1. 1 현대, 동부제철 가동이 한중일 시장에 미치는 영향 이은영 DBS Vickers Securities 애널리스트

2. Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. DBS Vickers Research and DBS Bank accepts no liability whatsoever with respect to the use of this document or its contents. Asia Steel Market after Korean new capacity operation Dec 2009 Eun-Young Lee

3. Content & Summary Source: DBS Vickers 1.Overview on steel industry of 3 Asian Countries 2.Korea Steel Industry – Net exporter but importing huge tonnes of steel 3.Japan Steel Industry – Export is main supporter for steel industry 4.China Steel Industry – Dynamic but volatile or growing but problematic 5.Implication of steel trade of 3 countries 6.New challenge : The operation of new facilities in Korea going forward. 7.What should be required strategy for increasing competition?

4. Overview on steel industry of 3 countries Source: DBS Vickers Crude steel ouput Steel production ASUExportImport Production- ASU Export- Import Korea0853.6064.5058.5720.7928.945.93-8.15 9F49.0057.0045.8020.2220.2511.20-0.03 China08500.49581.73537.9459.1815.6343.7943.55 09F555.31670.26663.5023.6717.166.766.51 Japan08105.5091.3273.8934.507.2017.4327.30 09F80.1070.0053.0029.712.6017.0027.11 Korea, China and Japan : Steel: Demand & Supply

5. Content & Summary Source: DBS Vickers 1.Overview on steel industry of 3 Asian Countries 2.Korea Steel Industry – Net exporter but importing huge tonnes of steel 3.Japan Steel Industry – Export is main supporter for steel industry 4.China Steel Industry – Dynamic but volatile or growing but problematic 5.Implication of steel trade of 3 countries 6.New challenge : The operation of new facilities in Korea going forward. 7.What should be required strategy for increasing competition?

6. Korea : Net Exporter Korea Steel: Demand & Supply Korea Steel : Import volume Source: KOSA, DBS Vickers Net export volume : 15m ton(‘98), 5.8m ton(’08)Export volume : 5.5m ton(‘98), 20.8m ton(’08) Increasing export volume but stagnant net export volume

7. Korea : but Importing huge volume Source: KOSA, DBS Vickers (A) Import including products used as raw material:5.7m ton(’97)→28.9m ton (’08) (B) Import of steel product : 3m ton(‘97) → 15m ton(’08) (A-B) Import of raw material steel products : 2.7m ton(’97) → 13.9m ton (’08) Weight of import to total steel demand : 12% (‘97) → 36%(’08) Korea Steel : Import volume Surged import of steel products used as raw materials.

8. Importing more steel products as raw materials Source: KOSA, DBS Vickers Turned to net importer of steel during ’02~’08 : 1.2m ton(’02) → 8.2m ton (’08) Korea Steel : Net export vs. net export considering import of products used as raw materials Expect to switch net exporter in 2009 : 1.3m ton(’09F) → 2.7m ton (’10F)

9. Switch to net importer of flat steel Source: KOSA, DBS Vickers Long Steel : enlarged net import, 0.3m ton (’97) → 2.8m ton(’08) Flat Steel : 3.8m ton of net export(’97) → switch to net importer in 2008(1.3m ton) Korea Steel : Net export (import) by steel products

10. 10 Source: Bloomberg, DBS Vickers Net import volume : slab(4.4m ton) and HRC(3.7m ton) in 2008, c 12% of consumption of each product. Aggravated shortage of raw materials for flat products Korea Steel: slab import Korea Steel: HRC import

11. 11 Japan and China, the main supplier of HRC Source: Kosa, DBS Vickers Korea : HRC import by origin Japan : 69%(’03) → 41%(’08) → 58%(’09.1~9) China : 9%(’03) → 52%(’08)→ 18%(’09.1~9)

12. 12 Japan, the major supplier of Slab Source: Kosa, DBS Vickers Korea : Slab import by origin Japan : 22%(’03) →25%(’08) → 51%(’09.1~9)

13. Content & Summary Source: DBS Vickers 1.Overview on steel industry of 3 Asian Countries 2.Korea Steel Industry – Net exporter but importing huge tonnes of steel 3.Japan Steel Industry – Export is main supporter for steel industry 4.China Steel Industry – Dynamic but volatile or growing but problematic 5.Implication of steel trade of 3 countries 6.New challenge : The operation of new facilities in Korea going forward. 7.What should be required strategy for increasing competition?

14. 14 Japan, the biggest steel exporter in the world Source: JISF, DBS Vickers Japan : Crude steel production/nominal consumption and net export Net Export volume : 42m ton(’76)→ 11m ton(’91) → 36m ton(’07) → 32m ton(’08)

15. 15 Japan, overcapacity to surpass domestic demand Japan : Overcapacity Demand/Overcapacity (m ton) : 73.6/78.7(’85)→ 68.9/60.1(’99) → 73.9/55.9(’08) → 53/77(’09) Source: JISF, DBS Vickers

16. 16 Japan, Utilization rate is a key variable for OP margins Japan : Utilization rate vs. OP margins Source: JISF, DBS Vickers

17. 17 Japan: Export, a inevitable option to maintain util.rates Japan : Export and Import Source: JISF, DBS Vickers

18. Japan : flat steel products are major export products Japan : Heavy Plate Japan : HRC Lager export volume : HRC → Galvanized sheet → Heavy Plate → CRC Source: JISF, DBS Vickers

19. Japan : High export ratio of flat steel products Higher export ratio : Galvanized sheet → CRC → HRC→ Heavy Plate Japan : CRC Japan : Galvanized sheet Source: JISF, DBS Vickers

20. Content & Summary Source: DBS Vickers 1.Overview on steel industry of 3 Asian Countries 2.Korea Steel Industry – Net exporter but importing huge tonnes of steel 3.Japan Steel Industry – Export is main supporter for steel industry 4.China Steel Industry – Dynamic but volatile or growing but problematic 5.Implication of steel trade of 3 countries 6.New challenge : The operation of new facilities in Korea going forward. 7.What should be required strategy for increasing competition?

21. 21 China, a determinant of global supply and demand Source: CEIC, DBS Vickers China : Crude steel production/nominal consumption and net export Net Export volume : -30m ton(’03)→ 45.8m ton(’07) → 6.7m ton(’09F)

22. 22 China, ongoing capacity expansion & lower util. rates Source: CEIC, DBS Vickers China : Crude steel capacity/output and utilization rates Additional capacity increase : 80m ton(’09F)→ 43m ton(’10F) → 21m ton(’11F) Utilization rates : 89%(’06)→ 75%(’09F)

23. 23 China, Sustainable import and less export of semi Source: CEIC, DBS Vickers China : Export/Import and Net export of semi finished steel product Import : 18.8m ton(’06)→ 15.4m ton(’08) → 17.2m ton(’09F) Net export of semi-finished products : 8.7m ton(’06)→ 1m ton(’08) → -0.2m ton(’09F)

24. 24 Chinese demand growth is stronger than expected China: Nominal steel consumption China : Net export vs. steel prices Source: Bloomberg, DBS

25. 25 High Inventory in China remains risk factor China : Steel Inventory & HRC spot priceProducer’s inventory Source: IISI, Bloomberg, DBS Vickers

26. Inventories of flat steel in South-eastern region are high 26 China: Inventory by product in the middlemanChina: Inventory by region in the middleman Source: IISI, Bloomberg, DBS Vickers

27. Content & Summary Source: DBS Vickers 1.Overview on steel industry of 3 Asian Countries 2.Korea Steel Industry – Net exporter but importing huge tonnes of steel 3.Japan Steel Industry – Export is main supporter for steel industry 4.China Steel Industry – Dynamic but volatile or growing but problematic 5.Implication of steel trade of 3 countries 6.New challenge : The operation of new facilities in Korea going forward. 7.What should be required strategy for increasing competition?

28. 28 Korea : Major export products are downstream flat products Korea Steel: Export by product Source: KOSA, DBS Vickers

29. 29 Korea Steel: Import by product Source: KOSA, DBS Vickers Korea : Major import products are upstream flat products

30. 30 Korea : Diversified export, concentrated import Korea Steel: Export by regions Korea Steel: Import from regions Source: KOSA, DBS Vickers

31. Japan : Key supplier for upstream steel flat product Japan : Export by product Source: JISF, DBS Vickers

32. Japan : Korea is the biggest export market Japan : Export by region Source: JISF, DBS Vickers

33. 33 China, Flat steel are major export/import products Source: CEIC, DBS Vickers China : Export/Import by products

34. 34 China, Korea is #1 export market Source: CEIC, DBS Vickers China : Export by products China : Import by products

35. JapanKorea China S.E Asia S.E Asia would become most competitive export market China : Export/Import by products E: 2.7m I : 9.6 I: 0.8m E : 6.1m E : 3.7m I : 14.3 E :13.6m E : 4.6m E:12m Source: CEIC,JISF,KOSA DBS Vickers

36. Content & Summary Source: DBS Vickers 1.Overview on steel industry of 3 Asian Countries 2.Korea Steel Industry – Net exporter but importing huge tonnes of steel 3.Japan Steel Industry – Export is main supporter for steel industry 4.China Steel Industry – Dynamic but volatile or growing but problematic 5.Implication of steel trade of 3 countries 6.New challenge : The operation of new facilities in Korea going forward. 7.What should be required strategy for increasing competition?

37. 37 Capacity development in Korea Source: Company, DBS Vickers Korea : New facilities to be completed in 2009~2011

38. 38 Heavy Plate, to switch surplus from shortage Source: CEIC, DBS Vickers Korea : Heavy Plate’s demand/supply forecast

39. 39 HRC, expect surplus in 2011 Source: CEIC, DBS Vickers Korea : HRC demand/supply forecast

40. 40 CR Products retain burden for export but.. Source: CEIC, DBS Vickers Korea : CRC/Galvanized sheet demand/supply forecast Capacity expansion in China(’08~10) CRC : + 32m ( + 40%) GAL : + 9m (+ 25%)

41. 41 Growing Chinese automobile demand to trigger better demand of CR products China Automobile; production and sales Source: CEIC, DBS Vickers China Home appliance; sales unit

42. Content & Summary Source: DBS Vickers 1.Overview on steel industry of 3 Asian Countries 2.Korea Steel Industry – Net exporter but importing huge tonnes of steel 3.Japan Steel Industry – Export is main supporter for steel industry 4.China Steel Industry – Dynamic but volatile or growing but problematic 5.Implication of steel trade of 3 countries 6.New challenge : The operation of new facilities in Korea going forward. 7.What should be required strategy for increasing competition?

43. 43 Our Steel Demand Forecasts is bearish compared to IISI 2009 2010 IISI & DBSV(2010) Source: IISI, DBS Vickers

44. 44 Over capacity up along with expansion World: Steel demand and capacity Source: IISI, DBS Vickers

45. Source: IISI, BCG, Mirae Asset Research Estimates Anticipate intensifying competition in Asia market Competition intensity by product Heavy Plate HRCCRCGAL Intensity of competition The most competitive year 2010 ~ 201120112011 ~ 2012 The most competitive market Korea S.E Asia China S.E Asia China S.E Asia Chief rivalDomestic mills, China, Japan China, JapanJapan

46. Source: IISI, BCG, Mirae Asset Research Estimates Required Strategy For the government Monitor closely domestic and oversea steel markets Reshuffling measures and system to support fair competition Recruit and breed expert on trade relationship

47. Source: IISI, BCG, Mirae Asset Research Estimates Required Strategy For the companies Financial Healthiness Competitiveness in Quality Competitiveness in Cost A marketing scheme for oversupplied market. Carry on self-restructuring and encourage industry restructuring Strengthen monitoring in the export markets, secure the talented in trade matters.

48. Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. DBS Vickers Research and DBS Bank accepts no liability whatsoever with respect to the use of this document or its contents. Thank You