5 63 62 61.5 65 66 63 61 65 65

CFR $usd
111 135 130 111 132 149 126 107 130 144

Weeks Change $usd

$1 $4 $4 $1 $2 $1 $2 $2 $4 $4

11

www.globalcoal.com Delayed prices.

12 www.umetal.com Simon Lui 13 Source Yahoo Finance

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Iron Ore Sales

Highlights from spot sales of iron ore as of 12th December 2012.

Origin
PB Fines Newman Fines PB Lump Yandi Fines

FE%
61.5 62.5 62.5 57.5

RMB
900 920 990 810

Weeks Change in RMB

40 40 40 30

Analysis

Iron Ore prices have increases steadily during the last week and the results are pleasing for Miners and there stock holders alike. The increase of Baosteels buying rates is pleasing and most steel mills will more than likely follow suit. 14

Baosteels Price History

Historical price information in the graph below represents the purchasing price of HRC 5.5mm in RMB. Baosteel updates its prices regularly. 15

5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 Jun Jul Aug Sep Oct Nov Dec Jan 2013

14 www.umetal.com Simon Lui

15

Baosteel Pricing Manual

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Baosteels Price History

Historical price information in the table below represents the purchasing price of all the major steel feed products that Baosteel buys. 16, 17

Ordering Prices for Baosteel Major Steel Product Since June 2012 (RMB/T) Product HRC Specification SS400 5.5mm*1500*C SPHC 3.0mm*1250*C SPHC 3.0mm*1250*C SPCC 1.0mm*1250*C DC0 41.0mm*1250*C DC51D 1.0mm*1250*C SECC 1.0mm*1250*C June 4562 July Aug Sept Oct Nov Dec Jan 2013 4242

4362 4162 4062 4062 4062 4162

HRC

4812

4615 4412 4312 4312 4312 4412

4492

Pickled

4827

4727 4627 4447 4447 4447 4447

4497

CRC

4866

4666 4406 4256 4256 4256 4356

4416

CRC

5986

5636 5376 5376 5226 5226 5326

5326

Hot-dipped Galvanized

4897

4797 4697 4617 4617 4617 4697

4697

Electrogalvanized

5427

5287 5287 5157 5157 5157 5157

5157

Non-oriented Silicon Steel

B50A800 0.5mm

5270

5270 4810 4810 4810 4810 4960

4960

16 www.umetal.com Simon Lui

17

Baosteel Pricing Manual

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Iron ore sales history

The graph below represents the historical data of iron fines with a grade of 63.5% FE which have been sold on a CFR basis. The forward prediction of sales is based on information provided by the metal bulletin index.

Values in $USD FE 63.5% CFR China

2010 2011 Sep Oct Nov Dec Jan Feb

Q1 2013

Q2 2013

Q3 2013

Q4 2013 0 13.00 26.00 39.00 52.00 65.00 78.00 91.00 104.00 117.00 130.00

report by Andrew Frost copyright all rights reserved by Frost Report Pty Ltd

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