Memo from Moscow

CIS steel markets

1st May 2010 Report

The current economic crisis was accompanied by a strong reduction of domestic demand for steel rolled products in the CIS. Specific steel consumption per capita in 2009 attained just 216 kg in Russia and 106 kg in Ukraine. Metallurgical enterprises of the CIS avoided volume collapse only by growth of exports. In 2009 about half of Russia's rolled product production went to export. In Ukraine, this proportion was more than 80%. Full year 2009 statistics indicate that in Russia, about 44.5% of long rolled products and ~40% flat products (including slabs and billets) were shipped to the domestic market; in 2008 these proportions were ~62% and ~56% respectively. In Ukraine, some 13% of long rolled steel products and ~18% of flat products (including slabs) were shipped to the domestic market, with the respective shares in 2008 being ~16% and ~21%. Crude steel production in Russia for full-year 2009 attained ~59.9 mt (13.9% down on 2008), with production of rolled products equalling ~50.8 mln t (10.3% down on 2008). Ukraine in 2009 saw domestic steel consumption fall by ~37%; but reduced production of crude steel by just 21%. Full year crude steel production statistics for Ukraine indicate 2007 output of ~44 mt, 2008 production of ~38 mt; with ~20mt of supply in 2009. Consumption volumes and steel prices are however now reversing, and slowly returning to higher levels. Russia and Ukraine also remain the world's second and third largest exporters of steel (see table).

During 2009, Russia exported about 25% of its slab output and ~27% of its billet production. Similarly, Ukraine exported ~19% of billet production and ~25% of slab output. This helped to maintain high melt shop capacity utilisation. In fact, December 2009 utilisation of crude steel capacity in the CIS was remarkably strong in several steel plants, attaining ~91% at Mechel, 94% at Metalloinvest; 100% at NLMK and ~91% at Severstal.

To facilitate future steel product sales, the Ministry of Economic Development of the Russian Federation and the Ministry of Economics of the Ukraine in April 2010 signed an agreement permitting duty-free import into Russia of up to 260,000 tonnes of Ukrainian steel pipe. In 2009, the duty-free sales of these products were ~224,000 tonnes.

According to Minpromtorg of the Russian Federation, Russian domestic consumption of steel rolled metals during January - March 2010 amounted to ~6.8 mt, an increase on Q1 2009 demand levels of 1.3 mt (+23.6%). Whilst domestic demand recovers, the industry will continue to look to exports to further maximise production. In this respect, key strengths and opportunities of CIS steelmakers include large iron ore deposits and a favorable geographical positioning for exports. Offsetting this are important industry threats and weaknesses that include the low iron content of many ores (CIS iron content is typically about 35%, whilst Australian and Brazilian ores have a 65% iron content); shortages of important grades of coking coal; potential large increases in energy prices and the necessity in many regions for investment and modernisation of transport infrastructure.

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