Risk Management

Emerging Risks & Response Strategies

In light of the rapid changes in the global economy, society, and environment, the associated emerging risk issues have become increasingly diverse and complex. In response, the Company has established an emerging risk management system to promptly address and manage potential threats through mechanisms for risk identification, assessment and response, and oversight.

Based on internal and external sources of emerging risk information, eight key emerging risk issues and their potential impacts were identified. These were assessed by management to determine the level of impact for each issue.

Survey results indicated that the top three emerging risks the Company should prioritize are: (1) demand slowdown or market share disappearance driven by tariff differentials and trade, (2) energy supply restrictions or shortages triggered by geopolitical and military conflicts, and (3) gross margin erosion risk from low-carbon products failing to yield a green premium. Mitigation measures for these risks have already been formulated.

Emerging Risk 1
Name Demand Slowdown or Market Share Disappearance Driven by Tariff Differentials and Trade Barriers
Description Global trade protectionism and geopolitical uncertainties continue to escalate. Major steel-consuming jurisdictions have imposed high tariffs on steel and aluminum imports, extending these measures to downstream derivatives like automotive components, machinery, and construction materials. If major steel-producing nations successfully negotiate tariff quotas or exemptions with importing countries while the domestic industry fails to secure equivalent reciprocal treatment, this country-specific discriminatory tariff treatment will severely impair export competitiveness. Given the limited scale of the domestic market, this tariff disparity poses a direct and severe challenge to securing long-term orders and risks triggering structural order migration or loss.
Impact The steel Safeguard in the European Union and the United Kingdom expired on June 30, 2026, and new steel trade and quota regulations have been implemented respectively since July 1, 2026. Such trade protection policies are prompting clients in both regions to readjust their procurement decisions and supply sources, significantly impacting China Steel Corporation's (CSC) export competitiveness in the EU and UK markets. Based on a comprehensive assessment of the impact on our export operations, CSC's annual sales volume in the EU and the UK is projected to decrease by 419,000 metric tons. Estimating with the 2025 average selling price of US$638/MT, the resulting revenue impact will reach US$267.32million.
Mitigating actions Dynamic Market Diversification:

Reallocate displaced production volumes toward alternative regions that still offer trade dividends or structural price spreads. We will also monitor and react dynamically to tax differentials resulting from anti-dumping final rulings in regional markets to capture short-term arbitrage and export opportunities.

Group-Wide Collaboration and Resource Optimization:

Track country-of-origin, melting, and pouring regulations tied to global trade barriers. Through group-level coordination, the company will dynamically adjust and reallocate production capacity across its overseas manufacturing nodes. Priority will be given to allocating resources to high-premium markets or those protected by favorable trade barriers, thereby maintain total sales volume, stable production utilization rates, and profitability.

Emerging Risk 2
Name Energy Supply Restrictions or Shortages Triggered by Geopolitical and Military Conflicts
Description Escalating geopolitical frictions and military actions in critical energy-producing regions risk disrupting maritime logistics and key transit choke points (such as the Strait of Hormuz). Prolonged military conflicts threaten the stability of international energy transit, directly impacting the supply reliability and cost structure of key manufacturing inputs, specifically electricity and natural gas, and exposing the company to operational disruptions.
Impact If geopolitical military conflicts lead to energy (such as natural gas) usage restrictions or shortages, CSC may face pressures regarding production capacity adjustments and increased energy costs.
Mitigating actions Proactive Supply Diversification & Cost Dispatch:

CSC have successfully integrated private utility operators alongside state-owned suppliers to reduce localized or geopolitical supply risk CSC also monitors utility price adjustments and fuel spreads to optimize self-generation schedules, leveraging alternative fuels during high-cost or peak periods.

Structured Energy Curtailment Contingency Plans:

CSC has established contingency procedures mapped to precise energy supply reduction thresholds. For minor to moderate curtailments, dual-fuel boilers can switch to alternative fuels to sustain core upstream steelmaking processes. Under extreme supply restriction or blackout scenarios (>80% disruption to total outage), selected downstream rolling mills and finishing lines will be executed to systematically prioritize energy allocation to critical upstream blast furnace operations, minimizing structural asset damage and maintaining business continuity.

Emerging Risk 3
Name Gross Margin Erosion Risk from Low-Carbon Products Failing to Yield a Green Premium
Description As the Company actively aligns with net-zero pathways and international supply chain requirements, capital expenditures are increasing for low-carbon process technology development and equipment retrofits. However, because end-market recognition of low-carbon steel's value is not yet widespread, buyers remain reluctant to pay an extra 'green premium.'
Impact This asymmetry between cost and pricing structures risks inflating operational costs without effective pass-through, thereby eroding overall profitability.
Mitigating actions Reallocating Resources to Fulfill Core Local Demand:

While the global steel market has recently shown early signs of bottoming out and recovering, export markets remain constrained by complex supply-demand dynamics and political/economic uncertainties, making a rapid or sharp rebound unlikely. Consequently, in the short term, the Company will cautiously evaluate and plan its resource allocation, prudently shifting a portion of capacity toward domestic sales to fully satisfy the needs of loyal local customers.

Capitalizing on High-RC Steel and Server Brand Equity:

In export markets, the Company is actively promoting high-recycled-content (RC40 and above) steel products, where our quality remains consistently superior and more stable than that of competing mills. Leveraging our long-standing presence and brand equity in the server industry, we are proactively securing first-mover advantage during the initial stages of customers' new product qualification. Coupled with diversified sales models—such as bundling high-RC with low-RC steel or targeting specialized distribution channels—we aim to expand product adoption and maintain our strategic lead over competitors.