BlueScope Asia Day China Business - Amazon S3 · & Containers 2% Finished steel demand, million tons ... In the PEB segment, more local customers are buying quality Local BlueScope

BlueScope Asia DayChina Business

29 June 2006

Page 2

Our Focus: derive maximum value from the growing China steel construction industry. The market will see improved building quality, thermal efficiency and steel consumption over the next 20 years.

BlueScope Steel China

CoatedInvested Capital A$281m

BuildingsInvested Capital A$255m

BlueScope Steel Suzhou Buildings North Buildings Central

Buildings South/West Lysaght Residential

Panels Vistawall


Coated Buildings



Panels Vistawall

BlueScope Steel China – an integrated group of focused businesses

Page 3

We are located in the strategic business centres of China

OwnershipBlueScope Steel 100%

Coated facilitiesSuzhouMetallic coating line, paint line & slitter

Butler PEB facilitiesShanghaiBeijingGuangzhou

Lysaght facilitiesBeijingShanghaiChengduGuangzhou

Residential facilityShanghai

Panel facilityBeijing

Sales officesOver 50 sales offices across China

Building solutions facility, BlueScope LysaghtMetallic coating and painting facility, BlueScope Steel ChinaPEB facilities, BlueScope Steel China


Coated Buildings

Beijing/Tianjin

ShanghaiChengdu

Guangzhou

Page 4

China’s strong economy is well documented and debated

EconomyReal GDP growth is forecast to slow gradually, but will remain strongFDI exceeds US$50 billion per annumTariff regime- 5% on cold roll steel imports- 8% on metallic coated steel imports- 4% on painted steel importsCurrently negotiating an FTA with Australia

Population1.5% per annum growth rateUrbanization continuing at a rate of 17 million people per annum

PoliticalGovernment policy will reduce investment in overheated sectors and stimulate domestic consumption levelsPotential environmental issues and economic impact from increasing pollution levelsAnticipate continued upward pressure on value of RMB

Real GDP Growth and Inflation - % chg

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

1996-9

7

1998-9

9

2000-0

1

2002-0

3

2004-0

5

2006-0

7

2008-0

9

2010-1

1

2012-1

3

GDP GrowthInflation

Gross Fixed Investment and Foreign Direct Investment (US$ bn)

0

10

20

30

40

50

60

70

2001 2002 2003 2004 20050

200

400

600

800

1000

1200

1400

GFI (RHS)

Inward FDI (LHS)

Source: Global Insight, EIU


Coated Buildings

Page 5

China Steel & Construction – A large and growing market

• Large - Total steel consumption 351 million tonnes.• Fragmented - Top 8 producers account for 32% of

China total (BaoSteel, Anben, Tanshan, Wuhan, Shougang, ShaSteel, Jinan, Laiwu)

• Dynamic - Industry consolidation is expected

2005 Steel Production and Consumption by region


Coated Buildings

Source: Growell Research IISI, BSL Economics

Production (349MT)Consumption (351mt)

South：-962

South：-854

East：-26119 145

Northeast: +8

37 29

North：+40

10666

Northwest：+1

20 19

Southwest: -17

13 30

Page 6

Urbanization will drive construction growth

CONSTRUCTION AND MACHINERY ACCOUNT FOR 2/3 OF DEMAND GROWTH BY 2015

314

2015

637

323

2005

32%

Machinery

8%

Consumerdurables

16%

Automobile

10%

Others

Construction

32%

Ship building& Containers

2%

Finished steel demand, million tons

* Excludes ship building and containerSource: McKinsey China steel demand model


Coated Buildings

Construction Investment - Contant US$Billion

0

20

40

60

80

100

120

140

160

180

2000 2001 2002 2003 2004 2005 2006p

ResidentialNon-ResidentialCivil Engineering

CONSTRUCTION INVESTMENT

Source: Global Insight

Construction has been growing strongly as the demand for new housing and basic infrastructure soars.

Predominately coastal at present But will rapidly expand to China’s centre

URBANISATION

Page 7

Local leaders driving the business and working safely

China Extended Leadership Team

• China safety performance is amongst BlueScope Steel’s best.

• Over 1800 employees, 25% female and over 80% with post secondary education (50+% with Bachelor degree).

• Actively participate in local educational, charity and sports function.


Coated Buildings

Page 8

China – Our performance (growth and investment)

approx ($7m)($9.1m)--Business development and pre-operating costs included in EBIT

($10m) – ($15m)$13.1m$13.0m$8.3mTotal EBIT (3)

$4m - $8m$19.2m$11.7m$6.2m- Buildings (2)

($15m) – ($19m)($3.4m)$4.2m$4.1m- Coated

In the range ofEBIT (A$m) (1)

$352.6m$143.6m$84.1mTotal Sales

Sales Revenue (A$m) (1)

$35.0m$37.2m$36.7m- Coated

$317.6m$106.4m$47.4m- Buildings

Net Operating Assets (pre-tax A$m) (1)

$137.8m$23.8m$6.8m- Coated

$111.4m$108.4m$38.7m- Buildings

$250.1m$133.1m$45.5mTotal Net Operating Assets

196.060.017.8Total:

0.00.07.3- Export

196.060.010.5- Domestic

Ext. Despatches (tonnes) (1)

FY2006(e)FY2005FY2004FY2003

Note:(1) Results exclude Lysaght Taiwan (please refer to Supporting Information for details)(2) Acquired Butler Buildings in April 2004.(3) Includes regional costs


Coated Buildings

Page 9

FY06 China significant developments

Coated product SuzhouPaint line: paint on strip January 2006 (ahead of schedule)Metal coating line: on schedule for first quarter FY07

Buildings (Guangzhou) project completedInsulated panels (Langfang) project completedSecured signature projects for buildings

OlympicsDecking

Rapid growth in power station segmentCosts

Investment: pre-operating and business development costs

Page 10

China – Key influences

CoatedInput Side

CRC sourcing, pricingRamp-up of coating lineCost of coating metals

Sales SideDomestic pricingCommercial ramp-up

BuildingsInput Side

Steel price volatilityGuangzhou buildings start-up

Sales SideDomestic pricingIncreased competitionCustomer project delaysFilling increased capacity

Key factors influencing ongoing profitability

Page 11

BlueScope Buildings China – The market leader BlueScope Steel China

Coated Buildings

1983 – Lysaght Taiwan

1995 – Lysaght Shanghai

1995 – Lysaght Guangzhou

2003 – Lysaght Langfang

2003 – Lysaght Chengdu

2004 – Acquired Butler China

2005 – Tianjin Beam Line

2005 – Lysaght Residential

2006 – Buildings Guangzhou

2006 – Insulated Panels


Coated Buildings



Panels Vistawall

Page 12

“High value branded steel solutions for the building and construction industry”

A targeted approach to the market BlueScope Steel China

Coated Buildings

Butler – Pre Engineered Metal Buildings

Public Buildings

Industrial

Residential

Transportation

Power Stations High Rise

Page 13

Our regional approach will provide future growth

15%

50%

35%

FY06

25%10%South/West

40%65%Central

35%25%North

FutureFY04Indicative revenue by geography


Coated Buildings

FY04 includes full year Butler results

LYSAGHT SHANGHAI – est. 1995

BUTLER SHANGHAI – est. 1995

BUTLER TIANJIN – est. 2002 LYSAGHT LANGFANG – est. 2003

LYSAGHT CHENGDU – est. 2003

BUILDINGS GUANGZHOU – est. 2006

Page 14

In the PEB segment, more local customers are buying quality

Local


Coated Buildings

StrategicMultinational2002 80% 10% 10%

2006 35% 30% 35%

Page 15

The building market is highly competitive and we must stay ahead

Opportunities

Residential and transportation segment growth supported by urbanisation

Insulated panels used more widely to control internal environments

Public buildings growth from urbanisation trend and highlighted by 2008 Beijing Olympics and 2010 Shanghai World Expo

StrategiesDevelop regional businesses & networks

Expand geographically to provide local service and reduce freightIntroduce new offers – product & support

Target new segments for steel construction (ie. residential)

Integrate supply chain with SuzhouContinue to hire & retain local talent

ChallengesReal estate development is moving geographically due to government controls

Local competitors improving quality

Margins are under pressure

Rising steel costs reduce profits


Coated Buildings

Page 16

Coated Steel China – a new business is starting up

1999 – Sales & marketing office established to seed China market with metallic coated and painted products

April 2004 – Groundbreaking for Suzhou facility

January 2006 – Paint on strip

March 2006 – First despatch of painted coil from Suzhou


Coated Buildings


Coated Buildings



Panels Vistawall


Coated Buildings



Panels Vistawall

Page 17

Metal Coating Line (250kt)

Color Paint Line (150kt)

BlueScope BuildingsRoll Forming Lines

Beam Fabrication Line

Cold Rolled Coilfrom

Domestic & imports

Distributors

Directs

Future product flow through Coated Steel ChinaBlueScope Steel China

Coated Buildings

Project Owners

Government

Contractors

Page 18

China Coating Project Status

StatusPaint line

Paint on strip 26 January 2006Current prime yield 80%+Full product range manufactured

Metal coated lineCoil tracking in June-July 2006Metal on strip expected September 2006MCL operator team trainedEquipment undergoing commissioningStart prime yield 60%, ramp up to 90% by year end

Lysaght ShanghaiBlueScope Steel SuzhouButler Shanghai

250ktpa Coating line, 150ktpa Paint line; 100% owned by BlueScope SteelBlueScope Steel’s largest single investment in Asia, A$280m

Australia’s largest investment in China


Coated Buildings

Page 19

China – Our opportunities

Going forward, sales volumes are expected to increase as new facilities come on line and markets for products from existing facilities are expanded.

Facilities Capacity (tonnes) FY2003 - 2005 FY2006 2009

Metallic Coating 250,000 250,000

Paint Line 150,000 7,350 150,000

Production (tonnes)


Coated Buildings

Page 20

China – expected production line ramp up profiles

96%95%88%

FY09FY08FY07AnticipatedYields

0

50

100

150

200

250

300

FY2006 FY2007 FY2008 FY2009

Prime Product Non-Prime

NAMEPLATE CAPACITY 250,000tpa

000’s Tonnes Metal Coated

020406080

100120140160

FY2006 FY2007 FY2008 FY2009

Prime Product Non-Prime

NAMEPLATE CAPACITY 150,000tpa

000’s Tonnes

* OPAL volume is included as paint products, but is produced from the metal coated line


Coated Buildings

Painted

96.7%

FY07

98.5%98.5%90%

FY09FY08FY06AnticipatedYields

Page 21

China – New metal coating and paint line facility markets

Current principal markets are located in:Central 56 %North 19 %South 15 %West 10 %

Brand strength separates the competitionOver 1.0 million tonnes of 55% Al/Zn production. Zincalume® steel is the #1 brand in the market.BlueScope Steel has the most widely recognised painted brandsExcellent local network with specifiers

Securing the channels to marketDirect to external customersVia strategic distributorsInternally through BlueScope Buildings

CentralNorth

South

West


Coated Buildings

Page 22

China product domestic pricing has become more volatile

Price: USD/MT (Incl.VAT)

0

200

400

600

800

1000

1200

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Y2002 Y2003 Y2004 Y2005 Y2006

Note: USD based on quarterly exchange rate

Source: Company compiled from various sources

PPGI

CGI

HRC

CRC

China domestic steel pricing(2002 – 2006)


Coated Buildings

PPGI ZnAI CGI

ZnAI

ZnAI

CRC

Page 23

0

50

100

150

200

250

300

350

400

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

CGI/PPGI Spread

CRC/CGI Spread

HRC/CRC Spread

Price: USD/MT （Incl. VAT）

China product domestic pricing spreads – CRC to CGI spread has diminished over the last 18 months

2002 2003 2004 2005 2006

China domestic steel pricing spreads(2002 – 2006)

Note: USD based on quarterly exchange rate

Source: Company compiled from various sources


Coated Buildings

Page 24

China – Feedstock planning will help maximise profitability

Current SourceBlueScope Steel China’s major input costs are cold rolled coil, coating metals and paint.

1. Cold Rolled CoilDomestic supply will provide for best cost baseOffshore supply has proven/known quality, optimising yieldsLong term relationships are established with many suppliersFreight, tariffs and strategic relationships must also be considered

2. Other Materials:Zinc ingot from Korean Zinc is secured under group contractAluminium ingot from Comalco is secured under group contractPaint is sourced from Akzo Nobel through direct contract in China


Coated Buildings

Page 25

China– Despite the challenges, the market is moving our way

Opportunities

Growth of premium coated steel demand by the building market

Increase the use of steel in construction relative to concrete currently steel approx 10%

Enhance our market leading brand position


Coated Buildings

Strategies

Source coil feed selectively

Expertise on the ground in China

Continue marketing roll out

New market offer development

Challenges

Short term profitability

Ensuring an efficient start up

Volume growth

Margin improvement

Page 26

The business has come off FY2005 highs due to market conditions, “one offs” and large investment for the future.

The Suzhou plant will finish commissioning and begin full scale operations in October 2006.

Massive urbanisation will underpin demand for the next 20 years.

BlueScope Buildings understands the market and has adapted to recent dynamics. This will lead to solid overall growth.

BlueScope Buildings has a market leading position although we recognise that keen competition just behind us.

China will continue to experience construction growth and our recent investments will position us to grow.

Once our projects are ramped up, the Building and Coating businesses will be well placed to grow profitably.

Summary – BlueScope Steel China BlueScope Steel China

Coated Buildings

Page 27

Supporting Information

China

Page 28

Lysaght1. Shanghai2. Guangzhou3. Langfang4. Chengdu

BlueScope Buildings Manufacturing Locations

Butler1. Shanghai2. Tianjin3. GuangzhouVistawall1. ShanghaiResidential

1. Shanghai Panels1. Langfang

China - sales offices and facilities

3 111

4

2

4

5

2

3

1

6

8

1 11

10

9

1. Shanghai2. Guangzhou3. Wuhan4. Chengdu5. Xi’an6. Qingdao7. Tianjin8. Shenyang9. Kunming10. XiaMen11. Beijing12. Chongqing13. Hong Kong

CSM Sales Office Locations

Coating/Painting Locations1. Suzhou (under construction)

7

1

Location of Buildings China Sales Offices

Northern Region1. Tianjin2. Beijing3. Shijiazhuang4. Taiyuan5. Hohhot6. Shenyang7. Changchun8. Harbin9. Dalian10. Xi’an11. Lanzhou12. Yinchuan13. Urumqi14. Qingdao15. Yantai16. Jinan

Central Region17. Shanghai18. Hefei19. Zhengzhou20. Suzhou21. Nanjing22. Wuxi23. Hangzhou24. Ningbo25. Jiaxing26. Wuhan27. Xiangfan

South Region28. Guangzhou29. Zhongshan30. Shenzhen31. Huizhou32. Haikou33. Xiamen34. Fuzhou35. Changsha36. Nanchang37. Nanning38. Hong Kong

West Region39. Chongqing40. Chengdu41. Kunming42. Guiyang43. Quqing44. Mianyang45. Neijiang46. Leshan47. Lahsa

12

3

4

56

7

8

9

10

1112

13

141516

171819

20

2122

232524

2627

283029

38

31

32

33

34

35 36

37

3940

41

42

43

44 4546

47

3

1

1 2

12

13


Coated Buildings

Page 29

We recently have had Olympic success! BlueScope Steel China

Coated Buildings

Page 30

Recent project successes – Northern China

Tianjin Olympic Stadium Markor Furniture Group ShowroomSize: 48,445m2 Size: 5,633m2

Tech Full Electronic XEDA Industry Park Standard BuildingSize: 19,000m2 Size: 36,440m2


Coated Buildings

Page 31

Recent project successes – Central China

Shanghai General Motors Chart ManufacturingSize: 176,673m2 Location: 15 sites - Shanghai Size: 10,542m2 Location: Changzhou

New Horizon Manufacturing OBI SupermarketSize: 10,811m2 Location: Suzhou Size: 13,000m2 Location: Shanghai


Coated Buildings

Page 32

Recent project successes - Southern China

Kinglong Bodywork Shenzhen Baoli Culture PlazaSize: 40,000m2 Size: 18,000m2

Mega Tower Fang Cheng Port Power PlantSize: 240,000m2 Size: 20,000m2


Coated Buildings

Page 33

First despatch from Suzhou – 24 March 2006 BlueScope Steel China

Coated Buildings

Page 34

Taiwan – Our performance

($18m) – ($22m)$3.4m$1.1m($0.4m)Total EBITIn the range ofEBIT (A$m)

$42.9m$16.1m$10.2mTotal SalesSales Revenue (A$m)

$11.5m$10.2m$4.9mNet Operating Assets (pre-tax A$m)

7.23.82.5Total:0.00.00.0- Export7.23.82.5- Domestic

Ext. Despatches (tonnes)FY2006(e)FY2005FY2004FY2003


Coated Buildings

Note:FY2006 (e) includes operating losses and estimated closure costs

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BlueScope Asia Day China Business - Amazon S3 · & Containers 2% Finished steel demand, million tons ... In the PEB segment, more local customers are buying quality Local BlueScope