of the matter: domestic banking system failures. ... g-20 leaders agree to support imf and hope to...

s eelOn report

the quarterly report onsteel and economic issues

Q3:2011

www.isit.or.th

- 1 -Quarterly Report Q

The information contained herein has been prepared to provide facts accurate as possible and does not

purport to be all inclusive. The reader may not rely on this document in making reference. While the

information contained herein is believed to be accurate, ISIT has not independently verified any of the

information contained herein and no representation or warranty is made by ISIT as to the accuracy,

reliability or completeness of this report. ISIT expressly disclaims any and all responsibility or liability for

any written or oral representations provided to the reader. Copyright@2011 Iron and Steel Institute of

Thailand. All rights reserved.

The Third Quarterly Report 2011

Contents

Pages

Global Fundamental Update World Economic Update 2 World Steel Supply 8 World Steel Inventory 15 Demand and Pricing Outlook 18

Thailand Market Fundamental Thailand Steel Supply and Demand 23 Steel Market Leading Index 30

Thailand Flood Crisis 31

Steel in Figure 37


Greece debt to become “Domino Effect”

The sovereign debt crisis in Greece is spreading over Europe. In a

meanwhile, Italy became the latest victim suffering from the “Domino Effect”

directly and indirectly. Eventually, a number of European countries have

confronted more difficult economic situation. The situation can be valuated as

followings:

Greece

Crux of the Matter: Greece's huge debts registered 340bn euros (478

billion USD).

- High risk of Greece default: this would cause huge losses for France

and German bank.

- Fears of Greece running out of Euro currency that would affect

investors.

- International credit markets feel insecure about Greece’s bond

holding.

- Long Term Bond Ratings: CC by S&P and Ca by Moody’s.

Italy

Crux of the Matter: Italy has the highest total debt in the eurozone, amid

stagnant growth.

- Italy will take austerity measures in order to balance its budget by

2013.

- However, most of its debt was owed by Italians which has nothing so

much to do with investors.

- Italian borrowing costs surge above 7% for the first time in history.

- Long Term Bond Ratings: A by S&P and Aa2 by Moody’s.

Spain

Crux of the Matter: Housing Bubble burst created a lot of debt and the

highest rate of unemployment in Eurozone.

- The government needs to address the austerity measures in order to

curb the public debt.

- According to the latest information, unemployment rate stays at 21.5%,

or calculated to 5 million people.

- Long Term Bond Ratings: AA by S&P and Aa2 by Moody’s.

GLOBAL FUNDAMENTAL UPDATE

WORLD ECONOMIC UPDATE


France

Crux of the Matter: Bank in Spain bears the risk of Greece’s debt

default.

- Its banks have seen sharp falls on the stock market.

- France has announced plans to cut spending by 45 billion euros by

the next three years.

- Long Term Bond Ratings: AAA by S&P and Aaa by Moody’s.

Germany

Crux of the Matter: Most of trading partner, especially in Eurozone, is

collapsing.

- The German government plans to cut the budget deficit of 80,000

million euros by 2014.

- Domestic bank have high risk from Greece debt default.

- Germany, the Europe's largest economy, seems to be responsible for

other European countries dealing with economic crisis.


United Kingdom

Crux of the Matter: UK banks have a risk from Irish debt.

- The country's budget deficit was 10.3% last year which is greater than

Greece’s and Germany’s.

- S&P adjusted the public debt outlook of UK from Stable to Negative in

2009


Irish

Crux of the Matter: Domestic banking system failures.

- The country's biggest banks were taken under government control and

the cost of management has been about 70 billion euros.

- The Irish received a bailout worth 85 billion euros from the eurozone

and IMF.

- Long Term Bond Ratings: BBB+ by S&P and Ba1 by Moody’s.


Portugal

Crux of the Matter: Economy is shrinking with the budget control.

- Portugal got the bailout worth 75 billion euros from the eurozone and

IMF.

- Government announced a high record of austerity by 4.4% of GDP in

2012.

- Long Term Bond Ratings: BBB- by S&P and Ba2 by Moody’s.

G-20 leaders agree to support IMF and hope to protect the European economy

G20 (industrialist and developing countries) summit was held in

Cannes, France. They have agreed to boost resources of the International

Monetary Fund (IMF).However there are no plan detail about fixing the eurozone

crisis. Mr. David Cameron, UK Prime Minister, said that the agreement is

important and essential for the confidence and economic stability. In addition,

the summit released a final communiqué as followings:

- Commits to move "more rapidly" towards greater exchange rate

flexibility, without specifically mentioning China.

- Agrees to support the IMF and give it more money if necessary.

- Italy agreed with the IMF to monitor its economic reforms quarterly.

- Calls on countries with strong public finances to take steps to boost

domestic demand.

- Welcomes the eurozone's plans to restore confidence and financial

stability

- Sets up an operation plan for employment in many countries

Moreover the G20 leaders hoped the final communiqué would help

increase resources and the IMF to support struggling eurozone economies. Mr

José Manuel Barroso added that he hoped Greece would stay in the euro and

show its responsibility to the member countries which have been affected.


Geithner asks Asia pacific restore global economy

After Asia-Pacific Economic Co-operation (APEC) annual meeting of

finance ministers from the 21 countries held in Honolulu, Hawaii on 11 November

2011, US Treasury Secretary Timothy Geithner has urged Asia-Pacific countries

to increase efforts to maintain global economy growth. In the past, many

countries within the Apec grouping, especially China and Indonesia, have

experienced rapid economic growth. “While the US and Europe has seen growth

slow, Asia economies need to boot domestic consumptions”, said the US

Treasury Secretary.

Moreover the source said the summit in Hawaii, which will be hosted by

US President Barack Obama, is seen as an opportunity for supporting its Trans-

Pacific Partnership (TPP), a free-trade pact and now Japan's Prime Minister,

Yoshihiko Noda, is considering joining the pact that its participation would be a

major boost to the economies.

U.S. GDP grew 2.5% in Q3

The economic growth rate of United States was 2.5% in the third

quarter or the highest growth rate in this year, while the previous quarter, the

United States GDP grew by only 1.3%. According to the U.S. Department of

Commerce’s report, the rise in GDP was mainly driven from the increase in

personal consumption expenditures, exports, nonresidential fixed investments,

and federal government spending. Therefore this helps to alleviate the economic

concerns regarding U.S. step into recession. However The GDP in the third

quarter has been support partly by external factors such as lower oil price that

has pressured the economic growth. Furthermore the United States Government

stated that the economy is expected to grow only 1.6-1.7% this year and 2.5-

2.9% next year. That unemployment is anticipated to fall at 8.5-8.7% next year

brought many economists an act of anxiety so much that they emphasized the

government to reduce high unemployment immediately.

Chart 1: Real GDP: U.S

Source: Bureau of Economic Analysis, RBC

Economics


UK reveals economic growth to 0.5% in Q3 2011

Office for National Statistics (ONS) revealed that the UK economy

picked up to 0.5% in the third quarter compared with a 0.1% expansion in gross

domestic product (GDP) in the previous quarter. The growth composed of

production sector rose 0.5% and service sector up 0.7%. The ONS emphasized

that the shrink in the April-to-June period had been affected by several factors,

such as, the extra bank holiday for the royal wedding, and natural disaster

occurring in Japan. Moreover James Knightley at ING Financial Markets said

the economy that grows to 0.5% in Q3 suggests the underlying picture remains

weak. However Chancellor of the Exchequer George Osborne described the

figures as "a positive step" which is beyond many people’s expectation. He said

that “The British economy has got this difficult journey because the situation in

the eurozone was not good but we are determined to finish this journey”. In

addition he added that there was no way to avoid taking the austerity plans

.China shows sign of slow economic despite inflation fall.

According to THE ECONOMIST INTELLIGENCE UNIT data, it is

reported that China economy showed signs of slow growth in housing sale

including the plunging prices for iron ore thank to a slowdown in steel demand in

construction, although the overall inflation level decreased slightly and the

business sentiment indicators remain strong.

The latest China economic data revealed total exports volume of 17.1%

increase in September compared to the same month last year, however it’s lower

than 20.6% average growth rate for the third quarter. The main exports have

been driven by the emerging market in South-east Asia. While The HSBC China

purchasing managers' index (PMI) for October showed positive sign from new

export orders index that is likely strong.

In addition, the National Bureau of Statistics said that Inflation in China

eased mildly in September to 6.1%, down from a 6.2% in August. At any rate,

analysts believed that it will not be lower than 4% of average Inflation target this

year. They expected that China average inflation rate would be 5.4%, up from

3.2% in 2010, before easing to 4.1% in 2012.

Chart 2: China: Real GDP (% change, year on

year)

Source: China National Bureau of Statistics,

Haver Analytics, Economist Intelligence Unit.

Chart 3: China: Consumer Prices (% change,

year on year)

Source: National Bureau of Statistics; Haver.


OECD Cuts Forecasts for U.S., Euro Zone

The Organization for Economic Co-operation and Development (OECD)

has recently revised next year's growth prediction for the U.S. and the euro zone

to the downward side. They revealed that the sluggish economy and high

unemployment are reasons to slash the forecast figure.

Furthermore, the OECD urged European leader to take the clear and

decisive measures for solving the public debt and called on European Central

Bank for an austerity of monetary measure to fight the crisis. Meanwhile G-20

economies are expected to grow 3.8% next year and 4.6% in 2013. The OECD

has encouraged the leaders to adopt all necessary measures to sustain growth,

even though China, the world's second-largest economy, would take 8.6% of the

forecast economic growth next year; while, the Japanese economic growth is

likely to be 2.1% in 2012.

Economic stagnation pushes global unemployment up

The International Labor Organization said in its report that global

economy is creeping in to the recession in labor market which creates the slower

recovery of the economy and is expected that it will take more than two years to

be back on track like in 2008. According to ILO data, it need to create roughly 80

million new jobs with 27 million in advanced economies, and remaining in

emerging and developing countries. Moreover Raymond Torres, the director of

the ILO International Institute, said that "We have a brief window of opportunity to

avoid a major double-dip in employment,"

ILO has warned there are risks of social unrest rising in 45 out of the 118

countries, particularly in the European Union and Arab region. The report

showed the number of unemployed people in the euro zone rose to 16.2 million

in September which is the highest level ever since 1998, and the number of

jobless across the world probably hit a record high of more than 200 million.

Chart 4: 2012 GDP Growth forecasts

Source: Organization for Economic Co-

operation and Development


Table 3: Asian Crude Steel Production (unit:

thousand tonnes)

World crude steel output climbed 10.3% y-o-y but slowdown trend follow world

economic situation

Total global crude steel output for the third quarter 2011 was 375 million

tonnes dropped 2.4% q-o-q but rose 10.3% y-o-y. For the first nine month of this

year, global crude steel output was 1,136 million tonnes, up 8.6% compared to

the same period last year. However, the trend of crude steel production was

likely to fall continue since June 2011 follow the world economic slowdown.

Crude steel production in Asia was 243 million tonnes in Q3 2011 up

13% y-o-y but down 1.6% q-o-q, and totaled 730 million tonnes in the first nine

month of this year, 10.3% up compared the same period last year. The main

reason of the expansion in Asia was the continue increasing of production in

China, South Korea, Taiwan and India.

Table 2: Top 10 of World Steel Producers (unit: thousand tonnes)

Source: World Steel Association

Table 1: World Steel Production in 2011 (unit: million tonnes)


WORLD STEEL SUPPLY

ASIA


Sep-10 Sep-11 %chg, y-o-y

69,068 78,809 14.1%

Q3-10 Q3-11 %chg, y-o-y

214,354 242,240 13.0%

Asia

R e g io n Q3-10 Q3-11 % c h g , y - o - y Q2-11 Q3-11 % c h g , q - o - q

Asia 214,354 242,240 13.0% 246,202 242,240 -1.6%

European Union (27) 40,316 42,534 5.5% 47,514 42,534 -10.5%

North America 28,134 30,257 7.5% 29,808 30,257 1.5%

C.I.S. (6) 26,835 28,019 4.4% 28,313 28,019 -1.0%

South America 11,503 12,332 7.2% 12,722 12,332 -3.1%

Other Europe 8,347 9,323 11.7% 9,261 9,323 0.7%

Middle East 4,468 4,924 10.2% 5,101 4,924 -3.5%

Africa 4,061 3,510 -13.6% 3,486 3,510 0.7%

Oceania 2,150 1,910 -11.2% 1,918 1,910 -0.5%

T o t a l 6 4 c o u n t r ie s 3 4 0 ,1 7 1 3 7 5 ,0 4 8 1 0 .3 % 3 8 4 ,3 2 6 3 7 5 ,0 4 8 - 2 .4 %

R a n k C o u n t r y Q3-10 Q3-11 % c h g , y - o - y

1 China 150,932 174,752 15.8%

2 Japan 27,357 26,943 -1.5%

3 United States 19,988 21,996 10.0%

4 India 17,093 18,270 6.9%

5 Russia 16,923 17,128 1.2%

6 South Korea 13,917 16,658 19.7%

7 Germany 10,224 10,943 7.0%

8 Brazil 8,505 8,888 4.5%

9 Ukraine 7,933 8,670 9.3%

10 Turkey 7,499 8,654 15.4%


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China

China’s crude steel production in Q3 2011 reached 175 million tonnes,

an decrease of 2.5% q-o-q but increase 15.8% y-o-y. For the first nine month of

this year, total production recorded 528 million tonnes up 12% y-o-y. The

expansion of crude steel production was consistent with apprarent steel use

which expanded to 171.6 million tonnes in Q3 2011, up 11.9%. However,

October 2011 it found that major steel mills started to cut production level as the

average crude steel production was 1.79 million tonnes per day ,decrease from

1.89 million tonnes per day in September because producers face slowdown

market after September.

India

Indian crude steel production in Q3 2011 was 18 million tonnes with an

increase of 6.9% compared to the same period last year while the total crude

steel production in the first nine month of this year was 53.9 million tonnes,

increase 5.8% indicating industry expandtion amid economy condition in the

country which high risk from high inflation that result in central bank increase

interest rate.

Japan

From the trend of local currency appreciation continue affected to

weakening competitiveness of export sectors and Japan steel industry was

affected by new capacity in South Korea and China competition which result in

Japan crude steel output in Q3 2011 dropped continually to 27 million tonnes,

decrease 1.5% compared last year. Total crude steel output in the first nine

month of this year was 81 million tonnes, slump by 1.1%. The last quarter of this

year, Japan Iron and Steel Federation (JISF) foresee that hugh floods in Thailand

which is the important automotive production base in the region, and major

automotive-steel importer, will affect to downward insteel demand and result to

downward in Japan crude steel product.

Chart 5: China Crude Steel Production (unit:

thousand tonnes)


Chart 6: India Crude Steel Production (unit:

thousand tonnes)


Chart 7: Japan Crude Steel Production (unit:

thousand tonnes)



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9,345 9,945 6.4%

Q3-10 Q3-11 %chg, y-o-y

28,134 30,257 7.5%

North America

South Korea

Growth rate of South Korea crude steel production ranked the highest

record among major steel producing countries as of 19.7%, compared to the

same period last year to 16.7 million tonnes because new capacities including

the increasing of steel product exports in 2011 especially to south east asia

region.

Overall CIS crude steel output in Q3 2011 was up 4.4% compared to

the same period last year to 28 million tonnes. For the first nine month of this

year, total output was 85 million tonnes up 5.5% y-o-y.

Russia

Russia crude steel output in Q3 2011 was 17 million tonnes, up 1.2% y-

o-y but drop 0.7% q-o-q. For the first nine month of this year, total output was 52

million tonnes up 4.2% compared to the same period last year.

In North America, crude steel production in Q3 was 30.3 million tonnes,

up 1.5% q-o-q and 7.54% y-o-y. For the first nine month in 2011 was 89.3 million

tonnes, up 5.8% compared to the same period last year.

North America

CIS

Chart 8: S. Korea Crude Steel Production (unit:

thousand tonnes)


Table 4: C.I.S. Crude Steel Production (unit: thousand tonnes)


Chart 9: Russia Crude Steel Production (unit:

thousand tonnes)


Table 5: North America Crude Steel Production (unit:

thousand tonnes)



9,249 9,290 0.4%

Q3-10 Q3-11 %chg, y-o-y

26,835 28,019 4.4%

C.I.S. (6)


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USA

In USA, crude steel production in Q3 was 22 million tonnes up 10.1% y-

o-y and 2.6% q-o-q. For the first nine month in 2011 up 6.2% indicating USA

steel market condition trend had recovered in this quarter. It was Consistent to

the automotive production which be recorded at 8.6 million units, rose by 9% y-o-

y.

Mexico

Mexico Q3 showed the highest production growth rate in North America,

at 12.1% y-o-y to 4.7 million tonnes and 3.3% q-o-q. For the first nine month in

this year, total output was 13.6 million tonnes, up 8.7%.

Crude steel output in South America in Q3 2011 was up 7.2% y-o-y to

12.3 million tonnes. Total output in the first nine month was 36.8 million tonnes up

12.3% y-o-y.

Brazil

Brazil’s crude steel output in Q3 2011 was 8.9 million tonnes, decrease

4.8% q-o-q but up 4.5% y-o-y. The rising of crude steel production was result

from continue economic expansion and low unemployment rate. For the first nine

month in 2011, total output was 26.7 million tonnes up 7.4% y-o-y. In the last

quarter of this year, crude steel output is expected to slowdown because stock

level of finished steel products in the present is still high and is expected to stock

out in the rest period of the year.

South America

Chart 10: USA Crude Steel Production (unit:

thousand tonnes)


Table 6: South America Crude Steel Production (unit:

thousand tonnes)


Chart 11: Brazil Crude Steel Production (unit:

thousand tonnes)



3,732 3,945 5.7%

Q3-10 Q3-11 %chg, y-o-y

11,503 12,332 7.2%

South America


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Despite the sluggish economy in EU, crude steel production in Q3 2011

was 42.5 million tonnes, up 5.5% y-o-y but decrease 10.5% q-o-q. Total

production in the first nine month of this year was 135 million tonnes, increase

4.3% y-o-y because factory in Europe return to operate again after pause in last

summer for maintenance despite steel market in Europe has slowdown from

recession economy and the rising of financial cost.

Germany

Germany’s crude steel production in Q3 2011 was 10.9 million tonnes,

up 7% y-o-y. Total crude steel output in the first nine month of this year was 34

million tonnes, up 3.5% y-o-y. Germany Steel Federation reported that total crude

steel output in the country was expected to be 45.5 million tonnes which lower

than estimated. In addition, manufacturing production index fell 2.7% in

September compared August, consisting of 3% drop in manufacturing sector

and 1% drop in construction.

Spain

Due to Spain economic recession especially sluggish export sector

resulted in only 0.8% of GDP growth rate in Q3 y-o-y and stable when compared

to last quarter. The third quarter’s crude steel production in Spain decreased by

3.6% compared to Q3 2010, while the first nine month of 2011 stayed at 12.2

million tones, decrease 2.8% compared to the same period last year.

Italy

In spite of high volatile in Italian steel market, crude steel of output in Q3

2011 marked 6.6 million tonnes, a decrease of 15% q-o-q which result from

major mills stopped operation for maintenance, but increase 15% y-o-y. For the

first nine month of this year, total output rose to 21.3 million tonnes, up 11% y-o-y.

Europe

Table 7: Europe Union 27 Crude Steel Production

(unit: thousand tonnes)


Chart 12: Germany Crude Steel Production




14,338 14,971 4.4%

Q3-10 Q3-11 %chg, y-o-y

40,316 42,534 5.5%

European Union (27)


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Q3 crude steel output in Other Europe rose by 11.7% compared to Q3

2010 to 9.3 million tonnes. Total crude steel output in the first nine month 2011

was 27.4 million tonnes, up 18% y-o-y.

Turkey

Turkey crude steel output in Q3 2011 climbed by 15.4% y-o-y and

2.2% q-o-q to 8.6 million tonnes. The main reason in rising of crude steel output

is expansion of flat products production.

Africa

Crude steel production in Africa for Q3 2011 was 3.5 million tonnes,

decrease by 13.6% compared to Q3 2010 and for the first nine months in 2011,

the production was 10.5 million tonnes, down 15.7% compared to same period

last year. The political uncertainty problems and wars are the main factor of the

contraction in steel production and demand in the region.

Middle East

For the third quarter 2011, crude steel output in Middle East was 5

million tonnes with an increase of 10.2% y-o-y but decrease 3.5% q-o-q, which

was driven by Iranian crude steel output up by 12% compared to Q3 2010 to 3.2

million tonnes. In addition, Saudi Arabia crude steel output up by 6.8%

compared to Q3 2010 to 1.2 million tonnes.

Other Europe

Other Regions

Table 9: Africa Crude Steel Production (unit: thousand tonnes)


Table 10: Middle East Crude Steel Production (unit: thousand tonnes)


Table 8: Other Europe Crude Steel Production



Chart 13: Turkey Crude Steel Production




2,927 3,218 9.9%

Q3-10 Q3-11 %chg, y-o-y

8,347 9,323 11.7%

Other Europe


1,398 1,103 -21.1%

Q3-10 Q3-11 %chg, y-o-y

4,061 3,510 -13.6%

Africa


1,611 1,661 3.1%

Q3-10 Q3-11 %chg, y-o-y

4,468 4,924 10.2%

Middle East


Oceania

Oceania’s crude steel production for Q3 2011 decreased 11.2% y-o-y

and 0.5% q-o-q to 1.9 million tonnes. For the first nine month in 2011, total crude

steel production was 5.9 million tonnes, decrease 3.4% y-o-y. Contraction in this

region resulted from Australia as the appreciation of local currency in 2011

deterring to the competitiveness of Australian steel producers, while continue

rising of steel import, that result in major producer likes Bluescope Steel has

stopped its partial operation. It is expected that Australia total crude steel output

in 2011 will be 6.6 million tonnes, decrease from last year which was 7.5 million

tonnes.

In the third quarter 2011, total crude steel output in the world still

expanged in Asia, North America and Europe region compared to 2010, while

South America, Other Europe and CIS region faced to the slowdown growth. On

the other hand. Africa and Oceania region faced to the deep output contraction.

For the last quarter 2011, world crude steel output is expected to

expand continuously compared to Q3 2011 (because of seasonal factor) and Q4

2010 because important country of Asia likes China still has positive economic

trend and still be the key engine to drive the world economy including steel

demand amid volatile economic situation. Only some regions will confront with

contraction in crude steel products because of negative factors like Europe

which affected from public debt crisis and political uncertainty problems in Africa

including Oceania which has the important country likes Australia faces to low

competitiveness problem.

Conclusion

Table 11: Oceania Crude Steel Production (unit: thousand tonnes)



670 626 -6.6%

Q3-10 Q3-11 %chg, y-o-y

2,150 1,910 -11.2%

Oceania


US’s inventory was narrow fluctuate

According to Metal Service Center Institute (MSCI) information

gathering data from traders and steel service centers in US reported steel

inventory level at end August 2011 hit 7.7 million tonnes. The stock increased

from 7.2 million tonnes at the end of June 2011. Furthermore the ratio of on-hand

supply increased from 2.2 in June 2011 to 2.3 in August 2011.

US stock level in the third quarter has continually increased despite

weak demand in steel market. According to survey of The Steel Index (TSI), 50%

of buyers noted the current inventory level was over much, while 50% claim the

inventory was adequate compared with the current demand. Nevertheless US

steel makers expect steel prices will improve in the next quarter.

EU stock increased despite weak demand

According to Eurofer data, it’s found the real steel use of EURO group

in the second quarter of 2011 expanded by 8% y-o-y. It’s also expected that the

consumption will take a slow pace to 2% y-o-y in the third quarter of 2011. Real

consumption in the second half of 2010 is expected to decelerate and will

continue to slow down until early 2012. The real consumption is expected to

expand by 6% in the whole year 2011 and 2% in 2012.

Steel supply in EU pumped up in summer. Stock levels have increased

further as the market entered to weakening winter, while amount of imports keep

coming in. The steel demand was pressured by the delay recovery in

manufacturing together with uncertainty of the steel related industries in EU

despite the increasing of excess stocks.

Chart 15: US on hand supply (months)

Chart 14: US Stockiest steel shipment & inventory

(million tonnes)

WORLD STEEL INVENTORY

Source: Metal Service Center Institute

Source: Metal Service Center Institute

Chart 16: EU real steel use and apparent steel

use estimation (‘000 tonnes)

Source: Eurofer


Japanese stock mildly dropped in the third quarter of 2011

According to the Japan Iron and Steel Federation (JISF), stock of steel

product at the end of September 2011 was recorded at 6.7 million tones,

dropped 2% from August’s level. The inventory was 5.3 million tonnes of

producer’s stock that reduced by 3% from last month, and 1.4 million tonnes of

trader’s stock which at the same level as last month. Meanwhile shipment in

September 2011 was about 6.1 million tonnes, improved from 5.9 million tonnes

in August 2011. And inventory rate, calculated by inventory level divide by

shipment volume, at end September 2011 was about 109% dropped from 115%

in August 2011.

In the third quarter, Japanese market has been recovered from

earthquake but the market was put pressure by strong yen and lower demand in

Asia market. Japan encountered lower steel demand as sectors led by

manufacturing slowed and demand dropped from export market especially in

Eastern Asia. Prospect of the next quarter, Japanese steel market will challenge

from Thailand flood which affect to the chain of related steel industries especially

in automotive and electronic sector. The production drop in downstream

industries will pressure steel demand.

Chart 18: Japan inventory per shipment ratio of

ordinary steel products

Source: Japan Iron and Steel Federation

Chart 17: Japan production and inventory levels

of ordinary steel products

Source: Japan Iron and Steel Federation


Chinese Iron ore inventory was quite stable in the third quarter of 2011

According to the data of Chinese iron ore inventory by Steelhome, level

of iron ore inventory at the end of October 2011 was recorded at 96.3 million

tonnes, decreased by 1.4 million tonnes from September’s level at 97.7 million

tonnes and increased 20.1 million tonnes from end 2010’s level at 76.3 million

tonnes. At the same time the inventory of product steel such as rebar, wire rod,

hot rolled coil, cold rolled coil and plate in last October 2011 was about 14.5

million tonnes dropped 0.2 million tonnes from last month at 14.7 million tonnes

but still more than end year 2010’s level at 13.6 million tonnes.

Stock level of iron ore has slightly increased in the third quarter after

sharply climbed up in the second quarter. Demand of Iron ore may drop in the

fourth quarter as more blast furnaces were shut down in mid October due to the

concern of oversupply of crude steel and producers will start blast furnaces

again in late November. Moreover downstream demand will shrink further this

winter, meaning China’s steel output could keep declining and steel prices may

continue to weaken.

Chart 20: China steel production inventory (million

tonnes)

Source: Steelhome

Chart 19: China Iron Ore inventory at port (million

tonnes)

Source: Steelhome


Global economic turndown caused steel demand seen flat

Amid the world economic uncertainty during the past few months, it has

already impacted to the raw material and steel product market. Despite the fact

that steel demands remain strong in some regions for the past 2 months, the

concerns regarding debt crisis contagion around the world have caused the

industrial sectors to inevitably undergo stagnation in the market. Meanwhile

some steelmakers have had the excess production capacity despite the

production cut in the past period. There are still a lot of excess supplies both

long steel products and flat steel products. It’s believed the oversupply caused

prices to go down unless the supply meet the demand at equilibrium for the rest

of the year.

In addition, the recent economic indicators have signaled a slowdown

in several countries, including Europe, Brazil, India and China. The emerging

countries including Brazil and India have confronted the composite leading

index at 94 lower than the normal line for 6th consecutive month in September

and below 100 for 7th straight month respectively. It’s assumed that their

economic situation tended to weaken continuously. While the composite leading

index in Europe has dropped to below the neutral mark of 100 for the first time in

23 months or since September of 2009. It is noteworthy that the pre-crisis of

2008 European composite leading index had failed before the other countries. It

is, therefore, possible to witness the global economy step into the recession

again and it requires constant vigilance during the next 3-6 months.

When having considered the Purchasing Management Index (PMI), we

found that Markit Eurozone Manufacturing PMI stated at 46.5 in October 2011.

The PMI that is below the neutral mark of 50 signaled the lowest level of the

economy in the next few months. The PMI indicated the contraction as the

pressure of Manufacturing PMI in Germany, France, Italy, and Spain was weak.

Main countries in Europe, on the other hand, are underwent high unemployment.

It could expect that the European industrial sector would see deterioration for the

next few months.

DEMAND AND PRICING OUTLOOK

Chart 21: Composite Leading Index: Key

Developed Countries

Source: OECD

Chart 22: Composite Leading Index: Key

Emerging Countries

Source: OECD

Chart 23: Markit Eurozone PMI and GDP

Source: Market, Eurostat, GDP = Gross

Domestic Price.

Chart 24: Output Indices by Nation

Source: Market


Global Steel demand in 2011 remains strong but in Europe declined slightly

According to World Steel Association data, it reported that steel

consumption continued to grow well in all regions of the world. The expected

steel use figure in 2011(revised) registered 1,398 trillion tone, increased by 6%

from 1,367 trillion tonne projected in September. The growth was driven by the

China consumption of 643 trillion tonne that was higher than the previous

expectation of 611 trillion tonne due to the continuous growth of Chinese

economy. While the problems of European economies remain unsolvable

regarding the debt crisis that would affected the consumption to go down to 155

trillion tonne in 2011.

Iron ore price slump, pull steel product price down to lowest in the year

Both of iron ore and scrap prices have continually slumped since the

past two months. Fine iron ore price from India to China declined to 148

USD/tonne in October from 186 USD/tonne in September. The iron ore price in

October was regarded as the lowest level for 12 months since September 2010.

Moreover scrap price fell sharply as well. The average price in October dropped

to 455 USD/tonne from 498 USD/tonne and 500 USD/tonne in August and

September respectively. However, coke price remain as high as the previous

quater at 490 USD/tone.

For semi-finished steel product prices, all kinds of products obviously

decreased in the middle of September. In August, billet price fell to 635

USD/tonne and slab price to 625 USD/tonne on account of market stagnation

around the world, especially in United States and Europe. While there was

exceeding supply of flat steel in the recent period. As a result, steelmaker cut

their price for destocking the exceed product. In addition, hot-rolled coil price

moved downward due to the main pressure of the production cost especially

slab price. The hot-rolled coil price in August was 655 USD/tone touching the

lowest level in the past 22 months.

Chart 25: Raw Material and Steel Products Price

Source: SBB

Chart 26: Spread between Long Steel Product

and Raw Material Price (USD/tonne)

Source: SBB

Table 12: Apparent Steel Use, finished steel

(October 2011) - mmt

Source: Market


Considering to price spread in each processing step, we found that in

long products spread between rebar and scrap price was 197 USD/tonne (6,048

THB/tonne) and spread between rebar and billet price was 2 USD/tonne (61

THB/tonne). In these cases, the spread was lower than the past quarter

moderately which is similar to the period of May 2010 and April 2011.

Consequently the last quarter of this year, rebar producer would face more

difficulties from margin decrease as the cost price has declined less than the

rebar price significantly. Meanwhile flat steel producers have been undergoing

the same situation with the spread between hot-rolled coil price and scrap price

at 179 USD/tonne (5,490 THB/tonne) and spread between hot-rolled coil price

and slab price at 3 USD/tonne (92 THB/tonne)

For Asian market, the influence of inflation control measure in China

would put more pressure on the steel price and demand for flat steel product,

which anticipated the price, may be stable or weak slightly until 2012. However,

long product markets appear to be lackluster because of a slowdown in real

estate. Otherwise most of demand in Asian countries except china was firm for

the past few months. The price levels look set to remain steady during the fourth

quarter despite the export to United States and Europe would soften for the rest

of this year. At the same time in United States and European markets, exceeding

production in flat steel witnessed an impact on the price falling continually until

output is cut back. In addition, local steel mill stopped operations for

maintenance in the past. It anticipated beginning production again is the

important factors that will pressure on the price, which may drop even more for

last quarter of the year. However, the price for long products is likely to stable

after it slipped downward during the previous months because the producer can

adapt itself efficiently and fast to circumstances in the market. Moreover the

market was influenced by seasonal factor during the fourth quarter, the sluggish

season with a few activities of long products usage and no signal for restock of

end-user. Therefore, it’s expected that the price would remain steady or slightly

decrease before rebounding upwards later in the first quarter of 2011.

Chart 27: Spread between Flat Steel Product and

Raw Material Price

Source: SBB


Average Price and HRC Price projection for East Asia Import CFR $/t

The import price of hot rolled coil (HRC) to East Asia in the third quarter

2011 slipped down more than expected from the previous. The latest average

price of slab dropped to 673 USD/tonne in October, varying between 620 and

630 USD/tonne and the average price of HRC lower to 625 USD/tonne, varying

between 652 and 680 USD/tonne. On month on month basis, the price

decreased by 6-8%. However, slab and HRC average price still raised 7-9%

compared to the same month last year. Thus, the decreasing price in October

was partly affected by seasonal factors that pushed the price lower. Meanwhile

economic factors including United States and Europe seemed to be more

negative and impacted to some industries. Consequently steel price dropped

more than the pricing forecast in the second quarter.

Table 13: Slab and HRC East Asia Import Price (USD/Tonne)

Source: SBB

Table 14: HRC Price Projection during next 3 months by ARIMA and Multiple Regression Methods (USD/Tonne)

Source: ISIT analysis

Chart 28: HRC Price Projection during next

3 months by ARIMA Model (USD/Tonne)



To forecast the HRC price for the next three months in models, we found

that slab price has tended to decrease since July which would pressure on the

HRC price lower continually. At the same time, iron ore price imported from India

dripped by 20 USD/tonne in October. It could anticipate that the average HRC

price is likely to slip downward to 643 and 635.5 USD/tonne in November and

December respectively before rebounding to 660 USD/tonne in January from

seasonal factor. According to the estimation, we reckoned the price may be even

more under the pressure if the United States and European economic could not

find the way out of public debt crisis and high unemployment soon. So, there is

possible that the steel price may lower than the expectation of 616 USD/tonne

and 615.5 USD/tonne in November and December respectively.


Steel demand rise in the third quarter of 2011 from last year and last quarter

Apparent steel use in the third quarter of 2011 was about 3.83 million

tonnes, 8% higher when compared with the third quarter of 2010. The apparent

steel use in the last quarter was improved 4% from the previous quarter, while

the production are 1.87 million tonnes, increased 5% from the same quarter last

year and 8% higher than previous quarter.

Steel import volume in the third quarter of 2011 was recorded at 2.25

million tonnes, increased 8% when compared with the same quarter of last year,

but slightly dropped 3% from the previous quarter. 35% of steel products were

imported from Japan, China and Russia respectively. Meanwhile steel export

volume of this quarter was approximately 0.30 million tonnes, decreased 20%

from the previous quarter and shrunk 10% from the same quarter of last year.

Apparent steel use in the third quarter of 2011 was registered at 3.83

million tones, while the real steel use, calculated from SWIP method, was at 3.99

million tonnes. Steel inventory at the end of third quarter 2011 dropped by 0.16

million tonnes from the second quarter 2011. The market has released stock

during July and August.

Production and consumption of semi-finished products decrease in the third quarter

Production of semi-finished products in the third quarter of 2011 was

about 1.07 million tonnes, decreased 13% from last quarter, and increased 2%

from the same quarter of last year. In the same time, import volume was about

0.82 million tonnes, 9% higher than the previous quarter and 7% lower than the

same quarter last year. 59% of semi-finished products were imported from

Russia, Ukraine (11%), and Japan (9%). Meanwhile export in this quarter was

about 16,000 tonnes, sharply dropped 74% from last quarter, and 72% lower

than the same quarter of last year. The major export market was Taiwan.

THAILAND MARKET FUNDAMENTAL

THAILAND STEEL DEMAND AND SUPPLY

Chart 29: Thailand’s Total Apparent Steel

Consumption (‘000 Tonnes)


Table 15: Steel Production and Consumption Summary


Chart 30: Total Real Steel Use VS Total Apparent

Steel Use (‘000 Tonnes)


Chart 31: Stock Change for Thailand Steel Market

(‘000 Tonnes)



Thus, total demand of semi-finished products in the third quarter of

2011 was recored 1.87 million tonnes, 2% lower than the previous quarter but

similar to the same quarter of last year. Whereas demand of billet took 3% of

increase from the same quarter of last year to 0.79 million tonnes, while demand

of slap decreased by 4% when compared with the same quarter of last year to

0.84 million tonnes.

Production and consumption of long product lower than last quarter

Apparent steel use of long product in the third quarter of 2011

decreased 6% from q-o-q and 1% y-o-y to 1.17 million tonnes. The biggest

dropped volume went to wire rod. However, considered by SWIP method, it’s

found that the real consumption was about 1.41 million tonnes, 17% higher than

with the same quarter of last year. The volume of real steel use that was higher

than apparent steel use reflects the destocking of steel product into the market.

And after having calculated, the long product stock level dropped by 0.24 million

tonnes at the end of third quarter when compared with the second quarter.

Meanwhile, long product production in the third quarter of 2011 was about 0.95

million tonnes, 4% lower than the previous quarter, but 5% higher than the same

quarter in the previous year.

Chart 33: Stock Change in Long Product (‘000

Tonnes)


Table 17: Long steel Production and Consumption Summary


Table 16: Semi-Finished Production and Consumption Summary


Chart 32: Real Steel Use VS Apparent Steel Use

for Long Product (‘000 Tonnes)



The export volume of long product in the third quarter of 2011

decreased 17% to 0.21 million tonnes from the previous quarter but expanded

8% from the same quarter of last year. The major export markets were Singapore

and Malaysia. While the figure of import in the third quarter this year was at about

0.44 million tonnes, 16% lower than the previous quarter and increased by 8%

from the same quarter in the previous year. The important import sources were

China and Japan. In this quarter, amount of import from China and Japan was

about 36% and 38% respectively. The figure of wire rod import was 20% lower

than last year, while import of rebar remains the same of last year. Import of

section was 119% higher than last year. The significant increasing import

countries were Brazil and Ukraine.

Production of hot rolled coil decrease

In the third quarter of 2011, apparent steel consumption of HRC was

about 1.60 million tonnes, decreased 9% from the same quarter of last year but

hike 11% from the previous quarter. The consumption of hot rolled plate

decreased by 10% while consumption of hot rolled coil rose by 6%. Meanwhile

the real steel use (only HRC directly use, not include HRC that use in cold roll

process) in the third quarter of 2011 that was estimate from SWIP method was

recorded at 1.36 million tonnes, 22% higher from same quarter of previous year.

The destocking in this quarter made level of stock decreased by 0.18 million

tonnes from the level at the end of the second quarter 2011.

Hot rolled coil production in the third quarter of 2011 was recorded at

0.77 million tonnes, hiked from last quarter by 8% but decreased by 9% from the

same quarter of the previous year. Whereas the export of hot rolled coil in the

third quarter of 2011 was about 13,000 tonnes, 53% dropped from the same

quarter of the last year and decreased 39% from last quarter. At the same time

import volume was increased to 0.84million tonnes, 18% higher from the same

quarter of the last year but 2% lower from previous quarter. About 62% import

from Japan, 18% from South Korea and 11% from China.

Chart 35: Stock Change in Hot-Rolled Flat

Product (‘000 Tonnes)


Table 18: Hot Rolled Flat Steel Production and Consumption Summary (‘000 Tonnes)



for Hot-Rolled Flat Product (‘000 Tonnes)



Consumption of hot rolled plate in the third quarter of 2011 was about

0.14 million tonnes, 10% lower from the same quarter in the previous year and

decreased by 1% from last quarter. The production volume was decreased by

19% to 0.09 million tonnes from the same quarter of last year, and still less than

the second quarter of 2010 by 10%. Whereas import volume expanded by 18%

from the same quarter of 2010 but decreased from second quarter 2011 by 4%

to 53,000 tonnes. 42% of the products were imported from South Korea, 26%

from Japan, and 12% from China. Meanwhile the figure of export increased by

142% from last year but still less than the previous quarter by 72%. Export of hot

rolled plate in the third quarter 2011 was about 4,000 tonnes, Myanmar was the

main export market.

Production and consumption of hot rolled coil plummeted in the third

quarter. Consumption of hot rolled coil in the third quarter 2011 was recorded at

1.46 million tonnes, 6% higher than the same quarter of last year and 4% higher

than the previous quarter. Whereas production volume also dropped to about

0.68 million tonnes, 8% lower than the same quarter last year ,but 11% higher

than the previous quarter. Meanwhile import volume was expanded by 18% from

last year, 2% lower than the previous quarter to 0.79 million tonnes. The main

import sources were Japan (63%), from South Korea (17%) and China (11%).

However export volume dropped to 9,000 tonnes, 66% lower than last year but

39% higher than previous quarter. The major export markets were Saudi Arabia

(66%), Lao (14%), and Myanmar (10%).

Table 20: Hot Rolled Coil Steel Production and Consumption Summary (‘000 Tonnes)

(‘000 Tonnes)


Table 19: Hot Rolled Flat Steel Production and Consumption Summary (‘000 Tonnes)



Consumption of cold rolled coil and coated steel remains stable

Apparent steel consumption of cold rolled coil in the third quarter of

2011 was about 0.66 tonnes, increased 3% from the same quarter of last year,

but 2% lower than the previous quarter. Meanwhile the real steel use (only

included only direct-used CRC, not CRC in coated process) in the third quarter

of 2011 that calculated by SWIP index was recorded at 0.38 million tonnes, 16%

increased from the same quarter of last year. The expansion of real steel that

was higher than apparent steel use probably implied that there was a destocking

of cold rolled steel during the third quarter of 201. The stock dropped by 140,000

tonnes when compared to the end of second quarter of 2011.

Meanwhile the production of cold rolled steel during the third quarter of

2011 was about 0.41 million tonnes, 1% and 7% higher than the same quarter of

last year and the previous quarter respectively. The figure of import rose by 6%

from last year to 0.28 million tonnes but decreased by 11% from the previous

quarter. 54% of the product was imported from Japan, and 13% from China. By

segment, import of stainless steel dropped by 1%. Export volume expanded by

2% from the same quarter of the previous year and 12% higher than the previous

quarter.

Production of coated steel in the third quarter of 2011 increased from

the third quarter of 2010 by 23% to 0.23 million tonnes as production rose in tin

plate and tin free products. Apparent steel consumption in the same quarter was

about 0.86 million tonnes, 11% and 5% higher than the previous quarter and the

same quarter of last year respectively. The apparent consumption of galvanized

steel decreased while tin plate and tin free group improved. While the real steel

use in the third quarter of 2011 calculated by SWIP index was about 0.82 million

tonnes, expanded by 20% from the same quarter of last year. That the real steel

use was less than apparent steel use reflected the restocking of steel products.

The stock of steel products in the third quarter 2011 was 41,000 tonnes which is

higher than the end of the second quarter 2011.


for Coated Product (‘000 Tonnes)



for Cold Rolled Flat Product (‘000 Tonnes)


Table 21: Cold rolled steel production and consumption summary (‘000 Tonnes)


Chart 37: Stock Change in Cold Rolled Flat

Product (‘000 Tonnes)



Meanwhile the figure of imported coated steel was similar to last year.

Import volume in the third quarter of 2011 increased by 10% when compared to

the same quarter of last year to 0.65 million tonnes. Coated steel products were

imported from Japan, China and South Korea about 47%, 21% and 16%

respectively. Whereas total export of coated products in the third quarter of 2011

improved by 34% from the same quarter last year and 2% higher from last

quarter to 21,000 tonnes. About 13% exported to Lao and exported 12% each to

Myanmar, Malaysia and Indonesia.

Consumption of galvanized steel product in the third quarter of 2011

dropped by 13% from last year and decreased 3% from the previous quarter to

0.44 million tonnes. Production volume decreased 11% from last quarter and 4%

from last year to 50,000 tonnes. Meanwhile import volume reduced by 14% from

last year and shrunk by 2% from last quarter to 0.40 million tonnes. Galvanized

steel products were import from Japan China and South Korea about 66%, 14%

and 13% respectively. Export volume increased by 1% from the same quarter

last year to 9,000 tonnes, the main export markets were Myanmar Lao and

Malaysia.

Table 23: Galvanized steel production and consumption summary (‘000 Tonnes)



for Coated Product (‘000 Tonnes)


Table 22: Coated steel production and consumption summary (‘000 Tonnes)



Production and consumption of tin plate and tin free steel in the third

quarter of 2011 was improved from last year. Consumption volume increased by

21% from previous year and rose 10% from last quarter to 0.18 million tonnes.

Whereas production expanded by 27% from last year to 0.10 million tonnes.

Imported expanded by16% from last year to 81,000 tonnes while export also

increased by 99% from the same quarter of last year to 2,000 tonnes. 41% were

imported from China and 27% from South Korea while mostly exported markets

were Vietnam, Cambodia, and Indonesia.

Table 24: Tin plate/Tin free steel production and consumption summary (‘000 Tonnes)



ISIT evaluate diffusion index from almost 60 factors as follows

Thailand steel market leading index marked at 53.5 in September and

declined to 48.2 in October. As the index was near to 50 in September reflected

that Thailand steel market will tend to stable. Sharp drop in semi-finished steel

products and steel scrap imports were the main component in negative supply

side, while other components of the index were stable. However, in October, the

leading index resulted a slightly lower than 50, implied that Thailand steel

demand will chance to decline. Main component showing a negative sign was

falling in oversea stock indices, consequence from the downturn and sharp

volatility in global economy. In addition, unusual condition as huge flood in

Thailand that impacted to the key downstream industries, especially automotive,

appliances and electronics, which is an important component of the leading

index.

*Note: Steel market leading index, calculated by gathering and scoring

a large set of components that relate to steel market, then combined all

components to be an index. Expansion denotes an index increasing above 50;

downturn an index below 50, while an index near to 50 shows a stabilize market.

More information can see in the Q2 2011 quarterly report

STEEL MARKET LEADING INDEX

Table 25: Diffusion Index



Automotive and Electronics sector have seriously impact from flood crisis

The flood stretched all over 7 large industrial estates: five industrial

estates located in Ayutthaya province and the other two in Patumthani province.

The floodwater has created the worst catastrophe to economic performance the

country has ever faced before. The result of flood will affect about 240,000-

330,000 million baht of Gross Domestic Product (GDP) value or equal to 2.3%-

3.1% of GDP. The worst effected industries are home appliance and electronics

sector and automotive sector. Nevertheless the disaster will generate jobless

labors from the closing factories, homeless people, a lack of food due to

agriculture areas are under water, and the hiking price of commodity products.

As the result, the economic in the fourth quarter will shrink by 3.3%-6.3% leading

to slowdown the economic growth of 2011 to only about 0.9%-1.7%.

The effect of the disaster will last till the beginning of next year as

industries will take a few months to recover. The production and export of

Thailand will continually slump until the first quarter of 2012 and push GDP in the

first quarter to a negative side before taking a rebound in the second quarter with

some supporting factors including the firm business confidence, as well as many

foreign companies’ insistence to continue their operation in Thailand without any

base-moving plans to others countries. Additionally government expenditure

launched to heal the victims, restore building facility and infrastructure together

with the investment to prevent flood in the future will urge the economy next year.

Automotive and Auto Part destructed from flood

The most terrible flood in Thailand has seriously damaged automotive

and auto part sector and their base areas. The destruction blanketed over

automotive and auto part factories also affected several related producers in

terms of shortage problems. The impact of the flood disaster has eaten over the

world as Thailand is a hub of automotive, home appliance and electronics

industries.

Table 26: Economic Effect from Flood

Source: K research center

THAILAND FLOOD CRISIS


Recently evaluated loss for automotive industry is about 70,000 million

baht with the drop of car production to 112,500 units/month. It’s expected that

automotive market will fall down at least 3 months as the auto part producers

cannot supply materials to automakers. At the present the total loss is

unpredictable since the situation is still right there. However the previous

expectation of total car production in this year at about 1.8 million units may

shrink to only approx.1.5 million units.

Unfortunately, Japanese automotive which has just recovered from

earthquake and tsunami in the middle of this year is now facing with the flood

disaster. The floodwater flashing over Ayutthaya province caused Honda’s

assembly plant and others part makers in trouble so seriously that they had to

halt production. Simultaneously, although Toyata’s assembly plant is not located

in flood area, it still need to temporarily stop its production line thank to part

shortage. Similar to Toyota, AAT, Ford & Mazda Production Company, in Rayong

unwillingly decided to shut down the production line for a while to evaluate

situation on account of lack of parts supplied from the manufactures in

Ayutthaya. The survived automakers, such as Toyata, Nissan and Mitsubishi,

have turned to import parts from others countries instead of domestic use and

will restart operation at the end of November. What’s more, the government

granted import duty exemption for those parts ruined by flood.

Nevertheless Japanese auto producers insist to continue their business

in Thailand without base moving as automotive market in Thailand has more

room to grow. Also, the natural disaster is counted to be less destructive than

others, like, Japan, and gain the upperhand in terms of skilled labors. On the

bottom line, Thailand remains the reputation of production base in automotive

industry.

Home appliance and electronics decline till 2555

The water disaster will unavoidably effect home appliance and

electronics sector as many production plants are located in crisis areas. Suffered

by the flood, many related factories have to halt their production on account of

part shortage. The flood water destruction created the domino effect all over the

world especially those who relied on electronics parts from Thailand. Home

appliance and electronics factories that located in the 7 flooded industrial

estates in Ayutthaya and Patumthani province together with others destructed

areas have total proportion about 44.5% of all home appliance and electronics

producers over country.


Although export of home appliance and electronics were suffered by

Japanese earthquake and Tsunami in the first half of 2011 and the world

economic crisis in the third quarter, export growth during first nine months of

2011 has still expanded up to 10.1% y-o-y with the value about 43,000 million

USD. By catagorized, home appliance export improved by 17.2% y-o-y to 18,000

million USD while electronics export increased only 5.7% y-o-y to 26,000 million

USD. According to floodwater effect, the export in the fourth quarter is expected

to strongly shrink and affect to the growth of export throughout the year 2011.

Export of home appliance in 2011 is forecasted to expand only 7%-9% when

compared with 32.3% in 2010. Meanwhile export of electronics in 2011 is

expected to reduce to 6%-8.5% from the increasing about 22% in 2010. The

most seriously impacted product is HDD.

Most of destroyed plants had to put the production line on hold for 3-6

months:. Electronics production lines need high quality of hygiene to avoid the

parts from contamination like particle and dust. Therefore, the faster the recovery

runs the better. Some plants may take time to install new machines so the impact

will continually to the early of 2012. Water disaster not only affects to domestic

producers but many foreign factories importing parts from Thailand as well.

Floodwater will take against the supply of some electronic products during 1-2

quarter in the future.

Real estate destroyed by flooding

Water crisis is unlikely to release and continually spread out. Recently

flooding areas has covered 2,656 residence projects 549,888 units which the

values about 1,254,000 million baht. Damaged residences include 461,664 units

of horizontal projects calculated to approx. 1,148,000 million baht and 88,000

units of condominium building valued 106,000 million baht.


Real estate situation became more and more sluggish thank to

floodwater and it’s expected the market will slow down until the next quarter.

Price of house and building in flooding areas will sharply decline as buyers

concern about floods in the future. Meanwhile the cost of construction may

increase as hosing companies will invest in a land preparation to make the land

revel high enough to avoid floods. The weakening housing market both of the

new projects and the second hand houses was reflected by the half drop of

number of buyers visiting and house conveyance. The horizontal projects seem

to weaker than the vertical ones. Although the condominium buildings are a

better choice for buyers but the outlook of buyers’ purchasing power seems to

decline.

In order to urge real estate market, the government should invest in

infrastructure to prevent water disaster such as the permanent barrier, sea level

control system, efficient water management system and highway system

improvement. The method to improve price of land is to establish toll ways to

suburb to develop land potential. Moreover, the government and private banks

should issue measures to reduce fee, interest rate, and lessen debt payment.

Survey on impact from flood crisis

Iron and Steel Institute of Thailand launched a survey on negative

impacts from flood crisis to the institute’s members and Thai steel club under the

Federation of Thailand Industry during 8 – 23 November 2011. Results from 83

questionnaires are the following detail


15 steel producers

A few steel mills are flooded. Majority of the mills loss business by more

than 20%, compared to usual situation. Negative impact to employee working

hour is limited, only 25% of the companies reschedule working hour. 40% of the

group foresees positive business activities when situation recover, compared to

before flooding crisis.

- 3 of 15 steel producers have faced flooding

- Duration of flood is less than 1 month

- 66% of steel producers loss their business more than 20%, while 33%

of the producers loss their business less than 20%

- 25% of steel producers adjust working hour, labor of most steel

companies still work at the manner

- 40% of steel producers expect good business activities, 27% expect

same business activities and 33% expect poor business activities compared to

before flood crisis period when situation recover

13 steel traders

A few steel traders are flooded. Majority of the steel traders loss

business by more than 20%, compared to usual situation. Negative impact to

working time of employee is significant, 46% of the companies reschedule

working hour. 25% of the group foresees positive business activities, compared

to before flooding crisis.

- 2 of 13 steel traders have faced flooding

- Duration of flood is less than 1 month

- 69% of the answer loss their business more than 20%, while 31% of

the answer loss their business less than 20%

- 46% of steel traders adjust employee working hours by 25%-50%

- 25% of the answerers expect good business activities, 42% expect

same business activities and 33% expect poor business activities compared to

before flood crisis period when situation recover


26 steel end-users

A few companies are flooded. Majority of the steel traders loss business

by more than 20%, compared to usual situation. Negative impact to working time

of employee is significant, 42% of the companies reschedule working hour. 32%

of the group foresees positive business activities, compared to before flooding

crisis.

- 4 of 26 companies has faced flooding

- 50% of flooded-companies gets duration less than 1 month, the rest of

50% get duration 1 - 2 months

- 69% of the answerers loss their business more than 20%, while 31% of

the answer loss their business less than 20%

- 42% of companies adjust employee working hours by 25%-50%

- 32% of the answerers expect to good business, 26% expect same

business activities and 42% expect poor business activities compared to before

flood crisis period when situation recover

Note

- Flood impacts to employee working hour significantly to downstream

sectors at most, following steel traders, while steel producers get the less

negative impact

- Very few companies have plan to confront with next flood problem


Table 27: Thailand's macro economic indicator

Source: NESDB, BOT, OIE, MOC, FTI and UTCC

Table 28: Major industrial goods production & Sale

Source: OIE

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Jul Aug Sep

Cement (,000 tonnes)

Production 8,933 8,694 8,039 8,330 9,099 8,446 8,364 - 2,902 2,811 2,652

Domestic sale 7,163 7,007 6,387 6,292 7,419 7,102 6,945 - 2,290 2,374 2,281

Car (passenger & commercial car; unit)

Production 353,632 351,257 371,967 391,490 400,037 289,475 412,315 - 129,279 139,565 143,471

Domestic sale 156,868 173,458 176,035 212,878 208,340 148,414 209,618 - 64,756 74,511 70,351

Refrigerators (,000 tonnes)

Production 852 1,026 1,123 1,022 1,143 1,183 1,184 - 425 385 374

Domestic sale 326 358 303 253 330 311 300 - 96 106 98

Air-conditioners (,000 tonnes)

Production 2,545 2,898 2,521 2,501 3,261 3,113 2,642 - 937 848 857

Domestic sale 462 445 336 172 537 303 261 - 86 71 103

Canned Seafood (tonne)

Production 119,237 122,119 111,222 123,046 120,182 118,908 116,229 - 37,466 38,905 39,858

Canned Pineapple (tonne)

Production 67,760 46,248 34,056 63,576 84,763 84,523 62,427 - 18,135 22,166 22,125

Industrial goods2010 2011

STEEL IN FIGURE


Nominal GDP (m. THB) 2,560,083 2,471,448 2,490,045 2,583,245 2,744,960 2,652,994 2,686,113 - - - -

Real GDP (1988) 1,179,635 1,112,764 1,114,342 1,189,371 1,217,024 1,143,132 1,153,345 - - - -

% (y-o-y) 12.0 9.2 6.6 3.8 3.2 2.7 3.5 - - - -

Manufacturing Production

MPI Level 192.0 191.9 187.0 188.9 188.5 186.4 190.3 - 187.7 194.5 188.6

% (y-o-y) 31.6 17.6 9.6 2.6 -1.8 -2.8 1.8 - -0.8 7.0 -0.7

- Iron & steel %(y-o-y) 64.7 29.0 5.2 -14.1 -7.7 -9.0 2.4 - -4.9 5.4 7.6

- Vehicles %(y-o-y) 82.9 86.6 43.3 21.1 11.5 -18.4 14.3 - 0.0 15.5 28.2

- Electrical app %(y-o-y) 21.3 12.6 21.8 13.4 27.2 15.6 7.8 - 6.7 7.7 9.1

- Food %(y-o-y) 4.7 4.2 6.3 2.4 1.4 2.0 10.2 - 6.1 9.2 15.5

- Metal Furniture %(y-o-y) 6.7 -21.3 19.5 -7.8 -7.1 30.1 36.2 - 118.4 6.9 4.9

Private Consumption

PCI Level 133.6 135.0 134.9 135.7 139.3 140.9 140.6 - 138.0 143.0 140.7

% (y-o-y) 7.8 7.5 4.8 3.5 4.3 4.3 4.2 - 2.1 5.4 4.9

CCI 65.1 61.9 64.8 63.5 64.9 63.4 64.6 - 65.4 65.0 63.5

% (y-o-y) 1.4 0.5 2.2 -0.8 -0.3 2.4 -6.3 - 1.9 0.2 -3.6

Private Investment

PII Level 176.3 185.2 190.2 188.3 200.8 205.0 205.0 - 202.52 206.61 205.93

% (y-o-y) 13.0 22.1 22.4 14.8 13.9 10.7 7.8 - 6.5 8.5 8.5

TISI (Thai Industries Sentiment Index) 110.5 99.1 103.9 102.7 107.7 107.4 99.5 - 105.2 102.5 90.7

External Trade

Trad Balance (m. THB) 53,517 119,755 68,930 103,256 61,761 886 32,039 - 77,654 -44,376 -1,240

Import (m. THB) 1,406,007 1,441,314 1,524,326 1,460,584 1,658,615 1,740,494 1,897,759 - 574,433 684,926 638,400

Change (%) 50.1 34.2 22.7 8.1 18.0 20.8 24.5 - 7.1 33.6 34.3

Export (m. THB) 1,459,524 1,561,069 1,593,255 1,563,840 1,720,376 1,741,380 1,929,797 - 652,087 640,550 637,160

Change (%) 24.8 30.0 14.6 8.8 17.9 11.6 21.1 - 30.4 21.5 12.6

Price Index

Headline CPI %(y-o-y) 3.7 3.3 3.2 2.9 3.0 4.1 4.1 - 4.1 4.3 4.0

Core CPI %(y-o-y) 0.4 0.9 1.2 1.2 1.5 2.4 2.8 - 2.6 2.9 2.9

PPI %(y-o-y) 12.0 9.3 10.3 6.3 6.4 5.8 5.6 - 5.2 6.0 5.6

Interest Rate

Deposit rate (1 year,% ) 0.74 0.70 1.18 1.38 1.79 2.22 2.73 - 2.60 2.73 2.85

Overnight Rate (%) 0.97 0.98 1.36 1.40 2.00 2.40 3.05 - 2.83 3.23 3.10

Macro Economic Indicator2010 2011


Table 29: Total Apparent Finished Steel Consumption (unit: tonne) – Year to Date

Source: ISIT

Table 30: Apparent Crude Steel Consumption (unit: tonne) – Year to Date

Source: ISIT

January - September 2011 Production Import Export Consumption y-o-y change

Total Apparent Finished Steel Consumption 5,575,165 6,670,727 1,046,963 11,198,929 7.6%

Long Product Finished Steel Consumption 3,019,718 1,372,207 680,148 3,711,777 7.1%

Long Product Bar Carbon Steel 2,308,498 186,175 83,771 2,078,496 8.3%

Stainless & Alloy 226,545 33,526

HR section Carbon Steel 13,870 346,276


Wire rod Carbon Steel 711,220 252,703 58,008 905,915 -4.7%

Stainless & Alloy 292,978 370

Cold-draw bar 49,710 12,996

Steel wire 121,765 121,203

Seamless Pipe 225,047 19,511

Flat Product Finished Steel Consumption 2,555,447 5,298,520 366,815 7,487,152 7.8%

Flat Product HR plate Carbon Steel 306,933 135,890 26,424 416,399 17.9%


HR sheet Carbon Steel 890,780 20,542

Carbon Steel P&O 753,486 8,221


CR Sheet Carbon Steel 581,127 21,233


Coated Galv.sheet (HDG) 1,035,898 30,002

Galv.sheet (EG) 112,929 1,038

Tin plate 147,293 141,484 1,768 287,009 -0.3%

Tin free 149,142 51,542 3,425 197,259 -5.8%

Other coated steel 198,543 450,566 37,461 611,648 39.6%

Cold-form section 3,306 5,012

Wielded Pipe 198,213 147,884

Remark : Apparent Steel Production accounted only hot-rolled steel product

Remark : highlighted figures are estimated.

-5.2%

2.2%

0.2%

2,248,514 3,864,017

1,219,233 1,978,105

166,454 1,284,241

January - September 2011 Production Import Export Consumption y-o-y change

Apparent Crude Steel Consumption 3,414,857 2,437,436 406,921 5,445,372 - 5.1%

Ingot Carbon Steel 255 5.0

Stainless & Alloy 125 7

Semi Proudct Billet 850,764 51,065

Slab 1,484,211 68

Billet/Slab C>0.25 97,623 89,592

Other Semi 4,458 266,184

- 5.1%3,414,857 5,445,004


Table 31: Total Apparent Finished Steel Consumption (unit: tonne) – Monthly

Source: ISIT

Table 32: Apparent Crude Steel Consumption (unit: tonne) – Monthly

Source: ISIT

September 2011 Production Import Export Consumption y-o-y change

Total Apparent Finished Steel Consumption 659,160 771,615 88,114 1,342,661 14.5%

Long Product Finished Steel Consumption 418,705 142,015 61,527 499,193 23.5%

Long Product Bar Carbon Steel 347,747 18,568 7,813 327,897 31.1%


HR section Carbon Steel 2,017 32,622

Stainless & Alloy 570 181

Wire rod Carbon Steel 70,959 25,837 3,419 93,377 -4.3%


Cold-draw bar 5,179 1,211

Steel wire 13,857 10,754

Seamless Pipe 23,385 2,900

Flat Product Finished Steel Consumption 240,455 629,600 26,587 843,468 9.7%

Flat Product HR plate Carbon Steel 37,998 15,447 1,603 51,842 -21.6%


HR sheet Carbon Steel 118,520 521

Carbon Steel P&O 90,909 25


CR Sheet Carbon Steel 66,446 778


Coated Galv.sheet (HDG) 121,430 1,867

Galv.sheet (EG) 13,781 45

Tin plate 13,574 20,113 141 33,546 24.4%

Tin free 15,334 10,068 373 25,029 -50.5%

Other coated steel 30,643 56,753 3,557 83,839 65.9%

Cold-form section 214 127

Wielded Pipe 9,309 10,392

Remark : Apparent Steel Production accounted only hot-rolled steel product

Remark : highlighted figures are estimated.

202,457

153,310

17,799

3.1%

12.1%

1.9%

411,340

240,653

151,098

September 2011 Production Import Export Consumption y-o-y change

Apparent Crude Steel Consumption 306,238 365,425 1 671,662 1.9%

Ingot Carbon Steel 42 -

Stainless & Alloy 20 -

Semi Proudct Billet 112,391 1

Slab 252,927 -

Billet/Slab C>0.25 - -

Other Semi 45 -

306,238 1.9%671,600


Table 33: Thailand’s Steel Import & Export, Jan – Sep 2011

Source: ISIT

Qty (Tonne) Mil.THB USD/Tonne Qty (Tonne) Mil.THB USD/Tonne Qty (Tonne) Mil.THB USD/Tonne Qty (Tonne) Mil.THB USD/Tonne

Billet 112,391 2,309 685 1 0 2,246 850,764 16,372 634 51,065 985 639 19.80% 13.20% -99.90% 58.60%

Slab 252,927 5,018 661 - - - 1,484,211 29,339 652 68 2 995 12.40% -26.70% - U/C

All others semi(s) 4 0 485 10 1 3,930 101,884 2,022 651 91,624 1,835 666 -100.00% -20.70% -100.00% -38.70%

Bar 18,568 659 1,183 7,813 196 849 186,175 6,180 1,094 83,771 1,889 749 -27.40% -4.40% 42.50% -13.70%

HR section (H/L) 2,017 79 1,305 32,622 808 836 13,870 493 1,169 346,276 8,368 804 195.70% 181.00% 13.80% 18.80%

Wire rods Wire rod (LC/HC) 25,837 797 1,027 3,419 81 803 252,703 7,255 947 58,008 1,341 769 -37.30% -18.90% -32.40% -49.00%

HR plate 15,447 542 1,169 1,603 42 891 135,890 4,590 1,114 26,424 642 807 3.10% 4.00% 47.30% -48.10%

HR sheet 118,520 2,917 820 521 19 1,209 890,780 21,178 785 20,542 514 832 40.40% 2.20% -96.10% -80.90%

HR sheet P&O 90,909 2,654 973 25 1 1,567 753,486 20,410 894 8,221 192 769 5.00% -5.80% -99.60% -78.80%

CR carbon steel 66,446 2,100 1,053 778 50 2,183 581,127 18,055 1,026 21,233 617 968 9.80% 16.00% -21.60% -69.00%

CR Stainless steel 13,508 1,233 3,041 5,013 375 2,525 108,112 9,874 3,014 48,111 3,860 2,670 6.90% -4.90% 33.90% 9.10%

Galv.sheet (HDG) 121,430 4,010 1,101 1,867 75 1,354 1,035,898 32,894 1,049 30,002 1,095 1,214 7.50% -2.00% -19.50% 7.90%

Galv.sheet (EG) 13,781 474 1,146 45 2 1,244 112,929 3,760 1,099 1,038 34 1,084 -5.30% -0.10% 57.50% -85.60%

Tin plate 20,113 812 1,345 141 7 1,755 141,484 5,412 1,263 1,768 93 1,753 47.30% 6.80% -40.30% 46.70%

Tin free 10,068 449 1,488 373 14 1,247 51,542 2,378 1,526 3,425 143 1,387 6.70% -11.70% 182.00% 21.50%

Other coated steel 56,753 2,134 1,253 3,558 139 1,321 450,566 16,943 1,242 37,461 1,427 1,267 52.20% 34.50% 172.90% 28.70%

Pipe - Seamless 23,385 1,346 1,918 2,900 239 2,777 225,047 14,627 2,142 19,511 2,005 3,424 8.90% 5.50% 425.00% 14.90%

Pipe - Welded 9,309 743 2,659 10,392 517 1,678 198,213 10,765 1,794 147,884 6,651 1,499 -8.60% 91.50% -55.20% -22.50%

Coated steel

Pipe

Sep 2011 Average exchange rate ===> 30.0059 for import 29.6235 for export

Sep 11 /

Sep 10

YTD 11 /

YTD 10

Sep 11 /

Sep 10

YTD 11 /

YTD 10

Import Export

Semi-finished products

Bar & HR Section

Hot rolled flat products

Cold rolled flat products

Thai Steel Import & Export, Sep 2011

Group Subgroup

Sep-11 Jan - Sep 2011(YTM) Import qty chg. % Export qty chg. %

Import Export


Table 34: Global Macro Economic Indicator

Source: FPO, CEIC *FPO

Table 35: East Asia Steel Price Index

Source: ISIT


US

GDP growth %(y-o-y) 2.17 3.30 3.51 3.14 2.24 1.63 1.62 - - - -

CPI %(y-o-y) 2.40 1.78 1.22 1.20 2.17 3.33 3.75 - 3.59 3.76 3.90

Fed Rate (%) 0.11 0.16 0.18 0.18 0.14 0.09 0.08 - 0.11 0.08 0.06

EU (15)

GDP growth %(y-o-y) 0.78 2.09 2.33 2.11 2.43 1.68 - - - - -

CPI %(y-o-y) 1.16 1.58 1.71 2.01 2.50 2.74 2.67 - 2.52 2.53 2.96

Refinancing Rate (%) 1.00 1.00 1.00 1.00 1.00 1.25 1.50 - 1.50 1.50 1.50

Japan

GDP growth %(y-o-y) 5.59 3.51 4.85 2.54 -0.61 -0.96 -0.24 - - - -

CPI %(y-o-y) -0.89 -0.76 -0.96 -0.30 -0.53 -0.43 0.17 - 0.30 0.20 0.00

Overnight Rate (%) 0.09 0.09 0.10 0.09 0.08 0.07 0.08 - 0.08 0.08 0.08

China

GDP growth %(y-o-y) 12.04 11.18 10.66 10.44 9.73 9.59 9.40 - - - -

CPI %(y-o-y) 2.20 2.93 3.47 4.70 5.07 5.73 6.27 - 6.50 6.20 6.10

Deposit rate (1 year,% )* 2.25 2.25 2.25 2.75 3.00 3.25 3.50 - 3.50 3.50 3.50

Lending rate (1 year,% )* 5.31 5.31 5.31 5.81 6.06 6.31 6.56 - 6.56 6.56 6.56

Indonesia

GDP growth %(y-o-y) 5.59 6.13 5.80 6.89 6.49 6.52 6.54 - - - -

CPI %(y-o-y) 3.65 4.37 6.15 6.32 6.84 5.89 4.67 - 4.61 4.79 4.61

BI Rate (%) 6.50 6.50 6.50 6.50 6.67 6.75 6.75 - 6.75 6.75 6.75

Malaysia

GDP growth %(y-o-y) 10.14 8.98 5.25 4.85 4.91 3.96 - - - - -

CPI %(y-o-y) 1.36 1.63 1.90 1.99 2.78 3.35 3.36 - 3.40 3.29 3.39

Overnight policy rate (%) 2.08 2.42 2.75 2.75 2.75 2.92 3.00 - 3.00 3.00 3.00

Vietnam*

GDP growth %(y-o-y)* 5.90 6.40 7.40 7.20 5.40 5.70 6.10 - - - -

CPI %(y-o-y)* 8.50 9.00 8.40 10.80 12.80 19.40 22.50 - 22.20 23.00 22.40

Prime interest rate (%)* 8.00 8.00 8.00 9.00 12.00 12.00 12.00 - 12.00 12.00 12.00

Macro Economic Indicator2010 2011

Product Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11

Indian Iron Ore - CFR China 213 226 224 216 220 226 229 199

Pig iron - FOB Black/Baltic Sea 179 184 185 179 179 179 171 162

HMS 1/2 80:20 - CFR East Asia 157 153 153 155 155 158 159 148

Billet - CFR East Asia 156 152 154 155 155 160 161 152

Slab - CFR East Asia 162 157 152 150 143 146 144 136

Rebar - CFR East Asia 163 162 167 168 169 173 173 163

H-Beam - CFR East Asia 123 125 125 121 121 124 124 121

HRC - CFR East Asia 142 141 141 140 138 142 142 131

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