1. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION Development and Prospects of China's Steel Industry Oct. 14 th, 2005 China Iron and Steel Association Executive Vice Chairman and Secretary General Luo Bingsheng

2. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION Outline I. Current development status of China's steel industry. II. Problems facing the development of China's steel industry. III. Opportunities and challenges facing the development of China's steel industry. IV. Carrying out “Steel Industry Development Policy”, promoting the sustainable development of China's steel industry.

3. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION I. Current development status of China's steel industry. 1. Crude steel output has been ranking first in the world for 9 consecutive years 2. China has become the world largest steel consumer, and big importer and exporter. 3. Significant accomplishments of product mix adjustment. 4. Profits of the whole industry have increased. 5.Apparent improvement of technological and economic index of the whole industry. 6. Forming the co-development situation of different economic bodies.

4. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 1. Crude steel output has been ranking first in the world for 9 consecutive years.

5. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION From Jan. 2005 to Aug. 2005 Crude steel output reached 224.8495 million tons, a y-o-y increase of 28.15% Pig iron output reached 211.0139 million tons, a y-o-y increase of 31.87% Output of steel products reached 236.2111 million tons, a y-o-y increase of 26.22% Crude steel output is estimated to reach 330 million tons in 2005.

6. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 2. China has become the world largest steel consumer, and big steel importer and exporter. In 2004, apparent steel consumption in domestic market reached 312.3 million tons (including double counted steel products), with an increase of 15.07% compared with the same period of the previous year. When double counted part was deducted, domestic consumption was 272 million tons, which occupied 26.8% of the world’s total consumption.

7. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION China imported 29.3 million tons of steel products and 3.86 million tons of semi-finished products in 2004. Among the imported steel products, most are flat products, the fluctuations of which will determine the development trend of the total imports. China's imported steel product mix in 2004 25.0998 million tons 523.4 thousand tons 1.3229 million tons 789.6 thousand tons 190.6 thousand tons 1.3762 million tons

8. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION China's exported steel product mix in 2004 China exported 14.23 million tons of steel products and 6.05 million tons of semis in 2004; flat products, bars and wire rods have been the main steel products for exports. 5.785 million tons 1.3 million tons 4.468 million tons 2.082 million tons 504 thousand tons 93 thousand tons

9. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 3.Significant accomplishments of product mix adjustment. 159.16 million tons 2.69 million tons 7.73 million tons 21.23 million tons 109.15 million tons In 2004, 109.15 million tons of flat products and strips were produced, which accounted for 36% of total production; long products 159.16 million tons, which occupied 53%.

10. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION Trend of steel product mix adjustment The proportion of high-technology required and high value-added products, represented by CR sheets, will continuously increase, while that of bars, wire rods and other common products will become relatively lower than before, but still high in volume.

11. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 4. Economic benefits of the whole industry have increased. In 2004, 89 large and medium sized steel enterprises under the statistical survey of China Iron and Steel Association achieved: Total industrial production value of 934.99 billion RMB, a y-o-y increase of 52.36%. Sales income of 1005.23 billion RMB, a y-o-y increase of 52.42 % Tax revenue of 137.62 billion RMB, a y-o-y increase of 44.74% Profits of 81.18 billion RMB, a y-o-y increase of 68.32%. Business performance of key enterprises has been further improved.

12. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 5. Significant improvement of technological and economic index of the steel industry. Index19952004Comparison Continuous casting ratio46.4%95.78%Increase 49.38% Yield rate of steel products 86.76%95.6%Increase 8.84% Comprehensive energy consumption / ton of crude steel 1.160.76 Reduced 400kg standard coal / ton Comparable energy consumption / ton of crude steel 0.9730.705 Reduced 268kg standard coal / ton

13. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 6.Forming the co-development situation of different economic bodies. 871 steel enterprises under the statistical survey in 2004 are classified as follows in terms of the ownership: 107 state owned or state holding enterprises, occupying 12.28%, 706 private owned or private holding enterprises, occupying 81.06%, 58 overseas owned or overseas holding enterprises, occupying 6.66%.

14. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION In terms of crude steel production capacity by 871 enterprises of different ownerships, state owned or state holding enterprises occupy 56.8%, private owned or private holding enterprises occupy 39.4%, overseas owned or holding enterprises occupy 3.8%.

15. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION II. Existing problems in the development of China's steel industry 1. Irrational layout of production capacity 2. Low industry concentration 3. Irrational product mix 4. Enterprise self-innovation capability not strong enough 5. Excessive low level production capacity and insufficient effective supply 6. Extensive steel production

16. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 1. Irrational layout of production capacity 90.20 million tons, 33.51% 82.46 million tons, 30.26% 7.76 million tons, 2.85% 18.10 million tons, 6.64% 32.24 million tons, 11.83% 41.70 million tons, 15.3% Divided by regions, steel production capacity in North and East China account for 63.77% of the national total, which is relatively concentrated, while that of southwest and northwest China only account for 9.45%, which is relatively lower.

17. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION Production layout mainly relies on the construction of mines so that steel enterprises are small in size and fragmented; 18 large and medium sized enterprises are located in provincial cities and 34 are in cities with a population over 1 million. 60% of crude steel production capacities are in areas suffering from water shortages. Most iron and steel enterprises are facing the pressure of environmental protection. Characteristics of the production layout for Chinese steel industry

18. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 2. Low industry concentration In 2004 ， there were as many as 4,992 iron and steel producers, which were small in size and scattered; In 2004, there were 15 enterprises with annual crude steel production of over 5 million tons, accounting for 45% of the national total output. In 2004, the combined output percentage of the first four enterprises in China, Japan, Russia, EU and Korea was respectively: China 18.52%, US 61.29, Japan 75.17, Russia 66.89, EU countries (15countries) 72.59%, Korea (2 enterprises) 79.55%

19. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 3. Irrational product mix Products with self-sufficiency ratio over 100% （ that is, the supply has surpassed the demand ） are: large sections ， bars, reinforcing bars, wire rod, ultra-heavy plate, heavy & medium plate, hot rolled narrow strip, cold rolled narrow strip, seamless pipes, welded pipes; Products with self-sufficiency ratio approximately 100% (The supply is to surpass demand) are: rail steel, hot rolled coils; Products with low self-sufficiency ratio (The supply can't meet the demand) are: cold rolled coils, galvanizing sheets, color-coated sheets and electrical steel.

20. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 4. Enterprises are not well capable of making independent innovations. In 2004, total funds used in science & technology activities by large and medium-sized enterprises were 19.993 billion RMB, only accounting for 1.99% of the current sales income. Among them, 8.677 billion RMB was spent on research and experiments, and 7.668 billion RMB on the R&D of new products.

21. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 5. Overcapacity of low-level productions, and insufficient effective supply. It is an arduous task to eliminate backward capacities with high energy consumption and heavy pollution. Among iron and steel production capacity in 2004: 98.8 million tons of production capacity by small blast furnace of 300 and less than 300 cubic meters 34.13 million tons of production capacity by small converters of 20 and less than 20 tons 20.95 million tons of production capacity by small electric arc furnaces of 20 and less than 20 tons The technologies and equipment in most of the existing small steel mills are outdated, resulting in more energy consumption and heavy pollution.

22. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 6. Extensive production is a typical feature for Chinese steel industry. The comprehensive energy consumption per ton of crude steel is 15-20% more than the world advanced level. In 2004, the whole industry consumed 299 million tons of standard coal (including mining, ferroalloy and refractory enterprises), accounting for about 16% of the total national industrial energy consumption. The effective utilization ratio of heat and energy during the production process is about 30%. Recovery rate of solid waste is about 53%. Waste water and gas emissions account for 14% of the total industrial emissions. Solid waste emissions occupy 16% of the total.

23. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION III. Opportunities and challenges facing China’s Steel industry. 1.Because of China’s incomplete industrialization, China’s steel industry will keep growing with continuous increasing demand for a long period of time. 2.The development of Chinese national economy has raised higher requirements for the variety and quality of steel products. 3.Social demands for steel products are characterized by various levels. 4.External constraints, e.g. resource and energy supplies, transportation capacity, environment protection, are enlarged. 5.Integrated with the global market, Chinese steel market is facing more drastic competitions.

24. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 1. Because of China’s incomplete industrialization, China’s steel industry will keep growing with continuous increasing demand for a long period of time. Experience of other countries shows that, during the early and middle stage of industrialization, the social demand for steel will continue to increase while during the late and mature stage, the consumption will slow down and become stable.

25. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION Currently, China is in the middle stage of industrialization. With the acceleration of industrialization, urbanization, the improvement of people’s income and the upgrade of consumption pattern, China has huge domestic demand for steel products. The guiding principle for the development of China’s Steel industry is to satisfy domestic demands first.

26. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 2.The development of Chinese national economy has raised higher requirements for the variety and quality of steel products. The Chinese government has made it clear that, it will adhere to the scientific concept of development, centering on putting people first and achieving overall, harmonious and sustainable development, and undertake the great task of building a harmonious socialist society, which requires Chinese steel industry to seek new growth modes and follow the path of scientific development;

27. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION The upgrade of automobile, household electric appliances, shipbuilding, railways and other manufacturing industries have set up new requirements for Chinese steel industry; The development of china's iron and steel industry is facing constraints of energy, resources, water, electricity supplies and transportations, and is under great pressure of environmental protection; The development of China's steel industry must rely on technical improvement, enhance utilization ratio of resources, and convert the growth mode, so as to meet the requirements of national economic development in terms of steel quantity, variety and quality.

28. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 3. Social demands for steel products are characterized by various levels. Chinese economic development is unbalanced, with low urbanization rate and gaps between urban and rural areas, eastern and western regions. The popularization of private automobiles and household electrical appliances in ordinary families, the improvement of residential environment and the development of manufacturing industry have resulted in the strong demand for high technology- required and high value-added steel products, including CR sheets, color-coated sheets, electrical steel, stainless steel. With the acceleration of urbanization, the demand for residential houses will continuously increase and the fixed assets investment will be kept on a rational scale for rather a long time, which in turn will contribute to the growing demand for common products, such as wire rods and reinforcing bar. These products will still account for relatively large proportion of the social consumption.

29. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 4.External constraints, e.g. resource and energy supplies, transportation capacity, environment protection, are enlarged. Currently, coal, coke, power and transportation have become important factors to restrain the growth of steel production. In 2004, China imported 208 million tons of iron ore. 52% pig iron production via BF route depended on imported iron ore, with continuous upward trend. Due to the insufficient railroad transportation capacities, some steel plants have to rely on the road for delivering more than 20% of imported iron ore. During the peak period of power consumption, blackouts often occur.

30. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 5 、 Integrated with the global market, Chinese steel market is facing more drastic competitions. Chinese steel market has become one of the largest steel markets in the world. Therefore, the huge market demand has drawn attention from the global steel counterparts. Overseas-holding steel production capacity has already accounted for about 10% of the total capacity. The steel price fluctuations in Chinese domestic market are almost in pace with that of overseas markets. Flat and strip products, which are the focus for market competitions in the world, account for about 70% in the global steel trade.

31. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION IIII. Implement Steel Industry Development Policy and promote the sustainable development of Chinese steel industry 1. An overall evaluation on Steel Industry Development Policy. 2. The Guiding ideology for the development of Chinese steel industry 3. Basic requirements for the development of Chinese steel industry

32. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION Having been discussed and examined twice by the executive meeting of the State Council, the Steel Industry Development Policy was issued by the National Development and Reform Commission (NDRC), which is responsible for interpreting it. Involved in the drafting and examination of the Policy, China Iron and Steel Association (CISA) will undertake the task of carrying out the Policy as well. Next I would like to provide my personal views about the Policy for your reference.

33. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 1. An overall evaluation on Steel Industry Development Policy The Policy consists of nine chapters with 40 articles, clarifying the policy goals, steel industry development plan, policy for industrial technology, structural adjustments for corporate systems, investment management, raw materials policy and economical use of steel products. The Policy can be considered as: A scientific summary of practice and experience of Chinese steel industry since the founding of the country One of the most complete and systematic industry policies to guide the development of Chinese steel industry A Guideline for the overall coordinated and sustainable development of Chinese steel industry

34. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 2. The Guiding ideology for the development of Chinese steel industry Implement the scientific concept of human-based, overall coordinated and sustained development; continue to strengthen and improve macro-control regulations; make use of domestic and overseas resources and markets to meet the national and social demand for steel products. In accordance with the principles of circular economy, Chinese steel industry shall, by means of technological upgrade, system innovations and conversion of growth mode, follow a new type of development characterized by higher product quality, more economic benefits, less resources consumption and environmental pollution, and stronger competitiveness so that China can be built into a strong steel producing country in the world.

35. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 3.Basic requirements for the development of Chinese steel industry 1) Focused on the structural adjustment, Chinese steel industry shall transform the growth mode, turning to the improvement of product qualities, increase of varieties and reduction of consumptions instead of purely emphasizing the quantitative increase. The production capacity of Chinese steel industry shall be controlled on a rational scale. In principle, new production capacities shall go hand in hand with the elimination of outdated capacities, and be based on existing mills instead of building new ones.

36. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION Chinese steel industry shall optimize product mix, expand the production capacity of those products that are in great need domestically, develop high-end flat products and high efficiency steel products, and eliminate backward technology and products. By 2010, the proportion of high grade products in China will be enhanced significantly and most types of steel products will be able to satisfy the demand of most sectors, including construction, machinery, chemical engineering, automobile manufacture, household electric appliances, shipbuilding, transportation, railroad, military and new industries.

37. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 2) In light of the principles of sustainable development and circular economy, Chinese steel industry shall reduce the consumption of raw materials, energy, and water resources, improve the utilization ratio of steel products, pay attention to the usage and recycling ratio of resources and the improvement of the environment. The steel enterprises shall build related systems for waste water and slag treatment and make use of such types of technology as CDQ, BF and BOF coal gas recycling, power generation with coal gas and steam, BF redundant pressure, smoke, dust and slag recycling.

38. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION The integrated steel companies with an annual capacity of more than 5 million tons shall try to be more than self-sufficient in power supplies and if possible, supply the surplus power to other enterprises. By 2005, the overall energy consumption per ton of crude steel in Chinese steel industry will be reduced to 0.76 tons of standard coal equivalent, the comparable energy consumption per ton of crude steel reduced to 0.7 tons of standard coal equivalent, and fresh water consumption per ton of crude steel reduced to 12 tons. These figures will be brought down to 0.73, 0.685 and 8 tons respectively by 2010 and will be 0.7, 0.64 and 6 tons by 2020.

39. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION In the next ten years, the steel industry shall be moderately developed under the precondition of reducing the total water consumption quantity and controlling energy resource consumption. By the end of 2005, all the steel enterprises shall abide by the national and local standards for waste emission and the total amount of waste emissions shall be in accordance with the related indices issued by local environmental protection departments.

40. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 3) The steel industry layout shall be adjusted. Production scale shall be gradually decreased in big cities’ urban areas, areas with famous scenic spots, severe water shortages and excessively intense capacities. If possible, the steel mills in the above-mentioned regions shall be relocated. The adjustments in the steel industry layout shall take into consideration of mineral resources, energy, water resources, transportation, environment capacity, market distribution and use of overseas resources.

41. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION Upgrades and expansions shall be based on the existing large steel companies that are in relatively advantageous position, together with acquisitions and relocations, and shall be located in the advantageous regions with favorable conditions of raw materials, water resources, transportation and market demand. The new production capacities shall be combined with the elimination of backward capacities. In principle, the steel mills are not encouraged to increase their production capacities by a large margin. Through appropriate adjustments, the current irrational industry layout will be improved by 2010. And by 2020, a relatively rational industry layout will be put in place in accordance with the market demand, resource and energy supplies, transportation and environmental capacity.

42. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 4) The steel industry shall stick to the upgrade of science and technology and actively utilize the global advanced technology and equipment in order to realize the modernization of its own equipment. The steel enterprises are encouraged to build R&D institutions for products and technology, improve the innovative capabilities and develop technology, equipment and product with their own intellectual property rights. In addition, steel enterprises are encouraged to track, research, develop and utilize the advanced steel making technology.

43. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION It is proposed that the steel industry should localize its equipment, raise its research, development, design and manufacture level of important technology and equipment, give priority to integration and innovation, develop a new generation of steel process, research and promote its own original new technologies and products, and facilitate enterprise informationization and distribution modernization. Thresholds are put forward for steel enterprises in terms of equipment level, technological and economical indicators.

44. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION For green-field projects, the construction area for a sintering machine shall be at least 180 square meters; the height of a coking oven at least 6 meters; the volume of BF at least 1000 cubic meters, the capacity of a BOF at least 120 tons and that of an EAF at least 70 tons. Constructions of new large steel plants in coastal areas shall have BFs with the volume of at least 3000 cubic meters, BOFs with a capacity of at least 200 tons and produce at least 8 million tons of crude steel per year. Regarding an integrated steel enterprise, the comprehensive energy consumption per ton of crude steel shall be 0.7 tons of standard coal equivalent via BF process, 0.4 tons of standard coal equivalent via EAF process; fresh water consumption per ton of crude steel shall be less than 6 tons via BF process and less than 3 tons via EAF process. The utilization ratio of water recycling shall be more than 95%.

45. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 5) The steel enterprises are encouraged to make alliances and restructuring in order to improve the industry concentration, strengthen international competitiveness, save social costs and optimize the allocation of resources. The state supports the steel enterprises to develop in the direction of conglomeration so that the number of steel producers will be reduced and the steel industry’s structure will be adjusted, optimized and upgraded.

46. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION Special support will be given to the existing large steel groups with the advantageous situations. Through coalitions, acquisitions, reorganizations and cross-share holdings, two large steel groups with 30 million tons of annual capacity and several groups with more than 10 million tons of annual capacity will come into being, full of strong competitiveness in the world. By 2010, the number of Chinese steel producers will be reduced considerably and the crude steel output of the top 10 steel groups will account for more than 50% of the national total. The figure will reach more than 70% by 2020.

47. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION 6) Chinese steel industry shall make full use of overseas resources, rationally develop domestic resources, establish a stable resources supplying security system and improve the international competitiveness of steel products; The state encourages the steel enterprises to develop beneficiation technologies for low-grade mines so as to take full advantage of domestic barren mines. Key large steel groups are encouraged to establish overseas production and supply base for iron ore, chrome ore, nickel ore, scrap and coking coal, by means of 100% ownership ventures, joint ventures, cooperation and resource acquisition. The steel enterprises in coastal regions are encouraged to purchase such important raw materials as iron ore and coke from overseas markets.

48. 中国钢铁工业协会 CHINA IRON & STEEL ASSOCIATION