1Q09 Steel Industry
The performance of 1Q09 steel industry in China has improved when compared with 4Q08 where the whole steel industry there suffered losses of USD 7.0 billion. Recent results announcement for 1Q09 showed that Baoshan Steel (the largest steel manufacturer in China) PAT drop 97.7% y-o-y to RMB 89.0 million, Angang Steel PAT dropped 99.7% y-o-y to RMB 8.0 million. Maanshan Steel reported net loss of to RMB 898.6 million in 1Q09. According to China Iron & Steel Association ("CISA"),the Chinese steel makers reported a combined loss of RMB 3.3 billion for 1Q09. Their major disappointments were significant decrease in sales prices of steel products and gross profit margin dropped because of overcapacity. In 1Q09 China produced 124.7 million tons of crude steel and its export of steel remained sluggish at 5.14 million tons which indicates a dropped of approximately 50% yo- y. In an effort to further support the steel industry, the Chinese Government has scrapped export duties on 67 flat-steel products effectively 1 Dec 2008. On 1 April 2009, the Chinese government increased the export rebate of cold-rolledcoil ("CRC"), HR stainless steel and silicon steel from 5% to 13% is further seen as another positive step to encourage the export of high-value-added steel products.

1Q09 has witnessed some gradual pick up in the steel demand because total steel inventory level had dropped by 9% over the past months. Long steel products (which is related to construction / infrastructure projects) pulled back by > 30% in general while flat steel products remained flat.

Moving forward, the demand of steel is expected to pick up in 2H09 in which the stockpiles accumulated by building contractors & developers would be fully utilized as a results of the development projects spur by RMB 4.0 trillion stimulus package. This move will certainly encourage the usage of steel products, which will directly increase the demand for coke.

RMB 4.0 trillion Stimulus package
The RMB 4.0 trillion stimulus package announced by the Chinese Government in November 2008 has started to bear fruits. China's industrial output (which measures activity in the nation's millions of factories and workshops) rose 8.3% in March 2009, in a sign that huge stimulus package is kicking in. As for 1Q09, China's industrial output grew 5.1% y-o-y. According to the National Bureau of Statistics, China's fixed asset investment rose 28.8% in 1Q09 y-o-y to RMB 2.81 trillion.

We are inclined to believe that the Chinese economy and thus the industry, is positioned towards the path of early recovery. With China's RMB 4.0 trillion stimulus package being rolled-out expeditiously, positive impact has been felt in the domestic economy. The RMB 4.0 trillion is aimed at spurring consumer spending and bolstering the domestic economy, a substantial amount is earmarked for infrastructure spending and housing development, both of which require huge amount of steel. An estimate of RMB1 trillion will go towards infrastructure spending and another RMB800 billion allocated for low income housing. The spending has already commenced in the 4th quarter of 2008 and according to China's National Development & Reform Commission, as of May 2009, RMB 420 billion has been disbursed for investment projects. RMB 300 billion was disbursed in 3 stages for projects in infrastructure, health care, education & revitalization of 10 industries (steel industry is one of them). The central government spent RMB 120 billion to rebuild areas damaged in last year's earthquake in the southwestern province of Sichuan. Projects such as the building of RMB 3.5 billion of public housing in Shaanxi province and Shanghai began in December 2008, while Shandong province started work on three new railway lines the same month.

Government Policy
In conjunction with its colossal RMB 4.0 trillion fiscal spending policy, the Chinese Government has also urged state-owned banks to increase lending, reduce export taxes and agreed to provide support for 10 areas, through tax cuts and subsidies for the steel and auto industries. The Central Bank has dropped quotas limiting annual lending by banks in the 4th quarter of 2008. The Chinese Government also urged banks, most of which are state-owned, to lend more to small and medium-sized companies, all with the objective of sustaining and stimulating the economy. China extended RMB 4.58 trillion of new loan in 1Q09 indicated that already hit 92% of the minimum RMB 5.0 trillion target set for fiscal year 2009.

Taking cognizance of the importance of the property sector as one of the other catalysts to spur the economy, the Chinese Government has announced more measure to revive demand in this key sector. These include: (1) 5.5% sales tax waived on property sold two years after purchase. Previously, owners have to wait at least 5 years before selling their houses tax-free; (2) Preferential terms such as lower down payment and interest rates extended to people with "smaller-than-average" apartments to buy their second home. Until now, such preferential terms were reserved for first-time buyers; (3) Credit provided to developers building low-rent public housing; (4) Housing to be provided for 9.9 million low-income families in the next 3 years; (5) Sales tax to be computed on profit from sale and no longer on sale value. These measures will definitely give the real estate market a lift and recent data from the National Bureau of Statistics appeared to suggest that property transactions have started to be on an upward trend.

Besides, the Chinese government's move to cut on sales taxes on passenger cars with engines of 1.6 litres or below in January 2009 has resulted passenger cars sales rise 10% in March 2009 from a year earlier. Demand for minivans increased 40% in March 2009 as the government began providing subsidies of RMB 5.0 billion to help rural residents buy vans & lights trucks.

Premised on what was mentioned just now on the aggressive roll-out of initiatives and policy measures, the Chinese Premier, Wen Jiabao announced in the National People's Congress on 5 March 2009 that the Chinese GDP is expected to grow at 8% this year. In summary, with the RMB 4.0 trillion stimulus package (in expectation to stimulate domestic demand), the abolishment of export duties for flat-steel products, increased in export rebates for high-value-added steel products and lower interest rate on bank borrowings by business enterprises coupled with speedy disbursements, this certainly bodes well for the steel industry and thus the coke industry in 2009.