BlueScope Asia Day China Business 29 June 2006
an integrated group of focused businesses 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. Invested Capital A$281m Invested Capital A$255m BlueScope Steel Suzhou North Central South/West Lysaght Residential Panels Vistawall Page 2
We are located in the strategic business centres of China Chengdu Building solutions facility, BlueScope Lysaght Metallic coating and painting facility, PEB facilities, Guangzhou Beijing/Tianjin Shanghai Ownership BlueScope Steel 100% facilities Suzhou Metallic coating line, paint line & slitter Butler PEB facilities Shanghai Beijing Guangzhou Lysaght facilities Beijing Shanghai Chengdu Guangzhou Residential facility Shanghai Panel facility Beijing Sales offices Over 50 sales offices across China Page 3
China s strong economy is well documented and debated 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% 1996-97 1998-99 2000-01 Real GDP Growth and Inflation - % chg GDP Growth Inflation 2002-03 2004-05 2006-07 2008-09 2010-11 2012-13 Gross Fixed Investment and Foreign Direct Investment (US$ bn) 70 1400 60 GFI (RHS) 1200 Inward FDI (LHS) 50 1000 40 800 30 600 20 400 10 200 0 0 2001 2002 2003 2004 2005 Source: Global Insight, EIU Economy Real GDP growth is forecast to slow gradually, but will remain strong FDI exceeds US$50 billion per annum Tariff regime - 5% on cold roll steel imports - 8% on metallic coated steel imports - 4% on painted steel imports Currently negotiating an FTA with Australia Population 1.5% per annum growth rate Urbanization continuing at a rate of 17 million people per annum Political Government policy will reduce investment in overheated sectors and stimulate domestic consumption levels Potential environmental issues and economic impact from increasing pollution levels Anticipate continued upward pressure on value of RMB Page 4
China Steel & Construction A large and growing market 2005 Steel Production and Consumption by region Northwest:+1 20 19 106 North:+40 66 Production (349MT) Consumption (351mt) Northeast: +8 37 29 Southwest:-17 East:-26 145 119 13 30 Large - Total steel consumption 351 million tonnes. Fragmented - Top 8 producers account for 32% of China total (BaoSteel, Anben, Tanshan, Wuhan, Shougang, ShaSteel, Jinan, Laiwu) Dynamic - Industry consolidation is expected South:-9 South:-8 54 62 Source: Growell Research IISI, BSL Economics Page 5
Urbanization will drive construction growth CONSTRUCTION INVESTMENT 180 160 140 120 100 80 60 40 20 0 Construction Investment - Contant US$Billion Residential Non-Residential Civil Engineering 2000 2001 2002 2003 2004 2005 2006p CONSTRUCTION AND MACHINERY ACCOUNT FOR 2/3 OF DEMAND GROWTH BY 2015 Finished steel demand, million tons 323 637 314 Consumer durables Ship building & Containers Automobile Others 2% 10% 8% 16% 32% Machinery Construction 32% Source: Global Insight Construction has been growing strongly as the demand for new housing and basic infrastructure soars. 2005 2015 * Excludes ship building and container Source: McKinsey China steel demand model URBANISATION Predominately coastal at present But will rapidly expand to China s centre Page 6
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. Page 7
China Our performance (growth and investment) FY2003 FY2004 FY2005 FY2006(e) Ext. Despatches (tonnes) (1) - Domestic 10.5 60.0 196.0 -Export 7.3 0.0 0.0 Total: 17.8 60.0 196.0 Sales Revenue (A$m) (1) - $36.7m $37.2m $35.0m - $47.4m $106.4m $317.6m Total Sales $84.1m $143.6m $352.6m EBIT (A$m) (1) In the range of - $4.1m $4.2m ($3.4m) ($15m) ($19m) - (2) $6.2m $11.7m $19.2m $4m - $8m Total EBIT (3) $8.3m $13.0m $13.1m ($10m) ($15m) Net Operating Assets (pre-tax A$m) (1) - $6.8m $23.8m $137.8m - $38.7m $108.4m $111.4m Total Net Operating Assets $45.5m $133.1m $250.1m Business development and preoperating costs included in EBIT - Note: (1) Results exclude Lysaght Taiwan (please refer to Supporting Information for details) (2) Acquired Butler in April 2004. - ($9.1m) approx ($7m) Page 8
FY06 China significant developments product Suzhou Paint line: paint on strip January 2006 (ahead of schedule) Metal coating line: on schedule for first quarter FY07 (Guangzhou) project completed Insulated panels (Langfang) project completed Secured signature projects for buildings Olympics Decking Rapid growth in power station segment Costs Investment: pre-operating and business development costs Page 9
China Key influences Key factors influencing ongoing profitability Input Side CRC sourcing, pricing Ramp-up of coating line Cost of coating metals Input Side Steel price volatility Guangzhou buildings start-up Sales Side Domestic pricing Commercial ramp-up Sales Side Domestic pricing Increased competition Customer project delays Filling increased capacity Page 10
BlueScope China The market leader BlueScope Steel Suzhou North Central South/West Lysaght Residential Panels Vistawall 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 Guangzhou 2006 Insulated Panels Page 11
A targeted approach to the market High value branded steel solutions for the building and construction industry Butler Pre Engineered Metal Public Industrial Transportation Power Stations Residential High Rise Page 12
Our regional approach will provide future growth BUTLER TIANJIN est. 2002 LYSAGHT LANGFANG est. 2003 Indicative revenue by geography FY04 FY06 Future North 25% 35% 35% Central 65% 50% 40% South/West 10% 15% 25% BUTLER SHANGHAI est. 1995 FY04 includes full year Butler results LYSAGHT SHANGHAI est. 1995 LYSAGHT CHENGDU est. 2003 BUILDINGS GUANGZHOU est. 2006 Page 13
In the PEB segment, more local customers are buying quality 2002 80% 10% 10% Multinational Strategic Local 2006 35% 30% 35% Page 14
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 Challenges Real estate development is moving geographically due to government controls Local competitors improving quality Margins are under pressure Rising steel costs reduce profits Strategies Develop regional businesses & networks Expand geographically to provide local service and reduce freight Introduce new offers product & support Target new segments for steel construction (ie. residential) Integrate supply chain with Suzhou Continue to hire & retain local talent Page 15
Steel China a new business is starting up BlueScope Steel Suzhou North Central 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 South/West Panels Lysaght Residential Vistawall Page 16
Future product flow through Steel China Cold Rolled Coil from Domestic & imports Metal Coating Line (250kt) Color Paint Line (150kt) Distributors Directs BlueScope Roll Forming Lines Beam Fabrication Line Contractors Government Project Owners Page 17
China Coating Project Status Status Paint line Paint on strip 26 January 2006 Current prime yield 80%+ Full product range manufactured Lysaght Shanghai BlueScope Steel Suzhou Butler Shanghai Metal coated line Coil tracking in June-July 2006 Metal on strip expected September 2006 MCL operator team trained Equipment undergoing commissioning Start prime yield 60%, ramp up to 90% by year end 250ktpa Coating line, 150ktpa Paint line; 100% owned by BlueScope Steel BlueScope Steel s largest single investment in Asia, A$280m Australia s largest investment in China Page 18
China Our opportunities Facilities Capacity Production (tonnes) (tonnes) FY2003-2005 FY2006 2009 Metallic Coating 250,000 250,000 Paint Line 150,000 7,350 150,000 Going forward, sales volumes are expected to increase as new facilities come on line and markets for products from existing facilities are expanded. Page 19
China expected production line ramp up profiles 000 s Tonnes 300 250 200 150 100 50 0 Metal FY2006 FY2007 FY2008 FY2009 000 s Tonnes 160 140 120 100 80 60 40 20 0 Painted FY2006 FY2007 FY2008 FY2009 Prime Product Non-Prime Prime Product Non-Prime NAMEPLATE CAPACITY 250,000tpa NAMEPLATE CAPACITY 150,000tpa Anticipated FY07 FY08 FY09 Anticipated FY06 FY07 FY08 FY09 Yields 88% 95% 96% Yields 90% 96.7% 98.5% 98.5% * OPAL volume is included as paint products, but is produced from the metal coated line Page 20
China New metal coating and paint line facility markets Central North South West Current principal markets are located in: Central 56 % North 19 % South 15 % West 10 % Brand strength separates the competition Over 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 brands Excellent local network with specifiers Securing the channels to market Direct to external customers Via strategic distributors Internally through BlueScope Page 21
China product domestic pricing has become more volatile Price: USD/MT (Incl.VAT) 1200 China domestic steel pricing (2002 2006) 1000 PPGI ZnAI PPGI ZnAI 800 ZnAI CGI 600 CGI CRC 400 CRC HRC 200 0 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 Page 22
China product domestic pricing spreads CRC to CGI spread has diminished over the last 18 months Price: USD/MT ( Incl. VAT) 400 China domestic steel pricing spreads (2002 2006) 350 300 250 HRC/CRC Spread 200 150 CGI/PPGI Spread 100 50 0 CRC/CGI Spread Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2002 2003 2004 2005 2006 Note: USD based on quarterly exchange rate Source: Company compiled from various sources Page 23
China Feedstock planning will help maximise profitability Current Source s major input costs are cold rolled coil, coating metals and paint. 1. Cold Rolled Coil Domestic supply will provide for best cost base Offshore supply has proven/known quality, optimising yields Long term relationships are established with many suppliers Freight, tariffs and strategic relationships must also be considered 2. Other Materials: Zinc ingot from Korean Zinc is secured under group contract Aluminium ingot from Comalco is secured under group contract Paint is sourced from Akzo Nobel through direct contract in China Page 24
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 Challenges Short term profitability Ensuring an efficient start up Volume growth Margin improvement Strategies Source coil feed selectively Expertise on the ground in China Continue marketing roll out New market offer development Page 25
Summary 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 understands the market and has adapted to recent dynamics. This will lead to solid overall growth. BlueScope 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. Page 26
China Supporting Information Page 27
China - sales offices and facilities CSM Sales Office Locations Location of China Sales Offices Northern Region 1. Tianjin 2. Beijing 3. Shijiazhuang 4. Taiyuan 5. Hohhot 6. Shenyang 7. Changchun 8. Harbin 9. Dalian 10. Xi an 11. Lanzhou 12. Yinchuan 13. Urumqi 14. Qingdao 15. Yantai 16. Jinan South Region 28. Guangzhou 29. Zhongshan 30. Shenzhen 31. Huizhou 32. Haikou 33. Xiamen 34. Fuzhou 35. Changsha 36. Nanchang 37. Nanning 38. Hong Kong Central Region 17. Shanghai 18. Hefei 19. Zhengzhou 20. Suzhou 21. Nanjing 22. Wuxi 23. Hangzhou 24. Ningbo 25. Jiaxing 26. Wuhan 27. Xiangfan West Region 39. Chongqing 40. Chengdu 41. Kunming 42. Guiyang 43. Quqing 44. Mianyang 45. Neijiang 46. Leshan 47. Lahsa 13 47 11 4 4 40 46 44 45 43 41 9 12 1239 42 5 10 37 26 3 4 35 5 2 7 3 1 1 1 2 3 11 19 27 36 31 2 2 29 30 28 3 1338 15 16 18 6 8 14 9 21 22 1 1 1 1 17 20 1 1 25 23 24 3310 34 6 7 8 BlueScope Manufacturing Locations Lysaght 1. Shanghai 2. Guangzhou 3. Langfang 4. Chengdu 1. Shanghai 2. Guangzhou 3. Wuhan 4. Chengdu 5. Xi an 6. Qingdao 7. Tianjin 8. Shenyang 9. Kunming 10. XiaMen 11. Beijing 12. Chongqing 13. Hong Kong Coating/Painting Locations 1. Suzhou (under construction) Butler 1. Shanghai 2. Tianjin 3. Guangzhou Vistawall 1. Shanghai Residential 1. Shanghai Panels 1. Langfang 32 Page 28
We recently have had Olympic success! Page 29
Recent project successes Northern China Tianjin Olympic Stadium Markor Furniture Group Showroom Size: 48,445m 2 Size: 5,633m 2 Tech Full Electronic XEDA Industry Park Standard Building Size: 19,000m 2 Size: 36,440m 2 Page 30
Recent project successes Central China Shanghai General Motors Chart Manufacturing Size: 176,673m 2 Location: 15 sites - Shanghai Size: 10,542m 2 Location: Changzhou New Horizon Manufacturing OBI Supermarket Size: 10,811m 2 Location: Suzhou Size: 13,000m 2 Location: Shanghai Page 31
Recent project successes - Southern China Kinglong Bodywork Shenzhen Baoli Culture Plaza Size: 40,000m 2 Size: 18,000m 2 Mega Tower Fang Cheng Port Power Plant Size: 240,000m 2 Size: 20,000m 2 Page 32
First despatch from Suzhou 24 March 2006 Page 33
Taiwan Our performance FY2003 FY2004 FY2005 FY2006(e) Ext. Despatches (tonnes) -Domestic 2.5 3.8 7.2 -Export 0.0 0.0 0.0 Total: 2.5 3.8 7.2 Sales Revenue (A$m) Total Sales $10.2m $16.1m $42.9m EBIT (A$m) In the range of Total EBIT ($0.4m) $1.1m $3.4m ($18m) ($22m) Net Operating Assets (pre-tax A$m) $4.9m $10.2m $11.5m Note: FY2006 (e) includes operating losses and estimated closure costs Page 34