EFTA Document EFTA01385462

3 January 2018 HY Corporate Credit HY Multi Sector,Media. Cable & Satellite Inequalities within the International Steel Markets The global steel industry is structurally oversupplied due to certain geographies that produce far more of the man-made material than demand in those regions warrants. While we acknowledge some regions are supported by production in nearby geographies, we believe this analysis provides some useful insight into the global supply glut and the relevant geographies that such excess steel originates in. In Figure 22 below, positive figures reflect an excess of supply (highlighted in red), whereas negative numbers indicate a production deficit. Based on our analysis of supply and demand by geography, while the market in 2016 appears to be at a deficit (shown in Figure 22), a number of meaningful dislocations exist across the spectrum. According to the data, Asia and CIS collectively manufactured a surplus of 111mn mtpa of steel while every other region experienced a deficit in 2016. Considering steel is a global commodity, excess steel manufactured in China and CIS likely satisfies demand for steel in alternative regions of the world that may lack the capacity to manufacture adequate steel to meet their needs, such as the Middle East and Africa. Other worldwide regions such as the European Union, Other Europe, South America and Oceania are comparatively self-sufficient, for the most part producing the supply of steel that each of their markets necessitate in a given year. In yet another example, historically North America (NA) has required steel imports to satisfy some portion of its apparent demand. However, in recent years foreign manufacturers have begun targeting NA as an alternative market to their own respective domestic markets and shipping their excess steel to NA considering that NA benefits from a stronger pricing environment than the rest of the world. iiigure 22: Geographical Dislocations in Supply Demand l(X)0's of metric tonnes} Olobel SOS Supply I D88448110000 2007 2006 2009 2010 2011 2012 20111 2:0111 2015 2010 ASIA 42.199 363/3 '1.9281 17,964 31,892 83160 43318 145.400 741114 EUROPEAN UNION NORTH AMERICA 113,3751 134,51031 (6,5141 129.4421 9.403 115.4291 10.491 119,7411 5.172 123,7771 14176 131.8791 9.354 130,5251 6.914 14141111 11,751 144.415 keill 1.410621 Ir 3 as 51911 57.310 56.939 52.724 49,425 45,059 41970 42.727 44.847 47.673 OTHER EUROPE 11,5701 2.150 4.446 3.024 4.426 3.792 15161 19021 16.673 (5.5391 SOUTH AMERKA 4,921 844. 2.330 (3,6601 1121601 151641 Inn) 16,1/21 13134 (7671 MIDDLE EAST MAGA 131.9261 (13171 137.6181 1121571 132.3301 117.256) cum 1131436I 132,8891 116,3121 130,6821 1201241 130.5431 133,7W 1292181 125.8221 129.054 121331 1262471 atm OCEANIA 16511 11.1211 17681 {6891 14971 (2166) 11 9391 129311 12 507 Global Steel Surplus /(NA ri 17101 7 5.482 23.443 14.9130 6,101 11091) 12115 3,561 Sp.s.ce 04.4-som 84/. 61940-0.89 onr.044.0. it. Amy Stew Assmvam arbitraging the North American and European steel markets While NA and the EU both require a portion of their steel needs imported, a different phenomenon has taken shape in these regions. Formerly captive markets, NA and EU had historically succeeded in largely achieving equilibrium between supply and demand given their solid manufacturing platforms in each region that could ramp up and fulfill incremental demand. However, the onset of globalization marked an end to their steel independence. Since steel prices in NA and EU tend to be higher than in other regions that generate surpluses, offshore steelmakers (particularly in China) have begun shipping excess steel to territories with higher prevailing selling prices to the detriment of domestic manufacturers. This influx of cheaper (and likely government-subsidized) steel into NA and the EU has pressured pricing, forcing producers to reduce selling prices to maintain volumes with customers. More, we question whether some foreign steelmakers are benefitting from subsidies on exports, affording them the ability to sell their products at lower prices than they otherwise could and still realize a profit. Unfortunately, over time such competitive advantages over domestic steel producers has led to bankruptcies and the closure of thousands of insolvent steelmaking facilities unable to compete against cheaper imports. Consequently, this inequality has caused the remaining steel manufacturers to appeal to their respective governments to put in place protective tariffs on unfairly "dumped" steel imports in order to achieve a fair and level playing field. Page 188 Deutsche Bank Securities Inc. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0086747 CONFIDENTIAL SDNY_GM_00232931 EFTA01385462