Memo from Moscow

Steel News from Russia, Ukraine and other CIS States

Metallurgy in Russia: End-2009 Annual Review

According to ROSSTAT, year 2009 metallurgical production in the Russian Federation amounted to 86.5% of the level of 2008. 2009 crude steel production in Russia decreased by 13.9% in comparison with 2008 and amounted to 59.2 mt [or 59.9 mt according to the latest data from the Ministry of Industry and Trade]. Production of iron and steel products in 2009 was as follows.

• Pig iron: 43.9 mt (91.0% of the level of 2008)
• BOF converter steel: 38.0 mt
• EAF steel: 16.1 mt

The production share of OHF steel decreased from 14.3% in 2008 to 9.5% in 2009. At the same time the share of the continuous casting billets increased from 73.8% in 2008 to 81.7% in 2009. Production of steel rolled products in 2009 was ~50.8 mt (89.7% of 2008 levels); including long rolled products 28.4 mt (85.9% of 2008), flat rolled products 22.1 mt (96% of 2008). Production of coated steels in 2008 was ~2.9 mt.

In 2009 Russia reduced its extraction of iron ore by ~8.1% in comparison with 2008, producing ~92mt of ore. Production of iron ore pellets attained 33.5 mt (96.6% of 2008 levels). In 2009 coal production amounted to ~298 mt (90.8% f the prior year level), coke output was ~27.4 mt (85.5% of 2008).

Steel Market

Volume in the domestic steel market fell ~35 to 40%. Rolled steel consumption in 2009 amounted to ~25.7 mt (a decrease of 7.3 mt or a ~22.1% fall versus 2008). Deliveries of domestic steel producers to the home steel market attained 23.3 mt and fell by 6 mt (a 20.5% reduction on 2008). Russian 2009 steel imports also decreased by 1.3 mt (a 35.1% fall).

In 2009 steel prices continued their fall from end-2008. Only since June 2009 has some growth in domestic steel prices been seen. Scrap prices also followed this trend. Thus, from a scrap price peak of $US 700/tonne in June 2008, ferrous scrap fell to $US 300/t by December 2009. The prices of hot rolled coils have also fallen from about $US 1200/tonne in July 2008, attaining $US 560/tonne in December 2009. With cold rolled coils, prices fell from about $US 1300/tonne at their peak in July 2008, to around $680/tonne in December 2009.

According to the Russian State Customs Committee, more than 60% of all Russian steel output in 2009 went to export, although export of all steel products actually fell by 14% in 2009. The destinations of Russian 2009 exports of steel rolled products were Italy (16.8%), Iran (12.6%), China (8.9%), Turkey (7.7%). The structure of 2009 steel rolled export (by value) was pig iron 7.4%; billets 16.1%; slabs 11.8%; hot rolled coils 13.3%; cold rolled coils 5.8%; long rolled 9.7%; tubes and pipe 13.5%; other 22.4%. It is noteworthy that according to the Russian Customs record, about 55% of the Russian steel exports were effected through Swiss trading companies, as well as via Cyprus (8.6%), Gibraltar (8.1%) and Liechtenstein (4.0%). Imports of steel rolled products into Russia were mostly made from the CIS countries - Ukraine and Kazakhstan; but with significant volumes from Germany and China.

2009 profitability of Russian metallurgical enterprises fell 2.2-fold from the level of 2008. Ferrous metallurgy in Russia nonetheless still employs just over 1 million people (89.5% of the 2008 employment level). The monthly average wages of workers in 2009 was about $US 600 (17,433 Roubles).

Investments

Investments into the ferrous metallurgical sector of Russia during 2008 were ~199 billion roubles. In 2009 this figure fell to ~150 billion roubles. By 2015, it is expected that the level of investment will rise to ~200 billion roubles per year. Key modernisation events in Russia during 2009 included the commissioning in July 2009 at MMK in Magnitogorsk of the heavy plate mill 'HPM 5000'. The thick plates produced at the Magnitogorsk Works will be used for manufacture of large diameter pipes (in diameter of 530-1420 mm), and also for bridge construction and shipbuilding. In October 2009 ???? in Lipetsk [NLNK] put into operation a fourth continuous hot dip galvanizing unit with capacity 300,000 tonnes per year. The zinc coated steel sheet will be used primarily in the construction industry; but also for manufacturing of home appliances. Mechel during 2009 also finished construction of its rail and structural steel mill in Chelyabinsk.

Steel Tube and Pipe

Russian tube and pipe production in 2009 was approx 6.655 mt (some 85.6% of the level of 2008 of 7.67 mt). Seamless pipe output was 2.129 mt (75.5% of 2008 levels) and electric welded pipe production was ~4.335 mt (91.6% of the prior year). By volume of steel pipe production, Russia is currently in world number three position.

Domestic consumption of steel pipes in 2009 was about 6 mt (down by comparison with 2008 of 7.39 mt by ~20%). Internal deliveries of pipes by domestic producers equalled ~5 mt (a decrease of 21.3%). Export deliveries however increased by ~17.4% and amounted to ~1.58 mt.

On 2009 results, supply shares of the main players in the Russian pipe sector as a whole were distributed as follows: TMK 30%, OMK 18.6%, ChTPZ Group 15.3%, Severstal 10.2%, other 16.9%. Imports of steel pipes into Russia were about 9% of the total Russia consumption (being mainly pipes manufactured by Ukrainian company Interpipe).

According to data from the Russian Fund for the Development of the Pipe Industry, during 2009 the Russian tube and pipe companies invested ~$US 8 billion in modernization of capacity. Capacity for production of large diameter pipe will by 2012 equal some 5.9 mt per year in Russia. 2009 investments in the sector were prolific.

• Volzhsky pipe plant of TMK put on the stream a large diameter pipe mill [with Haeusler of Switzerland] for production pipes in diameter of 508-1420 mm - investing in some 650 kt of annual capacity
• TMK moved forward with replacement of the OHF shop of the Seversky Pipe Plant, investing in a 135 t electric furnace. The design capacity of the new EAF steel melt shop is ~998,000 tpy
• OMK by early 2009 constructed the first stage of a casting-rolling complex at Vyksa Steel Works for production of hot rolled strips (for manufacture of pipes in diameter of 15-530 mm) with a capacity 1.2 mt per year. The value of this investment was ~$US 1.2 billion. During 2009, production of rolled strip has already approached some 70% of the design capacity
• ChTPZ Group in April 2009 commissioned a new finishing center for manufacture of well casings and other tubes with 75,000 tpy of capacity [in high-strength steel, with raised cold resistance and corrosion stability]. The cost of this project was ~Euro 132m. ChTPZ Group is also conducting a reconstruction of electric welded pipe shop ? 3 (~Euro 640 m in capital costs; capacity ~600,000 tpy; start-up in 2010) in Chelyabinsk and of an EAF steel-smelting complex (capital cost of ~18 billion Roubles; designed capacity of 950,000 tpy of cast billets) with start-up planned in 2010.

In conformity with Government strategy for development of the iron and steel industry for the period till 2020 [and in view of the influence of global economic crisis] it is expected that domestic steel consumption will grows up to 1.7 times; meaning domestic steel market growth to 61 mt by the end of the decade. Exports of rolled steel products from Russia are expected at ~25-26 mt per year in the coming years. Total rolled steel exports from Russia are however expected to decrease because of the reorientation of national producers to the needs of the domestic steel market. Thus, by 2020 the share of exports is expected to be approximately ~27.5-30.5% of total steel product production. The structure of production of steel will over time increasingly also correspond to production structures seen elsewhere in the world. The Steelonthenet.com Memo from Moscow team understand that especial emphasis is to be expected as follows:

• OHF in metallurgy will be liquidated
• During the predicted period manufacture of high-quality long-length rails will be adopted
• Thick-walled pipe for fuel and energy complex will be produced in greater quantities
• Large-diameter plate for the manufacture of these pipes will also be mastered
• Manufacture of sheet steel for the military complex, for shipbuilding, for nuclear mechanical engineering, as well as for the motor-car industry will simultaneously also be extended.

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