Memo from Moscow
Steel News from Russia and Ukraine
Year End Review of the CIS Steel Industry, February 2009
According to the World Steel Association, world crude steel production reached 1,329.7 mt for the year of 2008. This is a decrease of 1.2% compared to 2007. CIS crude steel production reached 114 mt, a fall of ~8% over the previous year - a large recuction compared to other world regions. Within this, Russia in 2008 produced 68.7 mt crude steel (-5.1% in comparison with 2007 output of 72.2 mt) and Ukraine produced 37.1 mt crude steel (down 13.4% when compared with 2007 output of 42.8 mt).
The Russian Federation
Year 2008 statistics for the Russian metallurgical sector are as indicated below.
|
Type of products |
2008, mt |
2008 / 2007 |
|
Iron ore saleable output |
99.9 |
95.3 |
|
Pig iron and BF ferroalloys |
48.3 |
93.7 |
|
Crude steel, total |
68.7 |
94.9 |
|
Including: |
|
|
|
BOF steel |
38.9 |
94.4 |
|
EAF steel |
20.0 |
102.3 |
|
Finished rolled products, total |
56.6 |
94.9 |
|
Including: |
|
|
|
Finished long rolled products |
32.9 |
98 .0 |
|
Finished flat rolled products |
23.1 |
90.8 |
|
Coated steel sheets and plates |
3.1 |
96.1 |
|
Steel tube and pipes, total |
7.78 |
89.3 |
Source: Rosstat
Whilst the Russian steel sector showed an average decline in production across all products of ~ 5-6%, the start up of several mini-mills (e.g. OEMK at Oskol, Metalloinvest) meant a smaller
reduction in EAF steelmaking. Also, the start up of a new large-capacity Midrex HBI unit at Lebedinsky GOK (Metalloinvest) meant an increase in 2008 production of hot briquetted iron
(HBI) to 2.1 mt (+84% over 2007).
Looking at exports, in rolled steel products these reached 27.4 mt (+1% compared with 2007). The share of exports in 2008 was about 48% of total Russian production. Notably during the summer, this
proportion was around 42% but rose to ~64% in December 2008. Apparent finished steel rolled product consumption in 2008 registered a decline of 14.4% to 33.9 mt.
Mention should be made of the strong positioning of Russian metallurgy in steel billet export trade. 2008 saw some 15.9 mt of billet exports from Russia. This is the highest volume of billets
exports from Russia seen in the last three years.
According to Rossat, Russian production of steel pipe in 2008 showed a decline to ~7.8 mt, meaning a 10.7% fall compared to 2007. Pipe production at ТМК in 2008 declined by 11% to
~2.7 mt (without TMK IPSCO of Canada). At the Vyksa metallurgical plant (OMK Group) pipe production fell by 18.3% from 1.707 mt in 2007 to 1.395 mt in 2008. At ChTPZ Group including the Chelyabinsky
and Pervouralsky pipe plants pipe production declined by some 20% from 1.892 mt to 1.509 mt. Large diameter pipe production in Russia in 2008 compared to 2007 also showed a large decline – at OMK by
~22% to 0.735 mt, at ChTPZ by ~33%, and at TMK by about 39%. In the line with the reduction in pipe production, apparent consumption of steel pipes by the Russian oil and gas sector in 2008 fell
also, reaching ~3.1 mt in 2008 [and down from ~4.2 mt in 2007].
Russian steelmakers in 2008 complained to Government that cheap imports of certain types of finished steel were affecting their steel markets. In response the Russian Government on 9th January
approved special measures that will increase a number of import tariffs to ~15-20%. The tariff changes are for certain types of long product, for structural steel and for steel tube
and pipe. The order will take effect from 9th February 2009 and the tariff arrangement will last for 9 months.
Severstal, Magnitogorsk and Novolipetsk Iron & Steel Works have additionally asked the Russian Ministry of Industry and Trade for a temporary 33% import duty on galvanised sheet.
Today Russian capacity for production of zinc coated steel products is about 1 mt/year and during the last two years total imports were also at around the 1 mt/year level. The Russian Pipe
Development Fund has also initiated moves on the introduction of import duties for small and medium diameter pipe from Ukraine.
A number of large Russian metallurgical companies have problems with repayment of credits to Russian state banks (VTB and Sberbank). Accordingly, some small but significant equity stakes in Russian
metallurgy may pass into state ownership in 2009 due of the pledging of securities. In January 2009 the Government of the Russian Federation also held a meeting on the topic of
mining-metallurgical sector consolidation. According to some visions, Russia in 2009 may witness the creation of a global mining and metallurgical company comparable in size to BHP
Billiton of Australia. This NewCo [with State ownership of a critical share of just over 25%] could involve merger of Norilsky Nikel, Metalloinvest, Evraz Group, and Mechel; possibly some other state
assets, and perhaps even Rusal (which has ~$14-17 billion in net debt). Due to the size of the total debt involved, difficulties may however be encountered over agreement of merger terms.
End-2008 also saw much discussion between Russian steel producers and their raw material suppliers on the topic of declining raw material prices. MMK has now agreed with its main
iron ore supplier (ENRC, Kazakhstan) a price decline from 1 January 2009 of ~41%. The main reason for this is MMK's declining winter production programme. Scrap, coal and ferroalloys prices will also
fall significantly for MMK and many other steelmakers from 1st January 2009. According to expert estimations this should restore significant profitability to the sector.
The Ukraine
According to the Ukrainian Ministry of Industry and other sources,
- crude steel production in 2008 declined by 13% to 37.1 mt
- iron ore saleable output declined by 5.3 mt to 71 mt
- production of ferroalloys in 2008 declined by 19% and reached about 1.42mt (versus 1.75 mt in 2007)
- finished rolled product output also showed a decline of 13%.
According to Ukrtruboprom, Ukrainian steel pipe production in 2008 reached 2.4 mt (7% down compared with 2007) but the production outlook continues to deteriorate. Exports of steel products from the Ukraine in 2008 showed a decline of ~7%. Steel imports at the same time showed growth from 2.8 mt in 2007 to 3.2 mt (+11%) in 2008.
| 01-Jan-09 | Impact of the credit crisis |
| 01-Dec-08 | Consolidation |
| 01-Nov-08 | Investment activity |
| 01-Oct-08 | Stainless steel sector in Russia |
| 01-Sep-08 | 2007 Russian steel industry review |
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