LATEST DEVELOPMENTS IN THE RUSSIAN STEEL SECTOR and OUTLOOK for 2010

68th meeting OECD STEEL COMMETTEE May, 6-7, 2010, Paris

Maria Ivanova, Novolipetsk Steel Russian Steel Consortium

Industrial production growth rate (SA, y-o-y) and Industrial business activity index (PMI)

Source: Investment Banks, Russian Statistics Agency, Ministry for Economic Development of Russia

GDP and its elements growth rates , (y-o-y, %) Current account and consolidated state budget proficit as % of GDP

Current Economic Situation In Russia

-16

-11

-6

-1

4

9

Jan

-07

Mar

-07

May

-07

Jul-

07

Sep

-07

No

v-0

7

Jan

-08

Mar

-08

May

-08

Jul-

08

Sep

-08

No

v-0

8

Jan

-09

Mar

-09

May

-09

Jul-

09

Sep

-09

No

v-0

9

Jan

-10

IP growth rate, % yoy

30

35

40

45

50

55 PMI index

IP

PMI index

recession

growth

Industrial producer’s price index, %

101.6

100.7

104.5 105.4

100.5

95

91.6

96.6

105.1

102.9

100.6

101.4

99.1 99

102.3

90

92

94

96

98

100

102

104

106

108

Jan

-08

Feb

-08

Mar

-08

Ap

r-0

8

May

-08

Jun

-08

Jul-

08

Au

g-0

8

Sep

-08

Oct

-08

No

v-0

8

Dec

-08

Jan

-09

Feb

-09

Mar

-09

Ap

r-0

9

May

-09

Jun

-09

Jul-

09

Au

g-0

9

Sep

-09

Oct

-09

No

v-0

9

Dec

-09

Jan

-10

Feb

-10

Mar

-10

Mar

-10

6.2

1.1

-9.8 -10.9 -8.9

-2.4

4.5

10.4

4.7

-16.3

-21.7 -20.9

-14.1

-7.8

12.4

8.1

-3.2

-7

-11.6 -9.9

15.2

-25

-20

-15

-10

-5

0

5

10

15

20

3q 2008 4q 2008 1q 2009 2q 2009 3q 2009 4q 2009 1q 2010

GDP Capital formation Private consumption 12.1

-13

2.7

-8.6

-3.5 -5

-3.2

6.2

2.1 3.8

2.6 4.5 4.3

11

-15

-10

-5

0

5

10

15

3q 2008 4q 2008 1q 2009 2q 2009 3q 2009 4q 2009 1q 2010

Budget proficit Current accounts balance

-2-

Steel using sectors Russia’s steel use by sectors in 2009 (28,4 mmt in total) Share in ASU (1997-2008 average), %

28.2 %

23.1 %

15.5 %

8.1 %

7.6 %

3.2 %

3.1 %

1.7 %

1.5 %

7.7 %

Source: Metal-Expert, Metal Courier, Russian Statistics Agency

Russia’ Steel Using Sectors Dynamics

-40

-30

-20

-10

0

10

20

0

0,5

1

1,5

2

2,5

3

3,5

4

Ja

n-0

8

Fe

b-0

8

Ma

r-0

8

Ap

r-0

8

Ma

y-…

Ju

n-0

8

Ju

l-0

8

Au

g-0

8

Se

p-0

8

Oc

t-0

8

No

v-0

8

De

c-0

8

Ja

n-0

9

Fe

b-0

9

Ma

r-0

9

Ap

r-0

9

Ma

y-…

Ju

n-0

9

Ju

l-0

9

Au

g-0

9

Se

p-0

9

Oc

t-0

9

No

v-0

9

De

c-0

9

SW

IP, y-o

-y,%

AS

U,

mm

t

ASU* and SWIP* dynamics

ASU SWIP

*SWIP: Steel using sector Weighted average Industrial Production

*ASU – apparent steel use in broad definition (including pipes & tubes production/consumption and intra industry pipe blank and strip shipments)

*ASU – apparent steel use in broad definition (including pipes & tubes production/consumption and intra industry pipe blank and strip shipments)

2,5

0,4

0,9

1,3

0,8

0,5

0,6

1,2

7,4

12,8

Other

Electrical equipment

Domestic appliances

Other transport machinery

Railway transportation (rails)

Automotive industry

Mechanical machinery

Fabricated metal products

Pipes & Tubes

Construction

-3-

Russia’ Steel Using Sectors Output Dynamics

Construction output, y-o-y, % Tubes & pipes production, y-o-y, %

Mechanical machinery output, y-o-y,% Automotive industry, y-o-y, %

Source: Metal-Expert, Metal Courier, Russian Statistics Agency , Ministry for Industry and Trade

63.4

-38.4 -33.9 -45

-25

-5

15

35

55

75

Jan

-08

Fe

b-0

8

Mar-

08

Apr-

08

May-0

8

Jun

-08

Ju

l-08

Au

g-0

8

Sep-0

8

Oct-

08

Nov-0

8

Dec-0

8

Jan

-09

Fe

b-0

9

Mar-

09

Apr-

09

May-0

9

Jun

-09

Ju

l-09

Au

g-0

9

Sep-0

9

Oct-

09

Nov-0

9

Dec-0

9

Jan

-10

-74.2 -76.3

28.9

-90

-70

-50

-30

-10

10

30

Jan-0

8

Fe

b-0

8

Mar-

08

Apr-

08

May-0

8

Jun-0

8

Jul-08

Aug-0

8

Sep-0

8

Oct-

08

Nov-0

8

Dec-0

8

Ja

n-0

9

Fe

b-0

9

Mar-

09

Apr-

09

May-0

9

Jun-0

9

Jul-09

Aug-0

9

Sep-0

9

Oct-

09

Nov-0

9

Dec-0

9

Ja

n-1

0

-4-

Russia’ Steel Industry Dynamics

Source: Metal-Expert, Russian Statistics Agency

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0

1

2

3

4

5

6

7

Jan

-08

Feb-0

8

Mar-

08

Apr-

08

May-0

8

Jun

-08

Jul-08

Aug-0

8

Sep-0

8

Oct-

08

Nov-0

8

Dec-0

8

Jan

-09

Feb-0

9

Mar-

09

Apr-

09

May-0

9

Jun

-09

Jul-09

Aug-0

9

Sep-0

9

Oct-

09

Nov-0

9

Dec-0

9

Jan

-10

Feb-1

0

Mar-

10

Crude steel production Finished steel production ASU

Peak low

Nov2008/Jan2008, % -47% -49% -41%

Dec2009/Jan2008, % -15% -15% -22%

Mar2010/Jan2008, % -10% -7% -8%

Production volume, mmt ASU, mmt Average pre-crisis steel production

Average pre-crisis finished steel production

-5-

Russia’ Steel Industry Dynamics

Semi-finished & Finished steel balance*, mmt

Nov 2008/Jan2 008, % -45% -37% -43% -52%

Dec 2009/Jan 2008, % -13% -6% -6% -18%

Mar 2010/Jan 2008, % -13% -17% -19% -7%

-4

-2

0

2

4

6

8

Production Export Import Consumption

Source: Metal-Courier -6-

Russia’ Steel Industry Dynamics

Source: Russian Federal Customs Statistics

0

1000

2000

3000

4000

5000

6000

Jan-0

8

Feb

-08

Mar-

08

Apr-

08

May-0

8

Jun-0

8

Jul-08

Aug-0

8

Sep-0

8

Oct-

08

Nov-0

8

Dec-0

8

Jan-0

9

Feb

-09

Mar-

09

Apr-

09

May-0

9

Jun-0

9

Jul-09

Aug-0

9

Sep-0

9

Oct-

09

Nov-0

9

Dec-0

9

Jan-1

0

Feb

-10

Mar-

10

Primary iron & Materials Semi-finished Flat Long Pipes and Tubes

Exports breakdown by products, 000mt

2009/2008, % - 30% -6% 25% 24% 15%

Q1 2009/Q1 2008, % -46% -23% -14% 1% 29%

Q1 2010/Q1 2008, % -41% 5% 3% 3% -39%

Q1 2010/Q1 2009, % 9% 36% 19% 1% -52%

24%

37%

25%

10%

4%

2009 Exports breakdown by products, %

-7-

Priority targets of steel industry development:

Stimulating steel consumption, diversifying demand and supporting the development of steel-using industries

Technological modernization, reducing ineffective capacities and launching new competitive products

Resource and energy efficiency

Reducing environmental footprint

Standards of the corporate governance and environmental performance Improvement

Upstream vertical integration and Integration in high quality assets

90 63,1 70 1500

20406080

100120140160

Automotive industry and agricultural machinery

Agriculture and fisheries Defense Transport

Financial Support To Selected Industry, RUR bn Infrastructure

Aviation

Railroads

Russia’ Steel Companies’ Strategy

-8-

SEVERSTAL

NLMK

TMK

MMK

Russia’ Steel Companies Foreign Assets

EVRAZ GROUP S.A.

METALLOINVEST

POLAND DENMARK

KAZAKHSTAN

BULGARY

TURKEY ITALY

FRANCE

BELGIUM

GREAT BRITAIN

UAE

SOUTH AFRICA

USA

CANADA RUSSIA LITHUANIA

MECHEL

GERMANY

ROMANIA

-9-

Forecast: Steel Using Sectors Output

Construction and Pipe & Tubes, %

Domestic Appliance and Electrical Equipment, % Metal Goods and Other steel using sectors, %

13,2

18,1 18,2

12,8

-16

4,78,810,7

26,7

13,1

-16,7

-21,7

18,8

6,4

2005 2006 2007 2008 2009E 2010F 2011F

Construction Pipes & Tubes

-0,2

14,1 15,4

4,6

-55,5

8 9

03,3

19,1

4

-28,4

10,35

2005 2006 2007 2008 2009E 2010F 2011F

Automotive industry

Automotive Industry and Mechanical Engineering, %

Source: Russian Statistics Agency, Russian Worldsteel members expert group -10-

Forecast: Production, ASU

Quarterly finished steel production and ASU, % y-o-y

Semi-Annual By product Production and Consumption Forecast, % y-o-y

Source: Russian Worldsteel members expert group

Y-O-Y

2009 2010F

Jan-Jun Jul-Dec Total

Production

- crude steel -13.7 8.9 3.6 6.0

- finished steel -13.7 22.6 0.3 11.2

- long products -23.1 13.5 7.6 11.4

- flat products -4.9 22.7 -4.5 8.4

- pipes & tubes -13.8 45.6 -0.9 20.1

Apparent use

- crude steel -31.7 22.0 3.9 10.8

- finished steel -30.2 26.4 -0.7 10.8

- long products -33.5 14.1 6.7 10.0

- flat products -31.3 23.9 -5.2 6.3

- pipes & tubes -21.7 52.7 -6.6 18.6

-29.4

32.8 26.8

25.9

-0.8 -0.6

-11.5

41

23.1 22.1

1.6

-1

-40

-30

-20

-10

0

10

20

30

40

50

3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010

ASU, y-o-y,%

Finished Steel production, y-o-y,%

-11-

Forecast: Finished Steel Balance

Quarterly export, import (% y-o-y) and net export (mmt)

Semi-annual by product export/import forecast, % y-o-y

Source: Russian Worldsteel members expert group

Y-O-Y 2009 2010F

Jan-Jun Jul-Dec Total

Export

- finished steel 18.4 9.2 2.7 5.9

- long products 1.5 0.5 10.8 5.4

- flat products 27.4 11.8 -2.5 4.2

- pipes & tubes 15.0 16.9 23.9 20.0

Import

- finished steel -33.5 28.0 0.2 2.2

- long products -49.2 62.6 5.6 9.5

- flat products -22.0 16.4 0.5 -1.5

- pipes & tubes -38.2 26.1 -11.2 5.2

-50

-40

-30

-20

-10

0

10

20

30

40

50

0

5

10

15

20

25

30

35

40

3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010

Net export, mmt

Import, y-o-y, %

Export, y-o-y, %

Export, import ,% Net export (mmt)

-12-

Customs Union: New Reality

KAZAKHSTAN

RUSSIA

BELARUS

Customs Union started 01/01/2010

Regulating Authority – Commission of the CU

Ongoing development of Legal Basis

Common Customs Tariff (import regulation)

Common Trade with Third Parties Regulation www.tsouz.ru

Introduction of common customs-tariff and non-tariff treatment

Testing the import customs duties accounting and assessment mechanism

Carrying of the Customs Code of the Customs Union into effect

Transfer of the control to the external border of the Republic of Belarus

Introduction of import customs duties and excise accounting and

assessment mechanism

Abolition of customs clearance of goods originating member states

Transfer of Customs control to the external border of the Republic of Kazakhstan

Co

mm

on

Eco

no

mic

Sp

ace

01/01/2010 01/04/2010 01/07/2010 01/07/2011

Common Customs Space Development Stages

-13-

68th meeting OECD STEEL COMMETTEE May, 6-7, 2010 Paris

THANK YOU FOR ATTENTION