EFTA01385471.pdf

3 January 2018 HY Corporate Credit HY Multi Sector.Media. Cable & Satellite Chinese Social Financing China, the 5001b Elephant in the Room China manufactures -50% of global steel production. Due to China's outsized presence in the global market, small changes in domestic supply and demand Ultimately China's appetite can have a considerable impact on worldwide steel markets. Asian steel for its own manufactured production, close to three-quarters of which is China, is up 5.7% YTD through steel subsequent to winter November 2017. However, China has elected to shutdown certain steelmaking will be the most significant facilities in three major cities during the winter months in an effort to reduce levels of pollution in the air. This should provide a respite for other markets determining factor for the such as the U.S. and allow organic demand to drive supply trends. We have global steelmarket in 2018. already begun to see strengthening trends in the U.S. market including faster lead times, lower distributor inventory levels and selling price increases. While these solid trends are expected to continue during the winter months, demand for steel from China's property and infrastructure sectors will largely determine the path of the steel market once the winter cuts wind down. Ultimately China's appetite for its own manufactured steel subsequent to winter will be the single most significant determining factor for the global market in 2018. [Figure 37: China Alf.Systern Financing in AggreAtate (Billions of Beorninbi) Itt,000 1-- Y21.000 LTM Social Financing (Right Axis) ht Monthly Social Financing Investment (Left Axis/ V4.500 a, w n o ^ Y19,000 N K, 2 co m'-. in Y4,000 0 M N N co co 0 c„; 0 N aj in 7:, 0 CO 0 CO ,z, GOO). , V17,000 ,-MONN 1- T, j„ ea 0 M 0 ,... 0 0 ,,, ,eln ,-.. N: r 93 CI “, 1- Do co a , } V3,500 ca. .1, CO n 0 do"'. 6 .1, - 'n N en ,.... ,r, N N. O M.: a, 4 N ro .) ,” r. N. 6 .• N N rn O 1- 0 .... N .2. (...., o) N . i..., Ln M .... - X .1. 0 - ,.... 1- e ,- * * ••• CO 0 :fr. ; , ; e * V15,000 .1' ,,t • 0 it,0 . N -, . 0 CD • id j; >,. >, ;7. ,_,- 0 is a. ap V3,000 Y >, y* * }, JO 1 ; , , ••• ;-:: a• ,ii. 7. ›,. V13,000 >. V2,500 V11,000 V2,000 V9,000 tl,500 Y1,000 Y500 YO i Pzm000nsknitoqW to* V7,000 V5,000 V3,000 V1,000 e 0 in in in in in in in in in 0 in (0 (0 ID CD 0 to CO la 40 tO ro N N N N N N N N N N N gAm a 2wit 2 tag g 2 < 2 tag g 0 u. 2 Soso: Oftracno Sant Skomberg Anne LP. 77.44904Does Set a CAn. The People's Bank of China releases a monthly report tracking the outstanding amount of credit extended to businesses and consumers in China at any given point in time. Considering that China encompasses roughly 12 / of global crude steel production, we feel this metric is useful in determining the magnitude of Chinese stimulus spending and its correlated impact on demand for crude steel. In Figure 37, the blue bars represent the non-seasonally adjusted (NSA) net monthly change in outstanding credit while the gray area charts the trailing twelve-month sum of the central government's investment in social financing (all figures are presented in Chinese Renminbi). According to the chart, China has focused on stimulating its economy heavily in January of each year. It is also worth noting that LTM social financing continues to increase YoY despite efforts to reduce China's financial leverage and de-risk its property market. Page 198 Deutsche Bank Securities Inc. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0086757 CONFIDENTIAL SDNY_GM_00232941 EFTA01385471