Svetlana Delamure

1
Changing influence of CIS on the global steel
market
IISI economic committee meeting September 16-17,
2008, Moscow
Svetlana Delamure Head of Global Steel Market
Researh
2
CIS steel industry today
7 countries with 121 mln tonnes of crude steel
production in 2007
Ukraine 14 mills 35
and some further growth in H1 08
Kazakhstan, 3
Belarus
Moldova, 2 Belarus, 1 Uzbekistan, 1
Azerbaijan, 0,3
Russia 41 mills 58
Ukraine
Russia
Uzbekistan
Kazakhstan
3
Role of CIS in the global steel market
- data Jan-Apr 08
4
Main markets for CIS steel

• Intra-regional deliveries are the most important
  for CIS mills
• Domestic sales are mostly finished products with
  semis accounting for less than 2mln tpy
• While in case with exports semis account for 50
  of shipments

5
Potential of CIS domestic market flats
Russia
Ukraine
AC 9 Domestic shipments -5 Import 53 Export
4
Kazakhstan
Russia is the largest importer in CIS
Domestic shipments -26 AC -30 Import
-36 Export -2
AC no change Import -22 Domestic shipments
5 Export 8
Import of flats to the three CIS countries
accounts for 15, 34 and 37 of AC, accordingly
6
Potential of CIS domestic market longs
Russia
Kazakhstan consumption suffered from real estate
crisis this year
Ukraine
AC -2 Domestic shipments -5 Import 38 Export
-3
Kazakhstan
AC -55 Domestic shipments -50 Import -55
AC 9 Domestic shipments 9 Import 1 Export
1
Apparent consumption in Ukraine declined due to
decreased domestic shipments in favour of export
deliveries
7
Summary domestic CIS market

• Flats consumption is rather stable in Russia and
  Ukraine with significant share of imports (due to
  supply shortage in some segments wide plate for
  Russia, coated flat products for both countries,
  etc)
• Longs consumption is Russia grew only 9 in H1
  2008 after stunning 30 figure in 2007
• Longs consumption in Ukraine went down due to
  decreased supplies from local mills
• Kazakh market is in distress this year due to
  economic crisis after booming 2007
• With softening global steel market expected AC
  growth in Russia and Ukraine is 5 in flats
  segment and 10 in longs.
• If economic crisis is over in Kazakhstan this
  year, steel consumption in 2009 should recover to
  2007 year figures at least

8
Growing semis supplies from CIS
CIS intra-regional semis trade is less than 2mln
tpy Export supplies were obviousely and
significantly growing in H1 due to favourite
global conditions
9
More crude steel capacities to come
Russia, mln. tonnes
Ukraine, mln. tonnes
Expected steel capacities expansion is 6-7 per
annum on average for both Russia and
Ukraine Rolling capacities expansion is estimated
at 7-8 in Russia and only 3 in Ukraine for
2009-2010
10
Summary export potential

• CIS steel supplies play important role on the
  global market, especially in semis and flats
  segments
• Semis export supplies grew tremendeousely in H1
  this year
• CIS increases export of flats while decreasing
  longs shipments
• With 121 mln tpy steel production in 2007,
  production in the region has grown on average
  another 5 in H1 2008
• Crude steel output growth rate is expected at
  6-7 per annum for Russia and Ukraine in the
  coming 2-3 years. Rolling capacities will be
  growing at the same pace in Russia with only 3
  expected growth in Ukraine. So, semis export from
  CIS will continue dominate
• At expected AC growth rates domestic market
  growth in those countries will not be sufficient
  to absorb increased supply, so export deliveries
  will grow inevitably

11
Global changes threats for CIS exports
Turkey HR capacities development, mt
Brazil slab export potential, mt
China welded pipe output, mt
Poland HR sheet market changes, mt
and others including Iran, India, Saudi Arabia,
Vietnam...
12
Global changes incentives for CIS exports
UAE rebar billet capacities, mt
Syria longs billet capacities, mt
Still balance of new steelmaking and rolling
capacities in the whole Middle East should be
taken into account, especially ambitions projects
in Iran
13
Price situation for the rest of 2008 longs
UAE demand was driving Turkish and global prices
Volumes from Turkey is the major problem Lots
destined for UAE have to be diverted somewhere
which means around 700,000 tpm vs around 250,000
tpm exported to non-UAE last year
To place volumes and compete with others (China,
CIS, Italy) Turkey is lowering prices. Once the
most expensive, Turkish rebar is now the
cheapest, being offered as low as 715-730/t
fob And scrap at below 400/t cf Turkey allows
more space to fall, with billet to follow
But UAE do not need more rebar this year
- at max 30 consumption growth - not taking
into account 1-1.2mt shipped from Turkey in
Jul-Aug
14
Price situation for the rest of 2008 HR flats
Chinese welded pipes

• China increased output of welded pipes by 7 or
  1.5mt in Jan-Jul 2008
• Export is recovering after sharp drop in early
  2008 despite major markets (US, EU) are closed
  with duties.
• Chinese mills are looking for new markets,
  including Middle East, India, Far East etc
• While HR flats export is subject to 15 duty,
  welded pipes marked as API enjoy 13 VAT rebate.

15
Price situation for the rest of 2008 HR flats
European Union
Middle East

• 17 of CIS HR flats exports, or 1.6mt in Jan-Jul
  2008
• Major consumers are pipe-making companies
• CIS HR coils prices have to compete with prices
  for Chinese welded pipes, which means as low as
  750-760/t fob Black Sea

• 21 of CIS HR flats exports
• Almost closed from cheap Chinese pipes
• Russian mills used quota by 75
• Ukrainian mills do not have quota any more
• CIS HR coils have to compete with Chinese HR
  coils prices (not lower than 800/t fob) which
  means 820-840/t fob Black Sea

Turkey

• 20 of CIS HR flats exports
• Turkey exports pipes to EU, closed for China
• CIS HR coils prices have to compete with Chinese
  HR coils which means 820-840/t fob Black Sea

USA

• Potentially big importer
• Closed for Chinese pipes
• Russian mills have almost unused 1mt quota
• With current local prices around 1080/t exw
  Russian HR coils are easily sold at 820-840/t fob

- taking into account HR mill launched at
Isdemir - forecast 5 AC growth
16
Summary prices

• Long products prices are defined by oversupply,
  coming from Turkey
• Prices will not help increase sales, so output
  curbs are necessary
• Raw materials prices follow longs products
  decline, so do billet quotations
• Situation will become better in early 2009 with
  UAE digesting stocks, though such prices spike as
  in H1 2008 is not foreseen due to new capacities
  coming on stream in Middle East
• HR flats prices in Middle East are influenced
  strongly by increased supplies of cheap Chinese
  welded pipes
• Though other markets are healthier, situation in
  Middle East could influence CIS mills quotations
  for those destinations as well
• Slabs prices will be under preassure from low HR
  coils quotations, despite stronger plate market
  and quite high domestic coils prices in Europe
  and US

17
Thank you for attention!
Svetlana Delamures.delamure_at_metalexpert-group.co
m