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Svetlana Delamure Head of Global Steel Market Researh

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. CIS steel industry today. 7 countries with 121 mln tonnes of crude steel production in 2007…. Ukraine 14 mills

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Svetlana Delamure Head of Global Steel Market Researh

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  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. +7% +6% +8% +3% +8% +8% +2% +9% +6% +6% +2% +7% 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 c&f 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@metalexpert-group.com

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