China Basic Materials Monthly：further softness in demand

DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/ researchdisclosures or call +1 (877) 291-2683. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. 25 May 2010Asia Pacific/China & Hong KongEquity ResearchMetals & Mining China Basic Materials Monthly MONTHLY May 2010 – further softness in demand Figure 1: Chinese spot price trend by materials since 4Q08 50%75%100%125%150%175%Oct-08Nov-08Dec-08Jan-09Feb-09Mar-09Apr-09May-09Jun-09Jul-09Aug-09Sep-09Oct-09Nov-09Dec-09Jan-10Feb-10Mar-10Apr-10May-10Jun-10Jul-10Aug-10CopperSteel - HRCCementThermal coalAluminumSteel - RebarChinese material price performance (%)Source: Bloomberg, China Coal Market Network, Mysteel, CEIC, Credit Suisse estimates ■ Channel checks on demand. Based on Credit Suisse’s proprietary demand survey, we have seen downstream demand order books soften further since April, based on seasonality and the high base in March-April. Feedback from producers in May suggests that: 1) end-user order books in April were in line with producers’ expectations. The MoM trend for forward order books of finished goods has continued to soften, as the percentage of respondents who saw a sequential improvement fell from 100% in March, to 45% in April, and is now 18% in May, driven mostly by seasonality or the extraordinarily high base in March-April; 3) material demand is trending mostly flat or down sequentially. We are seeing a slight pick-up in demand from coal producers, likely a reflection of pre-summer restocking by IPPs. The percentage of producers seeing improving MoM demand is 0% for steel mills (flat as of April), 60% for cement producers (flat as of April) and 40% for coal producers and IPPs (down from 60% in April). ■ Steel – risk of demand disruption partly factored in. ■ Coal – QHD price improves, against other pricing. ■ Cement – incremental positives from economic housing. ■ Aluminium – SHFE price below cash cost. ■ Alumina – improving demand. Research Analysts Trina Chen 852 2101 7031 trina.chen@credit-suisse.com Kevin You 852 2101 6093 kevin.you@credit-suisse.com Ada Dai 852 2101 6547 ada.dai@credit-suisse.com Asia Metals & Mining Research Analysts Trina Chen (Head of Metals and Mining, China) Hocheol Kim (Korea) Neelkanth Mishra (India) Fonny Surya (Indonesia) Paworamon (Poom) Suvarnatemee, CFA (Thailand) Sidney Yeh (Taiwan) 25 May 2010 China Basic Materials Monthly 2 NJA basic material stocks (Credit Suisse coverage) Figure 2: Valuation and performance comparison – Credit Suisse estimates versus consensus Rat- Mkt cap EPS P/E P/B EV/EBITDA Abs. perf. (%)Rel. perf. (%) Company Ticker ing TP Price Ccy (US$ mn)08A 09E10E08A 09E10E08A 09E10E08A 09E 10E 1M 3MYTD1M 3M YTDSteel Maanshan 0323.HK U 2.8 3.6 HK$ 35240.100.050.093061360.90.91.05 5 6 -17 -27-37-10-24-25 0.100.050.273061120.90.90.95 5 4 Angang 0347.HK O 13.2 10.4 HK$ 96450.410.100.852288111.21.31.110 12 6 -18 -27-39-10-25-27 0.410.100.742288121.21.31.110 11 6 Baosteel 600019.SS O 9.9 6.7 RMB 172080.370.330.75182091.31.21.06 7 4 0 -18-3110-7-12 0.370.330.631820111.31.21.16 7 5 Wuhan 600005.SS N 7.0 5.1 RMB 58650.660.180.5682891.41.51.35 7 4 -13 -25-38-2-14-20 0.660.180.47828111.41.51.35 7 5 Panzhihua 000629.SZ U 4.7 8.2 RMB 3970-0.14-0.150.14n.a. n.a. 572.63.13.023 29 9 -4 -377925 -0.14 -0.150.09 n.a. n.a.912.63.13.023 42 15 Dong Kuk 001230.KS N 25K 21K W 10592.8K0.8K3.8K82660.50.50.43 8 6 -18 -9-23-10-9-18 2.8K0.8K3.9K82550.50.50.43 8 5 Hyundai Steel 004020.KS U 77K 84K W 59219.6K13.5K8.9K96101.51.11.07 15 13 -7 -4-30-42 9.6K 13.7K8.9K96101.51.11.07 15 10 POSCO 005490.KS O 675K 456K W 3269651K36.4K56.4K91381.41.31.15 8 5 -13 -15-26-5-15-22 51K 41.4K 60.8K91181.41.31.15 9 5 JSW Steel Ltd JSTL.BO U 700.0 1048.3 Rs 417496.414.70881171122.32.52.110 13 9 -12 -24-5-49 96.414.7 103.61172102.32.51.810 13 7 Steel Authority SAIL.BO U 200.0 198.3 Rs 1743218.414.917.41113113.52.92.47 9 7 -11 -4-17-5-6-12 18.415.818.31113113.53.02.57 7 8 Tata Steel Ltd TISC.BO U 500.0 495.8 Rs 9364188.260-31.038n.a. 1.01.51.86 6 13 -23 -12-19-16-13-14 188.266 -15.0381.01.31.76 6 13 China Steel 2002.TW O 34.9 30.3 NT$ 9091.911.502.921620101.61.61.510 22 9 -8 -7-80-52 1.911.532.841620111.61.61.510 22 9 Coal Yanzhou - H 1171.HK O 22.0 17.1 HK$ 107811.320.841.5611