The Outlook For The Autocatalyst Market in China

October, 2016

1

China Gross PGM Demand vs Global demand

0%

5%

10%

15%

20%

25%

30%

35%

0

1,000

2,000

3,000

4,000

5,000

6,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Sh

are

of

glo

ba

l p

gm

dem

an

d

‘00

0 o

z

China Pt China Pd China Rh

Pt: China vs global Pd: China vs global Rh: China vs global

• The automotive sector will be the main driver of growth.

China Automotive Market Overview

2

0%

10%

20%

30%

40%

50%

60%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

PV HD/MD Growth Rate

Sales: ‘000 Vehicles

Source: LMC Automotive

China 6

• Passenger vehicles started to use PGM in auto catalysts in July 2001 (China 1).

• Heavy Duty vehicles will use significant quantities of PGM from Jan.2020 (China VI).

China 1

• 37% higher new vehicles sales in China than the U.S 2015 • 45% higher in 2016 H1 • -75% vehicle population/k people in China compared to the U.S.

China Automotive Market Overview

2015 Sales Ranking(‘000 vehicles)

SAIC Dong Feng FAW Chang An BAIC GAC

4,896 3,436 2,566 2,094 1,948 1,355

• Pink Area: locations of major car manufacturers • 52 OEMs, 83 Canners located in 37 cities

Top 6 Chinese Automotive groups: SAIC, Dong Feng, FAW, Chang An, BAIC & GAC

New Vehicle Sales Y2015 (Millions)

24.56 17.97

New Vehicle Sales 2016H1 (Millions)

12.83 8.85

No. Of Automotive Industrial Employees (M people)

6 *

Vehicle population/ 1000 people

203 824

4

• Emission legislation in China usually follows EU legislation and has evolved significantly since China 1 in 2001.

• However China 6 legislation is even more stringent than Euro 6. China 6 will have 2 stages with WLTC cycle instead of

NEDC applied for Europe with even tighter limits. China 6b will even require RDE ( real driving emission) which will bring

tremendous challenges for after-treatment and therefore require more PGM.

China Automotive Emissions Legislation

2005.6

China 2

China II

2011.7

China 4

LDG

2017.7

China V

HDD

2001.7

China 1

2008.7

China 3

China III

2013.7

China IV

HDD

2017.1

China 5

LDG

2023.7

China 6b LDG

2014

China 4

LDD

2020.1

China 6a LDG

China VI HDD

5

Economic growth

• Average annual GDP growth rate of 6.5% until 2020. (6.7% in 2016H1)

• Service sector’s share of aggregate output ~56% in 2020. (50.5% in 2015)

• Increase in urbanization rate to 60% by 2020. (56.1% in 2015)

Enhance environmental protection and green growth

• Increasing the share of non-fossil fuels energy to 15 percent by 2020. (2015 it was 12%)

• Decreasing annual energy consumption by 15 percent

• Implementing harmful PM(particulate matter) level cuts of 18 percent. (Annually)

• Reducing carbon dioxide emissions and constructing low-carbon trial units. National initiatives, such as an

expected national carbon trading platform and green tax, will be rolled out before 2020.

Research and development

• R&D expenditure to GDP ratio 2.5%. (2.1% in 2015)

• Patents per 10,000 people 12 pieces. (6.3 in 2015)

People’s livelihood

• Average increase in income ~6.5% p.a. to 2020.

China 13th Five Year Plan (2016-2020) - Objectives

6

PGM Demands Forecast - China VI / China 6

• To meet RDE requirement, achieving quick light off and enhancing durability performance, more catalyst volume or numbers are required.

• LD: Catalyst per vehicle will be changed from 1.6 bricks(China 5) to 2 bricks(China 6) , and PGM consumption will be 20% to 30% higher than China 5.

• HDD: PGM content of different catalysts type for a type engine displacement at 8L roughly at about 5g to 11g (DOC+CSF+SCR+ASC) which will sharply increase the demand compared with previous HDD market.

China Auto Outlook -Opportunity but Not without Challenges

Sales growth will remain robust, but… • Continued product proliferation • Rising ownership cost, environment and

infrastructure will hold back car consumption • Increasing competition and higher cost of

ownership will place downward pressure on prices and margins

As sales expand into tier 3, 4 and 5 cities… • Optimal retail placement and resource

allocation • Finding qualified dealers, and • Branding, sales and marketing to these new

consumers will pose challenges Future points of friction in the domestic-foreign JV

relationships An increasing sophisticated consumer will dictate

winners and losers

9

43%

53%

340K, 1% 400K, 1.6%

1,450K, 5%

6,350K ≈20%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

NEV Government Roadmap (Vehicles/left scale, share of auto market/ right scale)

BEV.Prod PHEV Share of auto market

MIIT , the Made in China 2025 Key Area Technology Roadmap

• Production figures include Passenger and commercial vehicles. • NEV means Battery Electric Vehicle and Plug-in hybrid Electric Vehicle (PHEV). • Government target NEV will take up 5% share of vehicle market in 2020, nearly 20% (exceed 5M vehicles) in 2025 • Government target Local OME will represent 70% share of NEV market in 2020 and 80% in 2025 • Currently central government subsidy till 2020, no further details after 2020 • BEV, PHEV share refer LMC and JM estimated.

‘000 Vehicles

The 13th Five Year Plan-New energy vehicles Government Roadmap