China Basic Materials
Back to the beginning
􀂄 We expect growth in H209
While the debate on the impact of the China government’s stimulus package
continues, there appears to be agreement that the basic materials sector is at a
crossroads. We assume there will be some growth in H209.
􀂄 Strategy: back to the beginning
Hence, we think there is still time to buy early cyclical plays in sectors such as
cement and steel. Industry leaders in other sectors, including China Shenhua
Energy and China Molybdenum, look reasonably valued but valuations for
downstream players such as Chalco have not yet fully discounted earnings risks, in
our view.
􀂄 Commodities: we like gold, cement and steel
As uncertainties remain, the appeal of gold continues to grow and UBS forecasts
an average price of US$1,000/oz in 2009. Since we believe stimulus-led growth
will impact the economy, we expect higher China cement and steel prices in H209.
Our view on coal is mixed: a steel recovery should support coking coal but thermal
coal could be in a period of consolidating demand.
􀂄 Our Buy rated stocks
We have Buy ratings on Anhui Conch-A, CNBM, China Molybdenum, China
Shenhua A/H, Hidili, Huaxin Cement, Maanshan and Zhaojin. For other major
stocks on which we have Neutral ratings, we think valuations are still not
appealing. We would steer clear of late-cycle base metals such as aluminium,
copper and zinc.

Contents page
Summary and investment case 3
Strategy: still in first gear 4
— Looking for signs of stabilising demand .................................................................5
— Early-cycle plays.....................................................................................................6
— Relative valuations .................................................................................................8
Commodities overview 11
— Aluminium: balance emerging, monitor imports ...................................................12
— Cement: recovering demand ................................................................................14
— Coal: the demand challenge.................................................................................18
— Copper: yet to bottom...........................................................................................20
— Gold: safe-haven demand ....................................................................................23
— Molybdenum: disappearing exports .....................................................................24
— Zinc and lead: weak demand persists ..................................................................27
Company pages 31
— Aluminum Corporation of China ...........................................................................32
— Aluminum Corporation of China - A......................................................................36
— Angang Steel........................................................................................................40
— Anhui Conch Cement ...........................................................................................43
— Anhui Conch Cement - A......................................................................................46
— China Coal Energy ...............................................................................................49
— China Coal Energy - A..........................................................................................57
— China Molybdenum...............................................................................................62
— China National Building Materials ........................................................................66
— China Shenhua Energy ........................................................................................69
— China Shenhua Energy - A...................................................................................77
— Hidili Industry Int'l Development ...........................................................................82
— Huaxin Cement - A ...............................................................................................86
— Jiangxi Copper......................................................................................................89
— Jiaozuo Wanfang Aluminum.................................................................................93
— Maanshan Iron & Steel .........................................................................................96
— Shenzhen Zhongjin Lingnan Nonfemet ................................................................99
— Tangshan Jidong Cement ..................................................................................102
— Yanzhou Coal Mining .........................................................................................105
— Yanzhou Coal Mining - A....................................................................................111
— Yunnan Chihong Zinc & Germanium..................................................................116
— Zhaojin Mining Industry ......................................................................................119

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