Let the plates shine now
We believe the super-cycle of shipbuilding will trigger a boom in
ship-plates demand in 2008-09. While China is increasing its plate
capacity, this would be insufficient to meet the deficit in the region,
particularly in Korea. Buy Shougang, Dongkuk and Chongqing.

Strong demand for ship plates from shipbuilding industry
Chinese and Korean shipyards have doubled their orders each year over 2005-07,
driven by strong global seaborne trade and lucrative freight. These orders are to be
constructed and delivered over 2008-11, and would lead to significant demand for
shipbuilding-related steels, such as plates and sections. We expect the demand in
China and Korea together for shipbuilding-related steels to grow 35% in 2008 and
18% in 2009.
Plate supply to increase but there's still a shortage, especially in Korea
On the supply side, we see limited ship-plate plant expansion in Korea and Japan but
increasing capacity in China over 2008-09. However, Chinese exports may be limited
by certain issues. First, we expect Chinese domestic demand for ship plates to surge
in 2008-10. Second, some new Chinese plate makers may face qualification barriers.
Third, the export tax on plates may increase if exports rise substantially. As such, we
expect Korea's deficit in ship plates to increase from 4.5mt in 2007 to 6.7mt in
2009F, and believe that Chinese exports will not sufficiently cover the shortage until
2010.
Buy Shougang Concord Intl, Dongkuk, Chongqing
Overall, we forecast ship-plate prices will increase 35% in 2008 and 12% in 2009.
Steelmakers with a large share of plate production are a direct way to play this trend.
We particularly favour Shougang Concord Intl on its pure exposure to plate and
better product mix (high-end ship plates and oil pipes). We also like Dongkuk Steel
and Chongqing Steel for product pricing and quarterly earnings in the near term and,
for Dongkuk in particular, its effort to become a backward-integrated steelmaker in
the longer term.

Contents
B A S I C E L E M E N T S 1 2 J U N E 2 0 0 8 2
E X E C U T I V E S U M M A R Y
Inflation on all fronts 3
As we progress through 2008, it is becoming clear that inflation is looming large.
While companies in our Asian metals/mining space have enjoyed the benefits of
price inflation, the rising risks of cost inflation cannot...
I N V E S T M E N T V I E W
The region in charts 4
Asian metals/mining at a glance 5
Winners and losers 8
10
Asian Metals and Mining monitor 11
T H E M E
Let the plates shine now 15
We expect a further boost to ship-plate demand in 2008-10 from booming ship
construction with high order backlog and tight ship-yard capacity. Even as new
capacity emerges, we anticipate a supply deficit in 2008-09.
Booming plate demand from shipbuilding industry 15
Plate supply unlikely to ease before 2010 18
Product mix and cost control are key 23
I N D U S T R Y D Y N A M I C S
All about differentiation 28
Asian shipbuilders are differentiating themselves to gain a comparative edge,
using specialised equipment to make different types of ship plates. High-end plate
makers have more flexibility in production, in our view.
Positioning in the shipbuilding industry 28
Plate products: differentiation is the key 31
Broader usage of plates could tighten the market 33
C O M P A N Y P R O F I L E S
Company profiles 36
Shougang Concord International 37
Dongkuk Steel Mill 54
Chongqing Iron & Steel 74
Eye On The Elements 94
Maanshan Iron & Steel 103
Tata Steel 108
China Steel 112
POSCO 116
Baoshan Iron & Steel 121
Angang Steel 127
Steel Authority of India 131
Eye On The Elements 138
Shenhua 145
China Coal 150
C O M P A N Y U N I V E R S E D A T A S H E E T
Valuation charts 155

E X E C U T I V E S U M M A R Y
Inflation on all fronts
As we progress through 2008, it is becoming clear that inflation is looming
large. While companies in our Asian metals/mining space have enjoyed the
benefits of price inflation, the rising risks of cost inflation cannot be ignored.
The Asian steel companies have enjoyed a record run in steel prices, which have
risen some 30-50% since the start of the year. The sharp increase in prices have
certainly taken many by surprise, given the uncertainty in the global economic
outlook. We believe that demand has slowed somewhat from the lofty levels of the
past, and tighter supply conditions have contributed to allow steelmakers to raise
prices, and the reduced supply has in turn been caused by soaring raw material costs
which has led some producers to curtail output.
Can this situation persist? Inflation fears have already prompted the government in
India to persuade the steelmakers to reduce prices. Similarly, the Chinese
government has appealed for restraint in steel pricing in regard to products used for
reconstruction after the devastating earthquake in Sichuan. The extent and duration

of a subprime-induced economic slowdown remains unclear, but what is clear from
our recent visits to Beijing is the government’s concern shifting toward growth, rather
than overheating, and we believe the government stands ready to pump-prime
should growth slow significantly. With increased uncertainty as to the growth outlook,
we believe it will be more difficult for steelmakers to raise prices much more from
here. Therefore, product differentiation will become more important, and high valueadded
products such as plates which are still in severe shortage in Asia due to the
shipbuilding boom should see greater pricing power. In this issue of Basic Elements,
we initiate coverage on three major plate producers, Shougang Concord Intl,
Dongkuk Steel and Chongqing Steel, all with Buy recommendations.
For the larger steelmakers, we believe profitability should improve this year, as the
large price rises should comfortably cover the increased costs. However, we highlight
potential headwinds to watch for that could lead to growing risks for next year. We
expect more modest upside to our target prices, and are taking a more Neutral
stance toward the sector.
We believe cost inflation will become more prevalent in the coming months, with
many Asian governments acting to raise fuel and/or power pricing. While the Chinese
government has so far resisted such unpopular measures, in light of still-high
inflation in the country, we believe this is unsustainable, and we would not be
surprised to see fuel and power prices being increased in China next year, if not
sooner.
The Chinese coal producers have seen their share prices being hit on concerns of
pricing controls as the government battles with mounting losses at power producers.
We believe that policy risks will ease once power tariffs are allowed to rise, and the
longer-term themes of modest price increases and strong production growth at the
major producers will once again drive the performance of these stocks.