Memo from Moscow

Steel News from Russia, Ukraine and other CIS States

Steel in Kazakhstan, June 2009

Kazakhstan is a notable player on the world steel and non-ferrous metals markets. The iron and steel industry of Kazakhstan fabricates about 12.5 % of domestic industrial output and ranks amongst the 30 largest steel producing countries. The sector includes mining and metals (mainly flat rolled steel products), production of ferroalloys and refractories, and scrap collection and processing.

According to the state statistical agency, Kazakhstan in 2008 produced 4.285 mt of crude steel. This was ~10.4 % is less than in 2007. Production of flat rolled steel products amounted in 2008 to 2.825 mt (a decrease of 17.9 % from 2007 production), including production of tin plate of~ 173 kt (down 17,5 %) and zinc-coated sheet of ~526 kt (12.8 % down on 2007). Kazakh output of ferroalloys in 2008 was 1.591 mt (see chart below).

Arcelor Mittal Termitau was for many years a monopolist in the field of a Kazakh steelmaking. Investment commenced in 2002 however in a new mini-mill [named the "Casting" mini mill] at a total cost of $40 m. This new mini mill - with an EAF, continuous casting and section rolling - is situated on the site of the former Pavlodar Tractor Works.

The Kazakhstan iron and steel industry is strongly export-oriented - much more so than Russia. The share of the metal products going to export typically attains some ~85-95% of production. The main importers of steel from Kazakhstan are China, Russia, Iran and the EU. Domestic steel consumption in Kazakhstan remains low, at less than 60 kg of steel per capita.

ArcelorMittal in 2009 will reduce steelmaking production at Termitau, producing 3.167 mt according to plan as compared to 3.431 mt of output in 2008. The volume of steelmaking in Q1 2009 in comparison with the analogous period in 2008 has decreased some 22%. Also production of ferroalloys in Q1 2009 was reduced by ~38% in comparison with Q1 2008.

Kazakhstan has a large deposit of iron, manganese and chromium ores. More than 70% of iron ore mined in the country goes to export, primarily to Russia. The iron-ore mining industry of Kazakhstan in represented by several large enterprises: Sokolosko-Srbaysky GOK, Lisakovsky GOK, Atasuysky, Kacharsky and Zhezdinsky mining. Two ferroalloys works also operate in country: Ermakovsky (ferrochromium) and Atasuysky (FeSi and silicomanganese).

Readers of this monthly 'Memo from Moscow' column should note the intensity with which the industry in Kazakhstan has been developing in recent years. This is well illustrated by the following...

• November 2008 saw the start-up in Mangistau of the 'Caspian Steel' mini mill, with two EAFs for production of square semis and reinforcement bars and a capacity of ~300,000 tpy
• July 2008 witnessed the commencement of operation of the Tarazsky Metallurgical Plant for the manufacture of ferroalloys (FeSiMn)
• In September 2008 in Balkhash, the start-up took place at the '?? Metalls' site of a new metallurgical complex for the manufacture of up to 32,000 tonnes/year of foundry iron. The investment was based on the technological recommendations of the Moscow Institute's "Stalproject". The cost of this modernisation was �4 m
• The Russian holding Mechel in September 2008 started-up one of the world's largest chromium ore mining plants at a cost of $250 m. Mechel is currently on target also for construction of a new ferrochrome plant at a cost of ~$800m. Ultimately, 1.3 mt/year of chromium ore will be mined at this new facility, and from this some 950 kt/year of chrome concentrate will be produced
• Danieli Centro Tube has also recently built a new seamless tube plant for the KSP Company at Pavlodar (a subsidiary of the 'Casting' Company mentioned above). The new facility commenced production just recently and will produce ~270 kt/year of 60-277mm diameter pipe for the oil sector
• Impeco is just completing construction of new section rolling mill in Aktobe. This facility is to be called 'SBS Steel' and will be supplied by a 500kt/year mini mill which was built in 2007
• Neftegaztube (belonging to Mittal Steel Termitau) in 2006 completed construction initiated in 2003 of a plant for the manufacture spiral welded pipes in the territory of the 'Seaport Aktau' special economic zone. The total cost of this investment was ~$33m. The plant is designed in a modular manner. The capacity of each module will add ~60kt/year of pipes per year - the plan is to make two modules in the first stage
• The new hardware plant of KazmetizANT with capacity of 200-250 thousand t/year shortly comes on-stream in Ekibastuz with a total project cost of $140m. Engineering supervision of construction of this facility was realized by French company Veritas. The ANT Group of Companies shortly also start construction of a metal-rolling mini-mill with a capacity of up to 300,000 t/year of low-carbon and alloy steels
• Arcelor Mittal is also planning to build a 400kt/year long product rolling mill. Start-up was planned for 2009. Note that in addition to Mittal Steel Temirtau, ArcelorMittal also has ownership of ~15 coal and iron ore mines in Kazakhstan

May 20 2009 heralded an important announcement concerning the metal sector from the President of Kazakhstan. Specifically, the target was set for a doubling in the manufacture and export from Kazakhstan of metallurgical products by 2015. Indeed, over and above the aforementioned plans, there exist today some 26 new expansion projects. These include the manufacture of polycrystallic silicium; expansion of aluminium smelting; DRI production; expansion of manufacture of ferromanganese at Tarazsky; construction of a new metallurgical complex in Temirtau - and more.

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