Supply and Demand Issues Fuel China's Automobile, Steel, and Coal Industries

Supply and Demand Issues Fuel China's Automobile, Steel, and Coal Industries Suppliers and Participants Mittal Steel, PUDA Coal, SORL Auto Parts, and China Automotive Systems Benefit From China's Growing Industrial Economy www.China-AsiaStocks.com As China's growing economy and expanding infrastructure impacts demand and supply in major industry sectors including automotive, steel, and coal, companies that are positioned in China as suppliers will benefit. Mergers and acquisitions, rising prices and overall strength in construction and infrastructure all indicate strong growth signals within the sectors. The automotive industry is anticipated to be driven by Asian demand and Asian consumers for the next five years. In addition, China's surging construction levels are in turn pushing the demand for commercial vehicles higher. China' entry into US automotive markets and expected increased exports, changes the face of the global automotive industry. Companies that will survive and benefit from the global changes will have incorporated strategies to position themselves in both China and the US. SORL Auto Parts (OTCBB: SAUP), China's leading manufacturer and distributor of automotive air brake valves for the commercial vehicle market identifies North America as a key focus for increasing export sales, taking advantage of the construction industry's growing demands. With China continuing to expand its infrastructure, demand for coal is on the rise globally and within China. Recent news that China's largest electricity producer, China Huaneng Group, signed a letter of intent (LOI) with Shanxi Coking Coal Group (one of China's largest coking companies) to jointly develop a coal mine is a positive sign for smaller companies like PUDA Coal (OTCBB: PUDC), a supplier of premium grade coking coal to the steel making industry. Supply for coking coal is anticipated to increase by 5.4 million tons this year. With coking coal utilized to smelt iron and steel, it is directly impacted by the steel industry. Steel prices and stocks are up based on discussions of M&A and consolidation. With steel prices increasing more than 150 percent since 2003 based on US and the increased demand from China and India, it sets the stage for Mittal Steel, one of the world's biggest steel makers, acquiring a 37.17 percent stake of a subsidiary of Hunan Valin Iron and Steel Group of China. Mittal, U.S. Steel and Nucor control 55 percent of the U.S. steel market. Auto Industry Transformation China's automotive industry has experienced rapid growth since the country opened itself up to the rest of the world and adopted economic reforms. In addition, the 2008 Olympics in Beijing and the 2010 World Expo in Shanghai are two key events that are expected to stimulate significant growth in the transportation logistics industries. Meanwhile, massive construction projects all over China are spurring the growth in the heavy duty vehicle and commercial vehicle market. SORL Auto Parts is meeting the increasing demand as a manufacturer and distributor of automotive air brake valves and hydraulic brake valves mainly for the commercial vehicles market. For the nine months ended September 30, 2005, the Company realized an increase of 38 percent generating sales of $45.8 million, compared to $33.1 million for the nine months ended September 30, 2004. David He, SORL's Senior Manager of Investor Relations and International Business Strategy and Planning states, "The trend of urbanization gives China's construction sector a historic opportunity. The booming construction sector also stimulates the development of construction materials and construction machinery, resulting in tremendous increase in demand for transportation, particularly the use of heavy duty vehicles. It is expected that heavy duty vehicles will maintain a significant market in China. In 2005, China's total heavy duty truck output was approximately 250,000 units. Industry experts estimate that the market will sustain an annual growth rate ranging from 10% to 15% until the national output reaches 600,000 units per year. It is projected that total annual output of heavy duty vehicles in China will reach 450,000 to 500,000 units by 2008." According to Mr. He, there are four major driving factors for this industry: "First of all, the Chinese economic growth and the progress of urbanization will ultimately drive the demand for automobiles. Also, it is the government's industrial policy to support the development of the auto industry as one of the nation's pillar industries. Thirdly, rapid expansion of the domestic auto market in recent years, leading to the corresponding growth of auto parts market, for both OEM and aftermarket. Last but not least, the relatively low cost of Chinese auto parts has driven increasing volume of auto parts exports; the lower cost of qualified labor has attracted more and more foreign investment, shifting manufacturing from their home countries - each of these factors promotes the development of the Chinese auto parts industry." China Automotive is one of the major suppliers of power steering systems and components to China's automotive industry. Jie Li, Investor Relations Officer for China Automotive states, "Infrastructure build up reflected in highway, transportation and bridge construction will continue to increase. The national highway system is aiming at 1 million miles. CAGR of the Chinese auto market will remain at 15% for the next 5 to 10 years. Subsequently, the auto parts market will look healthy as well. With the trend of global purchasing of auto parts, the Chinese auto parts market will enjoy 20% annual growth. Also, joint ventures between Chinese auto makers and foreign car makers will increase domestic auto parts purchases. Another important issue that will benefit the domestic auto parts market is that the Chinese government now requires auto makers to purchase 40% of their parts from domestic firms in the first year, and 60% in the second year." Building Demand from Construction The Chinese steel industry has continued to experience double digit annual rates of growth as it has worked to keep pace with the construction boom. China has grown to the largest steel market in the world from a relative unknown in short order. As reported in Global Insight, Steel at a Crossroads: China's role in shaping new global market, "China's steel consumption is up 110% over a six-year period and is still rising, producing over 26% of the world's supply of steel, while consuming 27%."On the other hand, the growth of the steel industry is also restricted by the limited supply of many non-renewable raw materials, such as coal, coke and iron ore. As vital suppliers to the steel industry, both thermal coal and coking coal producers are facing very high demand. According to the China Coal Industry Association (CCIA), with demand rising, the price of thermal coal used for power production had risen 50 percent to more than $60 a tonne since the beginning of this year; term prices for coking coal, the material used in steel production, are set to almost double next year, to $100 a tonne or above from under $60 this year. PUDA Coal, a Chinese coking coal producer, is benefiting significantly from the high profitability provided by this trend. According to Puda CEO Zhao Ming, "The factor that drives the demand for coking coal is the mass construction of infrastructure, including but not limited to real estate development, extended urbanization process, western region development and the 2008 Beijing Olympic Games. These projects require the use of large amounts of steel, and coking coal is essential in making coke, which is largely used in the steel making process. Puda's future focus is to sell directly to steel mills with their own coking facilities (or so-called integrated coking-steel making mills). " Mark Lidiard, Vice President of Investor Relations and Communications for BHP Billiton, the biggest coking coal producer in the world states, "Metallurgical coal is used in steel making industries, and incremental demand for metallurgical coal is primarily being driven by the growth in the Chinese steel market. On the other hand, steaming or thermal coal is used in power industry, and they tend to be driven more by global power demand. Although again incremental growth in power in China is causing some pressure on the thermal coal industry, which again is creating good demand for thermal coal products around the world. As well very high current oil and gas prices are driving the demand for coal." Mittal Steel, one of the world's biggest steel makers, signed an agreement in 2005 to acquire a 37.17 percent stake of a subsidiary of Hunan Valin Iron and Steel Group of China. According to the Company, "This transaction is a key milestone for Mittal Steel's business in China and is an integral part of its global strategy. China is the world's largest consumer of steel products and demand is expected to continue to grow strongly. Mittal Steel's participation in the expected growth of the Chinese steel industry will be further enhanced through its investment in the Company and its partnership with Valin Group." Lakshmi Mittal, Chairman and CEO of Mittal Steel, had been quoted as stating, "We are confident that demand for steel in China will remain strong and this acquisition is very much intended as a first step towards a more significant production presence in this country. China is experiencing a period of rapid economic growth and we are excited by the prospect of being a participant in this." ____________ Investors and industry following the growth in China should look at trends including pricing increases, import and export growth and restrictions, as well as global demand influences, to find new opportunities. Steel demands are on the rise globally as infrastructure in China and India continues to grow, creating a robust steel market and an automotive industry that is going through dramatic changes as the east and west converges. Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp