Semis ex-CIS in Middle Eastern market: current state and future outlook

Svetlana DelamureEditor

Metal Expert Weekly / Metal Expert News

SBB Steel Market Middle EastApril 28-29 2008, Dubai, UAE

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Metal Expert in brief:

Middle East in the world steel semis trade today…

6 major importing countries Iran, Syria, Saudi Arabia, UAE, Jordan, Oman

18% (5.8mt) of billet imported globally

3% (0.9mt) of globally traded slabs

Share of semis ex-CIS supplied to Middle East – 85%

2005 share 2007 share

Billet 3718 86% 5822 87%

Slabs 605 14% 896 13%

Total 4322 6718

Middle Eastern countries import mainly billets…

Share of semis from CIS has been growing constantly for the last 3 years …

2005 2006 2007

Russia 1866 1534 3427

Ukraine 1084 1305 1532

Kazakhstan 342 410 486

Belarus 54 78 58

China 62 332 555

United Kingdom 276 170 115

Others 639 280 338

Total 4322 4110 6510

CIS share 77% 81% 85%

Middle East is an important market for CIS suppliers, consuming…

23% of Russian semis

13% of Ukrainian, and

85% of Kazakh billet and slabs

2005 2006 2007 y-o-y

Iran 1631 1719 3246 89%

Syria 463 476 701 47%

Saudi Arabia 687 567 606 7%

UAE 366 325 578 78%

Jordan 349 370 440 19%

Oman 221 209 252 21%

Total 3717 3668 5822 59%

44%

56%

47%

0

1000

2000

3000

4000

5000

6000

2005 2006 2007*

Iran

Others

Middle East increased semis import significantly

Most countries of the region import square billet…

…and only two buy slabs

430

217

819

197

63116

050

100150200250300350400450500550600650700750800850

2005 2006 2007*

Iran

Saudi Arabia

…but growth rates are impressing in both cases

What is behind increased billet consumption?

The major reason is extremely high construction activity in the region, especially in Iran and UAE, and other countries are on their way…

During 2007 rebar shipments to the region went up by 2mln tonnes year-on-year, mainly to

Iran +1mt

UAE +1mt

Rerollers’ demand for imported billet was estimated at around 7.6mt in 2007 with account of new capacities launched

Middle East domestic rebar prices, $/t exw

600630660690720750780810840870900930960990

1020105010801110

May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08

Iran, exw, $/t

Syria, exw, $/t

UAE, exw, $/t

Other factors supporting billet prices…

Crude steel production costs, $/t

Raw materials costs

Absence of Chinese semis due to high costs and 25% export duty

‘Newly’ emerged semis market in South East Asia

Consolidation of CIS semis production

250

300

350

400

450

500

550

600

Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08

China, iron ore and coke

Turke, scrap

Export price for Chinese billet with production costs of $600/t is around $890-900/t fob = $970-980/t c&f Gulf

Even more factors…

Freight rates, $/t

15

25

35

45

55

65

75

Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08

Astrakhan-Anzali, 3,000t of steel

Odessa-Dubai, 40,000t of steel, FILO

Freight rates

Logistics problems in the Caspian and Black Sea ports in winter

USD depreciation

Financial restrictions while working with Iran

All the factors mentioned resulted in higher billet prices… will the situations persist?

Imported billet prices, $/t c&f

Some figures for Middle East market

Imported billet prices – by 65-75%

Average domestic rebar prices grew 55-70% since May 2007

Freight rates – by 30% in case of Odessa-Dubai route and 133% in Astrakhan-Anzali case

490

530

570

610

650

690

730

770

810

850

890

930

970

May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08

Iran (Anzali)

UAE

Syria

Demand side:• Strong rebar demand and shortage in Middle East will maintain high rebar prices which supports rerollers demand for billet

• New steel-making facilities to be introduced in 2008 won’t be brought to full capacity within the year

Billet prices promise to be strong in 2008 due to…

Crude steel

Long products

Billet demand, 2007

Billet demand, 2008

Chng, 08/07

Iran 3500 1200 3200 900 -72%

Saudi Arabia 1900 1000 1700 800 -53%

UAE 1400 1650 1000 1250 25%

Syria 520 0 1000 480 -52%

Jordan 20 80 650 710 9%

Oman 0 250 230 480 109%

Total 7340 4180 7780 4620 -41%

Supply side:• Absence of Chinese billet in the market due to high production costs and export duty ‘gives freedom’ Turkish and CIS suppliers

• In 2007 Russia and Ukraine decreased billet exports by 480,000t and 600,000t respectively

• Russian Yartsevo and Rostov mini-mills will launch rolling capacities of 750,000t totally in 2008, though…

• In Ukraine new billet producer emerged – Electrostal – with 300,000tpy capacity

•Turkey will add about 2.9mt of crude steel capacity vs 1.9mt rolling capacity, but it will partially offset existing billet shortage in Turkish market

Billet prices promise to be strong in 2008 due to…

Products:- Scrap- Pig iron- Billet- Steel long products- Freight

Regions:- Turkey- CIS (Russia, Ukraine, Kazakhstan)- South Europe (Italy, Spain)- Central Europe (Poland, Bulgaria, Romania)- Middle East (Iran, UAE, Syria, Saudi Arabia, Jordan)- North Africa (Egypt, Algeria)- US- China- South East Asia (Taiwan, Thailand, Vietnam, Philippines, Singapore)

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