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abcGlobal Research

Steel consumption growth is not picking up in India just yet

According to a recent release from the official steel data compilation agency, Joint Plant

Committee (JPC), Indias steel consumption growth during Apr-Aug 2011 is pegged at

just c1.3% (see exhibit on left below). This is in stark contrast to the c9% CAGR

witnessed during FY2000-10, and we attribute this slowdown to the overall slowdown in

activity with Indias Industrial Production Index (IP) growth slowing to just 3.3% in July

2011 following a lack of investments (both government sponsored and private).

JPC recently cut its growth estimates to c6%; still an uphill task

The JPC recently cut its steel consumption growth estimate by half to just 6% for FY12.

We note in the exhibit on the below right that this reduced estimate still implies that steel

consumption will grow over 9% in Sep-Mar 2012 an uphill task given the low single-

digit growth numbers in the first half. Nonetheless, we expect some pick-up in demand

after the end of the monsoon season now that cement consumption growth appears to

have picked up (up c8% in Jul/Aug-11 vs 3% CYTD), steel generally follows with a lag.

Environment difficult, but opportunity arises to raise steel prices

Despite the challenging macroeconomic environment, both globally and domestically, we

note that the Indian rupee (INR) has depreciated c8% in the past two months, and US steel

prices have firmed up cUSD50/t over the same timeframe. This provides room for Indian

steel makers to increase steel prices in India, which we believe they would exercise.

16 September 2011

Thorsten Zimmermann*, CFA

Analyst

HSBC Bank plc

+44 20 7991 6835

[email protected]

Jonathan Brandt, CFA

Analyst

HSBC Securities (USA) Inc

+1 212 525 4499

[email protected]

Jigar Mistry*, CFA

Analyst

HSBC Securities and Capital Markets

(India) Private Limited

+91 22 22681079

[email protected]

Vladimir Zhukov*

Analyst

OOO HSBC Bank (RR) Ltd

+7 495 783 8316

[email protected]

Andrew Keen*

Analyst

HSBC Bank plc

+44 20 7991 6764

[email protected]

Lourina Pretorius*

Analyst

HSBC Bank plc

+44 20 7992 3686

[email protected]

Sumit Shekhar*

Associate

Bangalore

View HSBC Global Research at:http://www.research.hsbc.com

*Employed by a non-US affiliate ofHSBC Securities (USA) Inc, and is notregistered/qualified pursuant to FINRAregulations

Issuer of report: HSBC Bank plc

Disclaimer &Disclosures

This report must be readwith the disclosures andthe analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it

Natural Resources & Energy

Metals & Mining

Equity Global

Flashnote

HSBC Steel Weekly

Price rise expectations amidst subdued consumption

Indian steel consumption during Apr-Aug FY12 grew just

1.3% y-o-y; cement consumption is picking up now and we

think steel should follow

JPC cuts estimate to 6% growth for FY12 now still implies

over 9% growth for the rest of the year

Depreciating INR and firm steel prices offer an opportunity

to raise steel prices in India, though

Real consumption growth sluggish Uphill task to end FY12 with c6% demand growth

Alloy + non alloy Apr-Aug11 Apr -Aug 10 % growth

Production for sa le 29 .1 26.5 9.9%

Import 2 .3 4.1 -44.9%

Export 1 .8 1.2 56.7%

Net imports 0 .4 3.0 -84.9%

Real Consumption 28 .1 27.7 1.3%

FY11 steel consumption (mt) 69.4

JPC estimates of FY12 increase (%) 6.0

FY12 arrived steel consumption (mt) 73.6

Apr'11-Aug'11 consumption (m t) 28.1

Se pt' 11-Ma r' 12 im pl ie d con su mp ti on (m t) 4 5.5

Se pt'1 0-Ma r'11 actua l co nsu mp ti on (mt ) 4 1.7

Implied RoY consumption growth (%) 9.1

Source: Joint Plant Committee, HSBC estimates Source: HSBC estimates
http://www.research.hsbc.com/http://www.research.hsbc.com/


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ResultsNucor (NUE.US, NR) announced Q3 FY11 earnings guidance below consensus Q3 EPS guidance is

between USD0.45 and USD0.55 per share compared with Bloomberg consensus of USD0.64/share and

2Q EPS of USD0.94/share. In its 2Q conference call, Nucur noted it expected a more difficult operating

environment in 3Q, which has been confirmed. Specifically, Nucor blamed lower steel prices and metal

margins (especially for sheet mill products) owing to new domestic supply, increased imports and

continued high raw material costs. It has seen recent steel price increases and expects continued stability

in order rates as raw material prices have remained stable and customers have minimal inventories. They

also note that industry (autos, heavy equipment and general manufacturing) continues to experience real

demand improvements.

Macro news

Chinas inflation has peaked Headline CPI eased to 6.2% y-o-y in August after hitting a cyclical high

of 6.5% in July, in line with consensus and our forecast. We expect inflation to continue to slow in the

coming months thanks to slowing credit and GDP growth, a favourable base effect and softening global

commodity prices. However, as headline inflation will only decline very gradually in the next couple of

months, we do not expect the PBoC to loosen monetary policy anytime soon. We predict that it will keep

policy rates stable in the coming months.

China: August growth data suggest a soft landing Industrial production (IP) growth cooled to a

three-month low at 13.5% y-o-y in August (versus 14% in July), slightly lower than Bloomberg

consensus of 13.7%. This translated into a modest pick-up of seasonally adjusted m-o-m growth of 1.0%

in August (vs 0.9% in July), and just a touch lower than an average of 1.1% m-o-m sa in 2Q. August data

reveal that growth slowed at a controlled pace and inflation decelerated gradually. This confirms that

China is on track for a soft landing. While global growth risks could potentially adversely affect China's

exports in the coming quarters, resilient domestic demand should support around 8.5-9.0% growth. We

see no need for Beijing to launch a stimulus package.

India: IP cooling but inflation continues to rise July Industrial production grew slower than expected

(3.3% y-o-y in July versus 8.8% in June), mostly because of the volatile capital goods segment and on the

back of last year's high base. On the other hand, and encouragingly, the consumer goods segment saw anuptick in growth. Abstracting from the volatility, growth is moderating and not collapsing. India's August

WPI headline inflation rose to 9.8% y-o-y (vs 9.2% in July), above consensus, and core inflation

continued to trek up. Despite global economic weakness, Reserve Bank of India's (RBI) primary concern

remained inflation and further tightening is needed in HSBC economists view, with a 25bp rate hike

expected this Friday.

US retail sales stagnate while inflation pressure eased A 1.0% decline in average energy prices helped

stabilise the overall producer price index (PPI) in August, with the headline PPI unchanged on the month.

The y-o-y increase dropped to 6.5% from 7.2% in July. The core PPI rose only 0.1%. Easing inflation had

little impact on consumption growth as August retail sales were somewhat weaker than anticipated, with

total sales unchanged versus consensus of 0.2pp growth from July. Ex-auto sales and ex-autos/gasoline sales

each rose 0.1% (consensus +0.2% and +0.3%, respectively). July sales were also revised modestly lower.

Overall, the report shows that consumer spending continues to stagnate well into Q3, after almost no growth


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16 September 2011

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EMEAEuropean steel sentiment remained neutral North European steel prices remained unchanged in the

range of EUR530-540 but corrected by USD10/t (USD725-735) w-o-w owing to the weakening EUR

against the USD. The premium versus Chinese export prices came down substantially to cUSD35/t, well

below the level that could trigger steel imports. Steel price and demand sentiment deteriorated but

remained neutral and in the range for over six months now. North Europe prices are now at a USD10/t

discount versus EU import prices, last seen in February 2011.

European steelmakers continued to adjust supply ArcelorMittal (MT.N, OW(V)) to shut its blast

furnace at Florange, which has capacity of 2.7mt crude steel and produces HRC, CRC and tinplate. This

came after it announced another production cut at its Eisenhttenstadt steel works, Germany. Being theworlds largest steelmaker, it continues to absorb capacity cuts.

German steel data for August remained strong Capacity utilisations in August and July were at 84%

and 85%, respectively, and hence were still up from the 80% in both months seen in 2010. The detailed

figures for July show a comparatively strong demand for flat steel (automotive, machinery) where

capacity utilisation remained at 88%, up from last years 85%, whereas long steel (construction) showed

the usual seasonality with a marked decline to 64% utilisation. At first glance this would favour flat steel

makers ThyssenKrupp and Voestalpine over ArcelorMittal and Salzgitter that have c30% long steel.

However, we think the latter two are pricing in a recession already.

AmericasNorth American steel sentiment and prices improved further US domestic steel prices improved by

USD7/t w-o-w to USD757-767/t, while price and demand expectations improved on the back of price

hike announcements by steelmakers over the past month. We continue to see more up than downside near

term considering that US steel prices are at a USD64/t premium to Chinese and USD30/t premium to

North European prices. The premium rose over the past week but imports could still be uneconomical,

hence, could not be called a threat, but domestic factors like overcapacity and weak economic indicators

will not help the sustainability of the up move in prices in the near term.

US weekly crude steel production inches up further According to data from American Iron and Steel

Institute(AISI), crude steel production for the week ending 10 September increased by 0.8pp w-o-w to1.87m st. Capacity utilisation increased by 0.5pp w-o-w to 76.4%. Steel production rates had been high

considering the macroeconomic newsflow. Though sentiment and prices indicate stability in the market,

we believe prices will be trending up unless we see any meaningful de-stocking.

US proposes USD447bn jobs plan US President Obama proposed a USD447bn jobs plan last

Thursday, which comprises tax cuts, tax credits and infrastructure investments. Of the USD447bn, around

USD50bn will be earmarked directly for infrastructure investment (USD27bn for highways/bridges and

USD15bn for rail systems). This proposal must be approved by Congress.

Brazil M&A speculation heats up According to multiple media reports (Bloomberg, O Estado),

speculation surrounding the 26% stake of Usiminas (GGBR4 BZ, N) owned by Camargo Correa andVotorantim has started to heat up. As has been widely reported, the two shareholders want to exit their

positions and Nippon Steel (also part of the control group of Usiminas (USIM5 BZ, N) could be


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16 September 2011

abc

interested in exercising its right of first refusal and subsequently sell the stake to Gerdau in return for

several assets, most notably its Acominas steel plant, according to these media reports. We note that

Gerdau has denied that it is in negotiations to acquire this stake.

ILAFA cut apparent steel consumption growth estimate for the LatAm region According to the

Latin American Iron and Steel Institute (ILAFA), estimated apparent steel consumption growth for the

LatAm region is 4.7% in 2011, versus its previous estimate of 7.1%, with growth of 9.2% in 2012. The

revision is attributed to slowing growth in various countries in the region. Recently, IABr cut its estimate

for apparent consumption growth in Brazil, the largest steelmaker in the region, in 2011. Also, Canacero,

the Mexican steel chamber, has expressed its concern about the slowdown in demand, which could lead to

a drop in production in 2012. However, Canacero has maintained its estimate of 3.6% growth in crudesteel production in 2011 by Mexico, the second-biggest market in the region.

Raw materials

Iron ore prices remain firm on strong Chinese buying According to preliminary customs data, China

imported over 59mt of iron ore in August (+8.3%, m-o-m), the highest level since March on the back of

the demand bounce back seen since July. Iron ore prices gained USD6/t over the month of August. Some

weakening of spot prices was seen on account of Chinese resistance at higher prices. Flooding in the

Indian state of Odhisa will keep supply of 63.5%Fe fines tight and restrict any major slide in prices in the

near term.

Next weeks events

No result event

Recent research

European Steel- Better placed than in 2008, 14 September 2011

Metals & Mining Notes from the Road- Feedback from our Brazil marketing trip, 6 September 2011

Tata Steel Ltd (TATA IN)- OW: Overcoming the chaos, 1 September 2011

India Metals & Mining- Iron ore: Black and blue, 29 August 2011

JSW Steel (JSTL IN)- N (V): Situation improving; could bring upside if other regions in Karnataka are

allowed to operate as normal, 17 August 2011

VALE- OW (V): Too cheap to ignore, 25 August 2011

Tata Steel (TATA)- OW: 1Q FY12 results Good quarter, tough ahead, 15 August 2011

EZZ Steel Rebars- OW (V): Inexpensive, but legal risks remain, 11 August 2011

ArcelorMittal- OW (V): Pricing in a double dip?, 8 August 2011

Gerdau (GGBR4)- N: 2Q results in line with forecasts, 5 August 2011
http://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=JIV02Ddm3M&n=308038.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=JIV02Ddm3M&n=308038.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=t5aYVya8Jq&n=307632.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=t5aYVya8Jq&n=307632.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=QPdgtLKLKf&n=307397.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=QPdgtLKLKf&n=307397.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=VCSEDeuSaH&n=307081.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=VCSEDeuSaH&n=307081.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=Q2ltpFIR0F&n=306307.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=Q2ltpFIR0F&n=306307.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=QHRByUnCRw&n=306716.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=QHRByUnCRw&n=306716.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=BWQG9Czqhi&n=305978.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=BWQG9Czqhi&n=305978.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=t5Qup0JzYZ&n=305663.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=t5Qup0JzYZ&n=305663.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=GNpEbQCtm0&n=305301.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=GNpEbQCtm0&n=305301.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=j3emyGuMd7&n=305219.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=j3emyGuMd7&n=305219.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=j3emyGuMd7&n=305219.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=GNpEbQCtm0&n=305301.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=t5Qup0JzYZ&n=305663.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=BWQG9Czqhi&n=305978.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=QHRByUnCRw&n=306716.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=Q2ltpFIR0F&n=306307.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=VCSEDeuSaH&n=307081.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=QPdgtLKLKf&n=307397.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=t5aYVya8Jq&n=307632.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=JIV02Ddm3M&n=308038.PDF


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CSN (CSNA3 BZ) OW: 2Q11 results in line with expectations, 3 August 2011

Usiminas (USIM5 BZ) N: 2Q 2011 results; margins seem to have stabilized, 3 August 2011

ThyssenKrupp OW: Good FYQ3 but what about FY-12?, 3 August 2011

Jsw Steel Ltd (JSTL)- N(V): Conference call takeaways; cutting estimates , 3 August 2011

Voestalpine (VOE AV)- OW: Consensus earnings are still too low, 29 July 2011

Erdemi (EREGLI.IS)- OW Strong profitability should continue in Q2 financials, 28 July 2011

Kardemir (KRDMD TI)- OW Q2 11 preview expect strong results, 27 July 2011

JSW Steel Ltd (JSTL)- N(V) 1Q12 results better, but priced in, 26 July 2011

Metals Quarterly- Metals unmoved by macro clouds, 21 July 2011

Latam Metals & Mining- 2Q 2011 results preview, 21 July 2011

ThyssenKrupp (TKA GR)- OW: Buying flexibility, which has value, 13 July 2011

US Housing Market Update- Timetable for recovery still in years, 12 July 2011

Global Economics Quarterly An uphill struggle, 29 June 2011

Global Economics De-stocking in a summer lull, 27 June 2011

ThyssenKrupp (TKA GR)OW: Curb your divestment enthusiasm, focus on value, 23 June 2011
http://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=89mRDZGC8d&n=304940.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=89mRDZGC8d&n=304940.PDFhttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=D6Az9YeURz&n=304936.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=D6Az9YeURz&n=304936.PDFhttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=5Kml0A0nEd&n=304913.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=5Kml0A0nEd&n=304913.PDFhttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=TVW0Nfx7yZ&n=304890.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=TVW0Nfx7yZ&n=304890.PDFhttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=fvzBNM9jxN&n=304365.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=fvzBNM9jxN&n=304365.PDFhttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=vGtw81KpxP&n=304340.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=vGtw81KpxP&n=304340.PDFhttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=43JtVLak6n&n=304204.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=43JtVLak6n&n=304204.PDFhttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=qmHXF8GaTq&n=304223.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=qmHXF8GaTq&n=304223.PDFhttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=6qc6IAzmkH&n=303664.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=6qc6IAzmkH&n=303664.PDFhttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=KVH4Hbx4vt&n=303677.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=KVH4Hbx4vt&n=303677.PDFhttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=JcWtNqliRP&n=303021.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=JcWtNqliRP&n=303021.PDFhttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=hAVILwvqbn&n=303009.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=hAVILwvqbn&n=303009.PDFhttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=lycXgnTwgD&n=301937.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=lycXgnTwgD&n=301937.PDFhttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=Vz9f2jCKbp&n=301753.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=Vz9f2jCKbp&n=301753.PDFhttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=FQtBCI3X42&n=301435.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=FQtBCI3X42&n=301435.PDFhttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=FQtBCI3X42&n=301435.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=Vz9f2jCKbp&n=301753.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=lycXgnTwgD&n=301937.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=hAVILwvqbn&n=303009.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=JcWtNqliRP&n=303021.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=KVH4Hbx4vt&n=303677.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=6qc6IAzmkH&n=303664.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=qmHXF8GaTq&n=304223.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=43JtVLak6n&n=304204.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=vGtw81KpxP&n=304340.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=fvzBNM9jxN&n=304365.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=TVW0Nfx7yZ&n=304890.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=5Kml0A0nEd&n=304913.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=D6Az9YeURz&n=304936.PDFhttp://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=89mRDZGC8d&n=304940.PDFhttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochttp://../Local%20Settings/Temp/notes7419D1/archive/archive/archive/11.08.05_SA.dochtt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Global Steel Valuation

Company BBG Closing Target HSBC Marketcap

PE (x) PBV (x) EV/EBITDA(x)

Div Yield(%)

ROE(%)

Code Ccy Price Price Rating USD m 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012

North AmericaNucor NUE US USD 34.1 NR NR 10,778 13.0 9.7 1.4 1.3 6.1 4.7 4.3% 4.4% 11% 15%US Steel X US USD 28.0 NR NR 4,038 18.8 6.7 1.0 0.8 5.4 3.6 0.7% 0.8% 8% 17%AK Steel AKS US USD 8.6 NR NR 947 17.5 6.8 1.4 1.2 5.1 3.4 2.3% 2.3% 9% 22%Average 14.8 8.7 1.3 1.2 5.9 4.3 3.2% 3.3% 10% 16%Latin AmericaCSN* CSNA3 BZ BRL 15.7 24.5 OW 13,176 6.5 7.2 2.1 1.8 3.5 4.1 4.6% 4.2% 38% 27%Gerdau* GGBR4 BZ BRL 14.4 18.0 N 13,445 11.2 10.1 1.0 0.9 6.0 4.9 2.7% 3.0% 10% 10%Usiminas* USIM5 BZ BRL 12.1 17.5 N 10,790 17.5 8.5 0.7 0.6 12.3 7.9 2.1% 4.3% 4% 8%

Ternium ADRs TX US USD 23.9 NR NR 4,799 7.0 7.0 0.8 0.7 2.5 2.2 3.2% 3.0% 11% 11%Average 10.9 8.5 1.2 1.1 6.4 5.1 3.2% 3.7% 17% 15%EuropeArcelor Mittal* MT US USD 18.0 30.3 OW(V) 28,112 9.1 9.1 0.4 0.4 4.5 4.4 4.2% 4.2% 5% 5%Thyssen Krupp* TKA GR EUR 21.0 31.6 OW 14,755 9.4 6.6 1.0 0.9 5.2 4.2 2.6% 3.7% 11% 14%Voestalpine AG* VOE AV EUR 22.9 33.0 OW 5,289 5.7 5.1 0.8 0.7 3.8 3.5 4.8% 5.7% 14% 14%Salzgitter * SZG GR EUR 38.2 52.0 OW 3,137 13.5 9.2 0.5 0.5 4.1 3.4 2.6% 2.9% 4% 6%SSAB SSABA SS SEK 53.2 NR NR 2,476 8.9 6.0 0.6 0.5 6.5 5.0 4.9% 6.7% 6% 8%Rautaruukki RTRKS FH EUR 8.4 NR NR 1,617 10.0 6.3 0.8 0.8 5.3 4.2 7.4% 8.2% 8% 12%Average 9.1 7.8 0.6 0.6 4.7 4.2 3.9% 4.3% 7% 8%EEMEANLMK NLMK LI USD 27.2 NR NR 16,334 8.2 6.2 1.4 1.2 5.7 4.5 3.0% 4.0% 19% 21%Evraz EVR LI USD 21.0 NR NR 9,213 6.8 5.2 1.3 1.1 4.6 3.8 2.6% 4.8% 19% 21%Severstal SVST LI USD 14.0 NR NR 14,142 6.4 5.8 1.6 1.3 4.2 3.7 3.9% 4.7% 28% 26%MMK MMK LI USD 6.9 NR NR 5,959 8.5 5.9 0.6 0.6 4.7 3.4 2.2% 3.5% 6% 10%Erdemir * EREGL TI TRY 3.2 5.3 OW 3,895 7.3 6.1 1.0 0.9 5.5 4.9 8.2% 8.9% 14% 16%

EZZ Steel * ESRS EY EGP 8.2 11.5 OW(V) 750 10.9 2.5 0.9 0.7 6.0 2.6 6.1% 9.1% 8% 32%Kardemir * KRDMD TI TRY 0.8 1.3 OW 458 8.9 6.4 0.8 0.7 5.3 3.8 0.0% 0.0% 10% 12%Average 7.5 5.8 1.3 1.1 5.0 4.0 3.5% 4.7% 19% 21%KoreaPosco * 005490 KS KRW 404,000 600,000 OW(V) 27,565 6.4 6.2 0.8 0.7 4.5 4.0 3.1% 3.2% 13% 12%Hyundai Steel 004020 KS KRW 105,500 NR NR 8,125 7.3 6.5 1.0 0.9 7.3 6.6 0.5% 0.5% 15% 14%Dongkuk Steel 001230 KS KRW 27,250 NR NR 1,521 5.2 5.6 0.5 0.5 4.7 4.3 2.8% 2.8% 11% 9%Average 6.6 6.3 0.8 0.7 5.1 4.6 2.5% 2.6% 13% 12%JapanNippon Steel 5401 JP JPY 223 NR NR 19,786 12.5 10.0 0.7 0.7 6.0 5.3 1.6% 2.2% 6% 8%JFE Holdings 5411 JP JPY 1,731 NR NR 13,863 12.8 9.4 0.6 0.6 6.1 5.5 2.0% 2.6% 5% 8%Sumitomo Metal 5405 JP JPY 160 NR NR 10,023 nm 11.3 0.9 0.9 9.0 7.4 2.4% 3.0% 5% 9%Kobe Steel 5406 JP JPY 135 NR NR 5,481 12.2 10.9 0.7 0.7 5.0 4.5 2.1% 2.5% 6% 7%Average 12.5 10.2 0.7 0.7 6.5 5.7 1.9% 2.5% 6% 8%ChinaBaosteel * 600019 CH CNY 5.2 8.5 OW(V) 14,161 5.8 5.4 0.8 0.7 3.2 2.7 7.7% 8.4% 14% 14%Angang H * 347 HK HKD 5.3 12.5 N(V) 6,030 7.1 7.0 0.5 0.5 5.7 5.4 7.0% 7.2% 8% 8%Wuhan 600005 CH CNY 3.5 NR NR 5,476 12.0 9.6 1.0 0.9 5.2 4.6 3.2% 4.3% 8% 10%Maanshan H * 323 HK HKD 2.2 4.7 N(V) 3,238 6.3 5.8 0.5 0.4 3.8 3.4 5.6% 6.2% 8% 8%Average 7.3 6.6 0.7 0.7 4.2 3.7 6.5% 7.1% 11% 11%TaiwanChina Steel* 2002 TT TWD 29.6 35.2 OW(V) 15,056 10.1 9.5 1.5 1.4 10.0 9.6 8.5% 9.0% 15% 15%IndiaJSPL* JSP IN INR 542 710 OW 10,639 12.3 12.9 2.8 2.3 8.7 8.5 0.3% 0.3% 26% 20%Tata Steel* TATA IN INR 470 710 OW 9,455 7.4 6.0 1.1 0.9 5.3 4.7 1.6% 1.6% 18% 17%JSW Steel* JSTL IN INR 684 720 N(V) 3,203 9.5 6.5 0.8 0.7 6.9 6.0 1.5% 1.5% 9% 12%Average (ex JSP) 7.9 6.2 1.0 0.8 5.7 5.0 1.5% 1.5% 16% 16%AustraliaOneSteel OST AU AUD 1.3 NR NR 1,746 6.1 4.6 0.4 0.4 4.8 3.9 8.6% 11.3% 6% 8%Bluescope Steel BSL AU AUD 0.7 NR NR 1,240 nm 35.5 0.3 0.3 7.7 4.5 3.0% 5.3% -10% 3%Average 6.1 17.4 0.3 0.3 6.0 4.1 6.3% 8.8% 0% 6%

Global average 9.4 8.0 1.0 0.9 5.7 5.0 3.5% 4.0% 13% 13%

Source: Thomson Reuters Datastream, HSBC estimates


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Global steel price developmentRegional HRC prices (USD/t) HRC Delta- China vs N. Europe (USD/t)

500

600

700

800

900

1,000

Se

p-10

No

v-10

Jan-11

Ma

r-11

Ma

y-11

Jul-11

Se

p-11

USD/t

HRC China export HRC Europe

HRC US HRC CIS export

-250

-200

-150

-100

-50

0

50

100

150

Feb

-08

Aug-08

Feb

-09

Aug-09

Feb

-10

Aug-10

Feb

-11

Aug-11

HRC - China e xport vs Europe (USD/t)

Source: Steel Benchmarker, SBB, Metal Bulletin Source: SBB, Metal Bulletin, Steel Benchmarker

HRC Delta- China vs USA (USD/t) HRC Delta- Brazil versus US (USD/t)

-400

-300

-200

-100

0

100

Feb-08

Aug-08

Feb-09

Aug-09

Feb-10

Aug-10

Feb-11

Aug-11

HRC - China vs US price (USD/t)

-500-400-300-200-1000

100200300400

Feb-08

Aug-08

Feb-09

Aug-09

Feb-10

Aug-10

Feb-11

Aug-11

HRC - Brazil vs China (USD/t)

Source: SBB, Metal Bulletin, Steel Benchmarker Source: SBB, Metal Bulletin

HRC Delta- China exprot versus India (USD/t) HRC Delta- Black Sea export vs China export (USD/t)

-200

-150

-100

-50

0

50

100

150

Jul-08

Nov-08

Mar-09

Jul-09

Nov-09

Mar-10

Jul-10

Nov-10

Mar-11

Jul-11

HRC - China export vs India (USD/t)

-300

-200

-100

0

100

200

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

HRC - Black Sea vs China (USD/t)

Source: SBB, Metal Bulletin Source: SBB, Metal Bulletin


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Steel productionGlobal monthly steel production (mt) Regional monthly capacity utilisation

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Jun-91

Jun-93

Jun-95

Jun-97

Jun-99

Jun-01

Jun-03

Jun-05

Jun-07

Jun-09

Jun-11

-30%

-20%

-10%

0%

10%

20%

30%

40%

World crude steel prod 3mma growth yoy

40%

50%

60%

70%

80%

90%

100%

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Europe N. America China CIS

Source: Worldsteel Source: Worldsteel, HSBC estimates

China as % of global steel production China net steel export (mt) vs price delta to Europe (USD/t)

20%

30%

40%

50%

60%

Jun-06

Dec-06

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11

China as % o f global steel production

-2

-1

0

1

2

34

5

6

7

8

Dec-05

Jun-06

Dec-06

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11

netimport/exp

ort(mt)

-450

-400

-350

-300

-250

-200

-150

-100

-50

0

50

100

pricegap(U

SD/t)

C hina impor t EU /Chin a pr ice diffe ren ce (USD/t)

Source: Worldsteel, HSBC Source: CEIC, CRU

Germany and US steel inventory index China steel inventory (mt)

40

60

80

100

120

140

Jul-02

Jul-03

Jul-04

Jul-05

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

IndexedJan2001=100

Germany N. America

02,0004,0006,000

8,00010,00012,00014,00016,00018,000

20,000

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Rebar Wire rod HRC CRC Medium Plate

Source: CRU Source: MySteel


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Steel production cost indicatorSpot iron ore CIF China (USD/t) Spot coking coal CIF China (USD/t)

40

60

80

100

120

140

160

180

200

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

62% Iron ore (USD/t) CIF China

150

200

250

300

350

400

Oc

t-08

Jan-09

Ap

r-09

Jul-09

Oc

t-09

Jan-10

Ap

r-10

Jul-10

Oc

t-10

Jan-11

Ap

r-11

Jul-11

Coking coal CIF China (USD/t)

Source: Steel Business Briefing, Metal Bulletin Source: Steel Home

Shredded scrap (USD/t) FX movements

0

100

200

300

400

500

600

700

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Shredded scrap (USD/t)

-4%

-2%

0%

2%

4%

6%

8%

10%

Euro

BRAReal

Renminbi

Rupee

Won

Yen

12m change of major steel currencies versus USD

Source: Steel Benchmarker Source: Thomson Financial Datastream

Global steel prices

9/14/2011 9/7/2011 8/24/2011 w-o-w (%change) m-o-m (%change)

HRC China (USD/t) 698 698 690 0.0 1.0HRC CIS (USD/t) 718 705 705 1.8 0.0HRC Europe (USD/t) 731 747 780 -2.0 -4.9HRC US (USD/t) 735 731 731 0.5 0.0Stainless base price (EUR/t) 1,125 1,130 1,155 -0.4 -2.6Stainless surcharge (EUR/t) 1,573 1,573 1,623 0.0 -3.1

Source: Metal Bulletin, Thomson Reuters Datastream

Raw material prices

9/14/2011 9/7/2011 8/24/2011 w-o-w (%change) m-o-m (%change)

Iron ore spot (CIF) (USD/t) 189 188.5 185.5 0.0 2.4Shredded scrap (USD/t) 432 432 432 0.0 0.7

Nickel (USD/t) 21,364 21,746 20,788 -1.8 0.1Ferrochrome (USD/lb) 1.19 1.19 1.19 0.0 0.0

Source: Metal Bulletin, Thomson Reuters Datastream


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Weekly stock price returnEurope steel equities Americas steel equities

-14%

-12%-10%

-8%

-6%-4%-2%

0%2%

AcelorMittal

Klo

eckner

Rautaruukki

Salzgitter

SSAB

ThyssenKrupp

Voestalpine

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

AKSteel

Nucor

USSt

eel

C

SN

Gerd

au

GerdauM

et

Ternium

Usimin

as

Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream

CEEMEA steel equities China steel equities

-12%

-10%

-8%

-6%

-4%

-2%

0%

Evraz

MMK

Mechel

Novolipetsk

Severstal

Erdemir

EZZSteel

-5%

0%

5%

Angang

Baosteel

Hebei

Hunan

Valin

Maanshan

Taigang

Wuhan


India / S. Korea steel equities MSCI Steel Indices (in USD)

-10%

-5%

0%

Jsw

Jindal

SAIL

Tata

Posco

HyundaiSteel

-10%

-8%

-6%

-4%

-2%

0%

2%

China

India

Japan

N.America

SAmerica

W.Europe

EM.Europe

World



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Disclosure appendix

Analyst Certification

The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the

opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their

personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific

recommendation(s) or views contained in this research report: Thorsten Zimmermann, Andrew Keen, Jonathan Brandt, Jigar

Mistry, Lourina Pretorius, Juergen Siebrecht and Vladimir Zhukov

Important disclosures

Stock ratings and basis for financial analysis

HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which

depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations.

Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities

based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon;

and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative,

technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating.

HSBC has assigned ratings for its long-term investment opportunities as described below.

This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when

HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website atwww.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this

website.

HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's

existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating

systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research

report. In addition, because research reports contain more complete information concerning the analysts' views, investors

should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not

be used or relied on in isolation as investment advice.

Rating definitions for long-term investment opportunities

Stock ratings

HSBC assigns ratings to its stocks in this sector on the following basis:

For each stock we set a required rate of return calculated from the cost of equity for that stocks domestic or, as appropriate,

regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock

to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the

implied return must exceed the required return by at least 5 percentage points over the next 12 months (or 10 percentage points

for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its

required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as

Volatile*). Stocks between these bands are classified as Neutral.

Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility

status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review,

expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarilytriggering a rating change.


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*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However,

stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past

month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating,

however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.

Rating distribution for long-term investment opportunities

As of 15 September 2011, the distribution of all ratings published is as follows:

Overweight (Buy) 54% (26% of these provided with Investment Banking Services)

Neutral (Hold) 35% (21% of these provided with Investment Banking Services)

Underweight (Sell) 11% (21% of these provided with Investment Banking Services)

Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment

banking revenues.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that

company available at www.hsbcnet.com/research.

* HSBC Legal Entities are listed in the Disclaimer below.

Additional disclosures

1 This report is dated as at 16 September 2011.2 All market data included in this report are dated as at close 16 September 2011, unless otherwise indicated in the report.3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its

Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Researchoperate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrierprocedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or

price sensitive information is handled in an appropriate manner.


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