EFTA01385463

3 January 2018 HY Corporate Credit HY Multi Sector,Media, Cable & Satellite Volume Trends in the Regional Markets Asia Chronically oversupplied due largely to elevated production in China and Japan Asia is responsible for the majority of steel production and apparent demand at 69% and 65% of the global market, respectively. In 2016 Asia manufactured 1.125bn mt of steel yet consumed only 1.061bn resulting in a regional surplus of 63.5mn mt. This is largely a result of the influence of China (and also Japan) on the global market. China comprised 50% of global steel generation in 2016. • China produced 808.4mn mt of steel versus apparent demand of 709.4mn mt resulting in a domestic surplus of 98.9mn metric tonnes of steel; • Japan recorded a surplus of 37.3mn metric tonnes based on production of 104.8mn mt less apparent demand of 67.5mn mt; • India's supply/demand trends appear fairly balanced; and, • South Korea manufactured 68.6mn mt of steel in 2016 against apparent demand of 59.5mn mt resulting in a steel surplus of 9.1mn metric tonnes. rig!!!!! 73• Asian Supp!v Demand (000's of metric tonnes) Global Sued Yroducton (Supp%I 2007 2009 2010 2011 IOU 2012 2014 2015 2011 %Mobil 0 481712 512.339 577.070 4344744 701-0445 721.040 922.000 822204 1103425 1331.104 YoY 14% 5% U% 17% leo 4% 12% 0% J1. I% JAYA71 120203 11%131 I1M4 101.621 107.401 107,222 110.506 1*0.9411 yam 104.775 6% % ;Yo1 3% • 7% 26% 25% 0% 3% .9% 0% .n fin 51404 57.711 63,527 414.76 711471 71.214 01291 VAN 897)24 147477 4% 0% t% 10% 17% 5% 547 7% 2% 7% 51,517 53.4215 man 5014 41019 non 0.061 21613 SPAM 01.574 A% 61. 4% 4% 26% 1% 4% .3% Avn 758.385 784010 111.114 110.214) MOAN 1,02001 1,121.641 1.139.221 1.112.831 1411706 111% YoY 7/.. 4% 9% 107 1% .3% /16 Global Stool Coniumpbon I Delon. 200! ZOCII 2011 1012 Uun. 437940 465.440 574.420 112.7703 067.130 697.610 765.750 70.3SO 700.350 709.400 4. yoy II% 7% 20% 7% ej 7% 11% .3% .5% I% Upon UNA 83.202 64.440 17.400 41.400 68,800 70200 72100 472100 42400 4% %.4 Vol' 2% 4% .31% 30% J% I% l% .2% 0% India 55,491 54.201 64,700 11062 7,154 77.420 00.656 16,404 19.419 91,1.1 6% Yo 12% 1% 13% 7% 6% 1% 4'; 7% 3% 3% South Kona 57461 41.011 47.303 94,572 54.741 56422 53119 57,40 51.05 55,0061 4% YVY 10% 41% 22% I5' 8% 41. .4% 7% I% 2% 716395 747,717 911794 990.446 962564 993422 1.011,132 1176122 12131877 1061.198 45% YoY 9% 4% 9% 9% I% 3% 9% -7% '3% 2% Global 6514 Supply/Demand MON 2007 2000 200/ 2010 2011 aft 2011 2014 1015 20141 Chou 13.1152 44169 2010 2103 34034 41.430 66.260 Soon 34403 15,535 3031 4189 34.001 98432 39.795 Indio 110421 1.562 1833) (1061 317 11721 613 South Keen 5.$6)1 77i .U.) 1209 4311 9,778 13,751 11142 NSW 41.160 34.373 11.9U) 27.964 31692 33.669 42416 Sauna 04749499 9H. Sibcenbor9lounca to to* Wee Stool ASSONIWn Collectively, China and Japan's 136.2mn mtpa of excess production more than satisfied the rest of Asia's 85.6mn mt deficit in 2016. That said, the remaining 63.5mn mt of excess steel originating in Asia has serious implications for other developed steel markets such as NA and EU, two regions that have become favored targets to ship excess steel. As this influx of less expensive (and likely government-subsidized) steel makes its way ashore it has the effect of bloating steel inventories and expanding supply, which in turn pressures the domestic manufacturers' ability to sustain adequate levels of pricing above cost. More, since steel is a commodity and producers tend to compete on price, the lower- priced product is often able to steal market share from the domestic steel mills. This has the effect of constraining capacity utilization (fixed cost absorption) on account of lower volumes, decreasing profitability. Furthermore, Chinese steel producers are also state-owned and lack an organized system of bankruptcy. Accordingly, these producers may continue to operate at a loss until they are effectively rescued with obscure government funding. This further exasperates the plight of developed markets like NA and the EU where companies can run out of money and are forced involuntarily into bankruptcy. Deutsche Bank Securities Inc. USN 1034/5 911146 37.7/36 37,324 37,275 881 (3931 7,796 1709 11,515 1,122 W100 14.994. 63.546 Page 189 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0086748 CONFIDENTIAL SDNY_GM_00232932 EFTA01385463