CSC — Annual Report 2015

Mar 22, 2016

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China Steel Corporation

March 24, 2016

0

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Table of Contents
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•Company Overview	2
•Performance	6
•Financial Review	10
•EPS & Dividends (common stock)	11
•Sales	12
•Strategy	14

1

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Company overview:
Business snapshot (CSC standalone)
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 Leading Taiwanese steel manufacturer with integrated production capabilities
Overview  Headquartered in Kaohsiung with major production sites located in Kaohsiung
 Annual capacity of 9.9 mmt as of Dec 31, 2015
Steel Sales revenue
breakdown by products Domestic/Export by revenue
 Leading manufacturer of flat steel products (2015) (2015)
 Continuously upgrading towards higher Bar, 9% Billet/Slab, 5% Export 34%
Major value-added products Hot Rolled,
22%
business  Plate, 10%
Dominant position in the domestic market
 Continue to capture rapid growth
in South East Asia and China markets
Wire Rod,
16%
Domestic 66%
Cold Rolled,
38%
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2

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Company overview:
Business snapshot (CSC Group)
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Major business

Steel Core Businesses

• China Steel Corporation

• Chung Hung Steel Corporation

• Dragon Steel Corporation

• CSC Steel Sdn. Bhd.

• China Steel Sumikin Vietnam (CSVC )

• China Steel Corporation India Pvt. Ltd (CSCI)

Other Group Businesses

Logistic Businesses

Engineering Businesses

• China Steel Express Corporation

• China Steel Machinery Corporation

• China Steel Global Trading Corporation

• China Steel Structure Co., Ltd.

• China Steel Precision Metals Qingdao Co., Ltd.

• China Ecotek Corporation

• United Steel Engineering and Construction Co., Ltd (Kunshan coil center)

• Info-Champ Systems Corporation

Industrial Materials Businesses Service and Investments Businesses

• C. S. Aluminum Corporation

• Gains Investment Corporation

• China Steel Chemical Corporation

• China Steel Security Corporation

• CHC Resources Corporation

• China Prosperity Development Corporation

• Himag Magnetic Corporation

• China Steel Management Consulting Corporation

• China Steel Precision Materials

• China Steel Resources Corporation

• CSC Precision Metal Industrial Corporation

Capacity & market share

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CSC Group domestic market share (2015)
84%
78%
20%
16%
38% 84%
57% 62% 63% 62%
24% 26%
Hot- Bar/Rod Electro- Plate Cold-rolled Hot-rolled Electrical
Galvanized Galvanized Steel
Steel
CSC Dragon Steel Chung Hung
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 Our group crude steel capacity reached 16.1 mmt in 2015(combining China Steel Corporation and Dragon Steel’s EAF and No.1&2 blast furnace).

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Company Overview: Awards and Honours
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1

• 2016.01 CSC was ranked as RobecoSAM 2016 Steel Industry Silver Class Sustainability leaders.

2

• 2015.12 Green Enterprise Award, British Standards Institution.

• 2015.11 CSC received “Ten Most Sustainable Company Award”, ”Taiwan Top 50 Corporate Sustainability Report Award”, ”Growth through Innovation Award”, “Climate Leadership Award”,

• 3 and ”Sustainable Water Management Award” by TAISE.

• 2015.11 CSC was included in CDP ‘s 2015 Climate Disclosure Leadership Index for Hong Kong and 4 South East Asia region and received the highest disclosure score among all Taiwanese companies.

• 2015.08 CSC was ranked 10th among large enterprises in the ”Excellence in Corporate Social 5 Responsibility Award” by Common Wealth magazine.

6

• 2015.01 CSC was ranked as RobecoSAM 2015 Steel Industry Bronze Class Sustainability leaders.

7

• 2014.12 Sustainable Governance Award, British Standards Institution.

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Company overview: Group capacity & Production lines
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Group capacity

Commencement of new capacity/production lines: CSC group

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Crude steel capacity (mmt)
Dragon Blast Furnace Dragon Electric Arc Furnace China Steel
(0.2 mmt)
MAY 2015
CSCI
Project
(0.15 mmt)
APR 2014
5.0 5.0 5.0
NGO Line MAR 2013 Q1 2013
2.5 2.5
2.0 HSM
(1.2 mmt) #2 BF
Expansion
1.0 1.0 1.0 1.2 1.2 1.2 OCT 2013
(2.5 mmt) (3 mmt → 4 mmt)
CSVC Project (3 mmt)
JUL 2010
(1.5 mmt)
HSM
MAY 2011
(2.5 mmt)
9.9 9.9 9.9 9.9 9.9 9.9
#3 CR Mill / #3 CGL
FEB 2010
#1 BF
2010 2011 2012 2013 2014 2015
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Performance- Consolidated operating results
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Amount: NT$ million

Item	*2015	*February 2016	Accumulated* of 2016**
Consolidated Operating Revenue	285,054	17,998	40,236
Consolidated Operating Income	8,116	270	-192
Consolidated Income Before Income Tax	9,506	250	-68

*preliminary result

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Performance-Sales Revenue Breakdown
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Unit ： NTD Thousands

	Item	*2015	February* 2016**	Accumulated* of 2016**
1	Steel products	225,756,158	14,289,968	31,345,818
2	Non-steel industry materials	31,316,057	1,935,826	4,373,708
3	Construction	18,147,093	1,145,261	3,329,825
4	Transportation and service	6,718,949	432,719	877,971
5	Others	3,142,279	194,309	308,889
Less	Sales returns and allowances	0	0	0
	Total	285,080,536	17,998,083	40,236,211

*preliminary result

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Performance-CSC group
Segment revenues and operating results
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Unit ： NTD Thousands

2015. 1~3Q		Steel		Others	Adjustment & Elimination	Adjustment & Elimination		Total
Revenues from external customers	$	175,028,527	$	47,031,528	$-		$	222,060,055
Inter-segment revenues		39,816,519		31,714,026		(71,530,545)		-
Segment revenues	$	214,845,046	$	78,745,554	($ 71,530,545)		$	222,060,055
Segmentprofit	$	7,230,851	$	5,779,827	($1,843,313)		$	11,167,365
Interest income		190,568		180,102	( 56,843)			313,827
Financial costs	(	2,537,076)	(	273,344)	33,193		(	2,777,227)
Share of the profit of associates		2,772,331		919,687	( 3,573,983)			118,035
Other non-operating income and expenses		2,926,033		704,037	( 550,450)			3,079,620
Profit before income tax		10,582,707		7,310,309	( 5,991,396)			11,901,620
Income tax		2,151,784		652,956	(	155,037)		2,649,703
Net profit for the period	$	8,430,923	$	6,657,353	($ 5,836,359)		$	9,251,917

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Performance- consolidated basis
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Consolidated Income Statement

IFRSs	Units: NT$ millions	Units: NT$ millions	Units: NT$ millions	Units: NT$ millions	Units: NT$ millions	Units: NT$ millions	Units: NT$ millions	Units: NT$ millions
	2014.3Q		2015.3Q		2014.1~3Q		2015.1~3Q
Revenues	92,268		67,694		276,846		222,060
Gross profit	12,033		4,205		30,568		21,327
Gross margins	13.04%		6.21%		11.04%		9.60%
Profit before tax		8,564		1,295		20,242	11,902
Net profit		7,114		1,141		17,075		9,252
Attributable to
Owners of the corporation		6,613		744		15,380		9,120
Non-controlling interests		501		397		1,695		132

Units: NT$ millions

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Performance: financial review (Consolidated Basis)
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Units: NT$ millions

	12/31/2010	12/31/2011	12/31/2012	12/31/2013※	12/31/2014※	9/30/2015※
Debt	255,206	299,578	312,393	362,630	348,049	362,475
Debt/Equity	88.43%	95.99%	102.26%	113.55%	103.99%	112.68%
Asset	543,808	611,686	617,892	681,999	682,737	684,148
Debt / Asset	46.93%	48.98%	50.56%	53.17%	50.98%	52.98%
Net Debt＊	227,035	273,421	283,402	338,593	322,284	337,242
Net Debt /Asset	41.75%	44.70%	45.87%	49.65%	47.20%	49.29%

Since 2009, CSC group have issued corporate bonds and signed syndicated bank loans for DSC’s expansion project and overseas investments.

• ＊ Net debt = debt – cash & cash equivalents – ( financial assets at fair value through profit or losscurrent + available-for-sale financial assets - current +held-to-maturity financial assets-current+ derivative financial assets for hedging-current)

※ IFRSs basis

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Performance- Historical EPS and dividends paid
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(in NTD per share)

Dividend 83 85 84 85 87 85 85 87 88 85 132 86 70 payout(%) Cash Dividend 75 76 74 78 78 78 64 66 70 74 105 67 70

Cash Dividend payout(%)

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6.00
5.00
4.00
3.00
2.00
1.00
-
cash dividend stock dividend EPS
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
0.50
0.35
0.30
0.35
0.30
0.50
3.90 3.75
3.50
0.15 3.00 2.78 0.43 -
0.33 1.99 0.15 0.20
1.40 1.30 0.10
1.86 3.94 5.26 4.83 3.56 4.49 2.03 1.54 1.01 2.83 1.36 1.01 0.38 1.05 1.43 1.00
0.70
0.40
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Sales (CSC standalone)
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2015 CSC sales volume totaled 9.53 million metric tons

Domestic/Export sales volume breakdown of 2015

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Hot-Rolled,
Cold-Rolled,
24.9%
17.3%
Billet/Slab ,
9.8% Vehicles Export 32.64%
(3.11 million
China Japan 20.3%
Coated metric tons)
23.8%
Bar/Rod, 20.8% Products,
Plate, 10.5% 16.7%
Coil center
Others 22.0%
Piping
Wire-rope 1%
Hand tools 1%
Re-rolling
Ship-building 2% S.E. Asia 33.9%
Bolts-nuts
Trader 2% Domestic 67.36%
Vehicles 4% Ship-building (6.42 million metric tons)
Piping 5%
Steel structure 7%
Re-rolling 8%
Others 15%
Bolts-nuts 15%
Coil center 18%
Direct users 22%
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0% 5% 10% 15% 20% 25%
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Sales (CSC +DSC:HRC)
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2015 sales volume (CSC & HRC of DSC) totaled 13.03 million metric tons

Domestic/Export sales volume breakdown of 2015

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Hot-Rolled,
Billet/Slab,
45.1%
7.2%
Vehicles
Cold- China Japan 20.6%
Bar/Rod, Rolled, Export 35.16% 18.4%
15.2% 12.6% (4.58million
Coated
Plate, 7.7% Coil center metric tons)
Products,
12.2% Piping Others 21.4%
Wire-rod 1%
Hand tools 1% Re-rolling
Domestic 64.84% S.E. Asia 39.6%
Ship-building 1% Bolts-nuts
(8.45 million
Trader 2% metric tons)
Ship-building
Vehicles 3%
Steel structure 6%
Piping 7%
Bolts-nuts 11%
Coil center 15%
Others 16%
Direct users 17%
Re-rolling 20%
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0% 5% 10% 15% 20% 25%
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1

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Key strategies to achieve the vision
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Enhance corporate culture handing-down, reinforce human resources training & development, and solidify plans for management succession

2 Strengthen sales channels through overseas investment

3 Secure self-sufficiency in raw materials through strategic upstream investment

4 Increase the supply chain value of steel-related industries by developing advanced products & technology and green manufacturing process

5 Enhance client relationships and networks through engineering, technical, and information management services

6

Implement cost reduction measures, enhance energy-saving & environmental protection, and strengthen workplace safety

With the key strategies implemented, China Steel Corporation aims to become a trustworthy steel partner pursuing growth, environmental protection, energy saving and value-innovation

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Strengthen sales channels through overseas investment
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New Asia Project

China

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China
China United Steel Engineering and Construction China
Co., Ltd (Kunshan coil center) China Steel Precision Materials Corporation
PCMI Metal Products (Chongqing) Co., Ltd
CSC holds 80% stake CSC holds 70% of the equity interest
Capacity: 19,000 metric tones
China
Changshu Baoshunchang Steel Processing
Co., Ltd
China
Italy Qingdao China Steel Precision Metal Co., Ltd
Ardemagni SpA
China
Maruichi Metal Product (Foshan) Co., Ltd
China
Xiamen Chunyuan Precision
Mechatronic Co., Ltd
Thailand
India
Thai Sumilox
China Steel Corporation China
Company Limited
India Pvt. Ltd. (CSCI) Guangzhou Mayer Corp., Ltd
CSC holds 100% of CSCI
Thailand
Capacity: ES 0.2 mmt TSK Steel Co. Ltd. Vietnam
China Steel Sumikin Vietnam Joint
India Stock Co. (CSVC)
Thailand
Mahindra Auto Steel CSC holds 56% of CSVC
Private Limited Co., Ltd SB Coil Center Capacity: 1.2 mmt (CR 0.5 mmt, GA/GI
(Thailand) Ltd. 0.3 mmt, ES 0.2 mmt, PO 0.2 mmt)
Malaysia
Vietnam
Tatt Giap Steel Centre
CSGT Metals Vietnam Joint Stock
Sdn. Bhd.
Malaysia
Company
CSC Steel Sdn. Bhd.
CSC holds 46% of CSHB
Vietnam
Capacity: CR 0.60 mmt (CRC 0.36 mmt
Hanoi Steel Center Co., Ltd.
including PO, GI 0.12 mmt, PPGI 0.12 mmt) Indonesia
PT MICS Steel Indonesia
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Overseas Investments of CSC group

Co-invest in coil centers with peers and customers through China Steel Global Trading Co.

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Secure self-sufficiency in raw materials through
strategic upstream investment
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Major raw materials Semi-products Ferroalloy

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Acquired 5% of Dongbu Metal Co
($47.8bn WON, approximately
USD$43.9mm)
East Asia
United Corp.
Acquired 25% (USD$1.11
bn) of Formosa Ha Tinh
Steel Corporation
Acquired 39.04% of
Acquired 19% of Sakura Hsin Hsin Cement
Ferroalloys Sdn. for lime stone
Bhd.(USD$76.33mm)
Acquired 3.68% of 2 subsidiaries
of ArcelorMittal Mines Canada
(investment amount USD$270mm)
Iron
Coal &
Iron ore
Iron Acquired 5% of Sonoma coal
project (investment amount
AUD$16.0mm)
Acquired 0.41% of Congonhas
Acquired 2.5% of Roy Hill iron ore
Minerios company (investment
amount NTD$2.74bn) project (investment amount
AUD$315mm)
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Major raw materials

• Iron ore and coking coals are secured by long-term contract (volume)

• Partner with parties in Japan, South Korea, Mainland China, Australia and Brazil

• Secure lime stone - acquired 39.04%(group shareholding) in Hsin Hsin Cement

Semi-products

• Secure supplies from strategic partnerships and JV’s

• East Asia United Steel Corp.

• NSSMC’s Wakayama plant as a reliable supply source for slab

• Formosa Ho-Tinh Steel Corporation

• As a mutual supply of hot-rolled and slab products.

Ferro-alloy

• Long-term contract to reduce market risks

• Purchased 5% stake in Dongbu Metal, Korea’s largest ferroalloys producer

• Purchased 19% stake in Sakura Ferroalloys Sdn. Bhd.

• Ensures a long-term stable supply of ferro-alloy, and lowers the acquisition cost.

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Through an innovative approach, ERCs strategically focus R&D effort on the need of industries and implement systemic, profound, and comprehensive long-term academic researches. Electric Motor TechnologyERC Physical Properties & Microstructure of Metals ERC Steel Structure ERC Advanced Steel Microstructure Control ERC High-value Metal IndustryERC Next-Generation Hand Tool ERC Advanced Special AlloyERC ForgingRoll FormingERC To win trust and increase business opportunities, CSC establishes JRLs with customers and strives to enhance the suitability of CSC materials with customers’ manufacturing processes. Compressor and Motor JRL Auto Steel JRL(HAITEC, MIRDC) Motor JRL Auto Application JRL Auto Steel JRL(Engley, Honley) CSC forms alliances with customers to improve international marketing and service capabilities. Taiwan Elite Handtool Organization Alliance for the fastener industry (under planning) Increase the supply chain value of steel-related industries by developing advanced products and technology and green manufacturing process Engineering Research Center (ERC) Joint Research Laboratory (JRL) Alliance for Steel Industries 17	Through an innovative approach, ERCs strategically focus R&D effort on the need of industries and implement systemic, profound, and comprehensive long-term academic researches. Electric Motor TechnologyERC Physical Properties & Microstructure of Metals ERC Steel Structure ERC Advanced Steel Microstructure Control ERC High-value Metal IndustryERC Next-Generation Hand Tool ERC Advanced Special AlloyERC ForgingRoll FormingERC To win trust and increase business opportunities, CSC establishes JRLs with customers and strives to enhance the suitability of CSC materials with customers’ manufacturing processes. Compressor and Motor JRL Auto Steel JRL(HAITEC, MIRDC) Motor JRL Auto Application JRL Auto Steel JRL(Engley, Honley) CSC forms alliances with customers to improve international marketing and service capabilities. Taiwan Elite Handtool Organization Alliance for the fastener industry (under planning) Increase the supply chain value of steel-related industries by developing advanced products and technology and green manufacturing process Engineering Research Center (ERC) Joint Research Laboratory (JRL) Alliance for Steel Industries 17	Through an innovative approach, ERCs strategically focus R&D effort on the need of industries and implement systemic, profound, and comprehensive long-term academic researches. Electric Motor TechnologyERC Physical Properties & Microstructure of Metals ERC Steel Structure ERC Advanced Steel Microstructure Control ERC High-value Metal IndustryERC Next-Generation Hand Tool ERC Advanced Special AlloyERC ForgingRoll FormingERC To win trust and increase business opportunities, CSC establishes JRLs with customers and strives to enhance the suitability of CSC materials with customers’ manufacturing processes. Compressor and Motor JRL Auto Steel JRL(HAITEC, MIRDC) Motor JRL Auto Application JRL Auto Steel JRL(Engley, Honley) CSC forms alliances with customers to improve international marketing and service capabilities. Taiwan Elite Handtool Organization Alliance for the fastener industry (under planning) Increase the supply chain value of steel-related industries by developing advanced products and technology and green manufacturing process Engineering Research Center (ERC) Joint Research Laboratory (JRL) Alliance for Steel Industries 17
	Through an innovative approach, ERCs strategically focus R&D effort on the need of industries and implement systemic, profound, and comprehensive long-term academic researches.	Electric Motor TechnologyERC
Engineering Research Center (ERC)
		Physical Properties & Microstructure of Metals ERC
		Steel Structure ERC
		Advanced Steel Microstructure Control ERC
		High-value Metal IndustryERC
		Next-Generation Hand Tool ERC
		Advanced Special AlloyERC
		ForgingRoll FormingERC
Joint Research Laboratory (JRL) Alliance for Steel Industries	To win trust and increase business opportunities, CSC establishes JRLs with customers and strives to enhance the suitability of CSC materials with customers’ manufacturing processes.	Compressor and Motor JRL
		Auto Steel JRL(HAITEC, MIRDC)
		Motor JRL
		Auto Application JRL
		Auto Steel JRL(Engley, Honley)
	CSC forms alliances with customers to improve international marketing and service capabilities.	Taiwan Elite Handtool Organization
		Alliance for the fastener industry (under planning)
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Enhance client relationships and networks through engineering,
technical, and information management services
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Engineering and Technical services

• Plant Construction

• Technical Consulting

• Environmental Engineering

Customer services

• Real-time information services of order status

• Applied technology services

• Early vender involvement

Others

• Domestic and oversea consulting services regarding environmental protection and energy saving

• Railway and Rapid Transit System Engineering

• Industrial Air Conditioner

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Implement cost reduction measures, enhance energy-saving &
environmental protection, and strengthen workplace safety
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Cost Reduction Performance

• 1.53 bn: Expense saving from nationalization of equipment and spare parts

2015

4.84 billion NTD

• 0.79 bn: Reduction of raw material procurement cost through negotiation and spot transaction

• 0.78 bn: Provide saturated steam and industrial gas to nearby plants

• 0.84 bn: Use of low cost raw material and reduction of fuel cost for blast furnace

• 0.26 bn: Establishment of On-line Monitoring System and automatic quality inspection system/Improvement of manufacturing process

2014

4.39 billion NTD

• 1.14 bn: Use of low cost raw material and reduction of procurement cost through negotiation

• 1.81 bn: Energy saving/ Provide saturated steam and industrial gas to nearby plants

• 0.70 bn: Expense saving from nationalization of equipment, replacement parts and spare parts

• 0.24 bn: Establishment of Facility On-line Monitoring and diagnosis System and automatic control systems

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