Overview of steel and iron market - 2017 - Deloitte of steel and iron market Global steel and iron...

Overview of steel and iron marketDeloitte CIS Research CenterMoscow, 2017

01

02

03

04

05

06

Contents

Introduction 3

Key findings 4

Global steel and iron market 5Production output trends 6Consumption trends 8Commodity prices for 2017 9Steel prices for 2017 10Global trade: facts and figures 11

Overview of the Russian steel and iron market 12Output trends 13Consumption trends 15Exports of ferrous metals 16Ferrous product imports 17

Steel and iron industry — temperature check 18The current state of the steel-making industry 19Issues, drivers of competitiveness and priority strategies 20Global trade 21Digitalization and innovations in the steel and iron industry 22

Appendix 23

Contacts 24

01 Introduction

02 Global steel and iron market

03 Overview of the Russian steel and iron market

04 Steel and iron industry — temperature check

05 Appendix

Contacts06

02

Key findings

Introduction

We are pleased to present you with the full version of our analytical report. Welcome to the second issue of the Overview of the Russian Steel and Iron Market in 2017. This Issue offers a snapshot of the updated data for 2016, intermediate data for 1H 2017, and outlooks for 2017.

The key findings of our research will be published by leading Russian media outlets.

This research has been conducted annually since 2015 and forms the basis for a comprehensive study on the steel industry.

Please feel free to contact us if you have any questions regarding our survey.

Key topics:

• Global steel and iron market

• Overview of the Russian steel and iron market

• Steel and iron industry — temperature check

Andrey Sedov

Partner

Leader of the Metalsgroup in Deloitte, CIS

03

01 Introduction




05 Appendix

Contacts06

Key findings

Key findings

In 2016, the downward trend in output and consumption that had been continuing from 2015 gave place to a trend featuring greater stability, with industry indicators seeing a change of less than 2 percent:

• Steel output grew by 0.6 percent up to 1,630 million tonnes;

• And steel consumption grew by 1.3 percent up to 1,600 million tonnes.

Over the first eight months of 2017, the global steel output reached 264.4 million tonnes, up 4.8 percent from the same period in 2016.

In August, China’s government announced that it would halve steel output in Hebei and three other steel producing provinces by up to 50% with a view to improving air quality during the winter period. As a result, the steel output in China reached a record level of 2.5 tonnes per day in August.

The protectionist measures of the US and the EU may result in larger volumes of metal concentrating on fewer markets, which poses a risk of greater price differences across the markets.

During 2017, the Russian steel-making industry has tended to cut production. The second quarter of 2017 witnessed a 3.5 percent decrease in steel output in year-on-year terms.

Based in the results of 2H 2017, NLMK was the leader in terms of EBITDA and steel output among leading Russian steel-making companies.

In 1H 2017, the year-on-year growth rate of the Russian export of basic steel products in monetary terms amounted to 66 percent for rolled products and 136 percent for tube products.

In 1H 2017, the year-on-year growth rate of the Russian import of basic steel products in monetary terms amounted to 86 percent for rolled products and 52 percent for tube products.

Top-3* issues of concern to the industry in 2017: (Top 3 industry concerns in 2017)

• Shortcomings of government regulation

• Insufficient capacity

• Corruption

Top-5* priority business strategies in 2017:

• Bringing new products onto the market

• Replacement of imported goods

• Entry into new markets

* Based on the annual survey Russian Manufacturing Industry Overview by Deloitte CIS.

04

01 Introduction




05 Appendix

Contacts06

Key findings

Overview of steel and iron market | Global steel and iron market

Global steel and iron market02

05

01 Introduction

05 Appendix

Contacts06

Key findings

Production output trends

Consumption trends

Commodity prices for 2017

Steel prices for 2017

Global trade: facts and figures






Over the first eight months of 2017, the global steel output reached 1,123 million tonnes, up 4.8 percent from the same period in 2016. According to the EIU, mid-November will see China cut production, but before then, Chinese factories will continue to increase production capacities. According to the updated forecasts of EIU analysts, in 2017 steel output will increase by 3.2 percent in 2017 (compared to 2016). Output rates are further expected to decrease by about 2% in 2018 totaling 1,640 million tonnes, which is primarily due to a slowdown in the Chinese economy as a major steel producer/consumer (See below for more details).

Figure 1. Steel output since 2010 (million tonnes)

Figure 2. Steel output in 2017 (million tonnes)

China: The January-July period of 2017 saw a 5.6 percent increase in China’s steel output, which was in part due to a strong economic performance in the first three quarters of the year. Steel production reached a record level of 2.5 million tonnes per day in August (910 million tonnes in annual terms) as a result of the government’s announcement in August to halve steel output in Hebei and three other steel producing provinces by up to 50% with a view to improving air quality during the winter. These four provinces account for about one third of the Chinese production. Although the implementation of such measures is questionable, analysts expect significant reductions, which could lead to a decrease in productivity down to about 2 million tonnes per day (according to EIU). Concerns regarding

future supplies encourage consumers to buy materials in advance resulting in higher prices and increased output. EIU analysts expect the production volume in China to increase by 3.5% in 2017 with a sharp slowdown to start in the last six weeks of the year and continue until early 2018.

North America: Steel output in the USA in 2017 was supported by the Big River Steel commissioning in December. In addition, Higher prices encouraged producers to turn on some of their idle capacities. In 1H 2017, despite the high profitability of the US steel companies, their output grew by only 1.3 percent in year-on-year terms. However, EIU analysts expect a 3 percent output increase during 2017.

Source: WorldSteel Association, EIU forecast

Steel output Growth rate

Output, 2017 Output, 2016

128

122

139135

140137 135 135

Jan Feb Mar Apr May Jun Jul Aug

127

138

144 142 143141

144 144

2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

1433 1538 1560 1650 1670 1620 1630 1654 1640 1692

1.00

1.07

1.01

1.06

1.01

0.97

1.011.01

0.99

1.03

06

01 Introduction

05 Appendix

Contacts06

Key findings


Consumption trends








Figure 3. Steel output by region (%, 2016)European Union (EU): In April 2017, the EU did not apply import tariffs on hot-rolled products from Serbia, Russia, Ukraine, Iran, and Brazil, despite the fact that steel was delivered. This gave access to inexpensive steel for industrial production. In July, the EU decided to impose a 5-23 percent duty on suppliers (except Serbia) while the anti-dumping duty was set to a minimum import price (MIP) of EUR 472 per tonne. However, this decision was rejected by the EU countries. The European commission put forward other options, such as fixed import surcharges. However, the EU may not have enough time to take protective measures with respect to the domestic market until October, when the final decision is to be made. EIU experts expect that the existing tariffs and positive demand will push steel output in the EU up by 3.4 percent in 2017.

India: During M8 2017, the Indian steel industry increased its output by 5.1 percent year on year, due to an increase in new capacity and reduction of stocks volumes. Indian producers benefited from the introduction of MIPs for almost all steel products in February 2016. The level of MIPs was substantially higher than market prices, prohibiting, thus, imports into India. After the approval of an MIP for a five-year period, anti-dumping duties are imposed on the amounts imported below this price. Given such market protection, EIU expects a 6 percent increase in steel output in India in 2017, which is helped by an increase in the use of existing and commissioning of new capacities.

Europe except EU

Other countries

CIS

Japan

NAFTA

EU

Asia (except Japan and China)

China

6%2% 6%

6%

7%

10%

13%

50%


07

01 Introduction

05 Appendix

Contacts06

Key findings


Consumption trends








Consumption trends

In 2016 steel consumption increased by 1.3 percent from 2015 to 1,600 million tonnes. The EIU has revised its growth outlook for 2017 from 1.4 percent to 2.4 percent. The growth rate is expected to continue at the level of 2017 with a slight decrease of 0.2% until late 2018.

China: China’s GDP grew in 2Q 2017 and continues to show positive growth. The construction sector (including infrastructure and real estate) will remain key to overall steel demand in China, as it accounts for two thirds of the country’s steel consumption. Growing demand for steel supported by government incentives in 2016 ensured growth in 2017. The remaining one third of China’s steel consumption occurs in production, including shipbuilding, auto production and manufacturing of household appliances and industrial goods. In 1H 2017 industrial production saw a 7.1 percent increase (against 5.5 percent in the same period in 2016). EIU analysts expect a 3 percent year-on-year growth in steel demand In China.

European Union: In 2016, a strong automotive market delivered a boost to demand for steel, accounting for almost 20 percent of the regional needs. This growth continued in 2017, the number of newly

registered cars increased by 4.1 percent year-on-year in 1H 2017. Declining unemployment has also encouraged demand from other steel consumers such as house appliance producers and private housing builders. EIU analysts expect steel consumption to grow by 2 percent in 2017

Asia: In 2016, a growth in demand in several emerging economies, including Vietnam, Indonesia, Thailand, and the Philippines, reached 10 percent largely due to a high level of investment in infrastructure. In 2017, Thailand saw a decrease in demand while other markets remained active consumers. The smaller economies of Southeast Asia account for only 25 percent of total demand in Asia. India accounts for almost 20 percent of the regional needs: while steel consumption increased in 2H 2016, in 2017 the growth slowed due to industrial production index downfall. Weak demand in other major economies of the region — in Japan and South Korea — constrained the region-wide growth which is estimated by the EIU at 2 percent in 2017.

Figure 4. Global steel consumption since 2010 (million tonnes)

Figure 5. Global steel consumption by region (%, 2016)

Steel consumption Growth rate

2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

1401 1492 1552 1613 1627 1580 1600 1638 1636 1688

1.00

1.07

1.04

1.04

1.01

0.97

1.011.02

1.00

1.03

Europe apart from EU

CIS

Japan

NAFTA

Other countries

EU

Asia (apart from Japan and China)

China

3% 3%4%

9%

9%

10%

17%

45%


08

01 Introduction

05 Appendix

Contacts06

Key findings


Consumption trends









Ore: In 2016 the average price for ore was USD 57 per tonne. This was mainly due to a rally in 2H2016 when prices were above USD 80 per tonne. Higher prices continued into early 2017, reaching USD 90 per tonne. In May and June prices went down to approximately USD 50 per tonne due to an increase in stocks amidst a decline in steel prices. In late August, a strong Chinese market contributed to a steel price increase of up to almost USD 80 per tonne. However, concerns about the China’s output decrease in output led to another decline in prices, and EIU analysts expect a decline in the fourth quarter this year.

Coal. Coking coal prices rose in April 2017, as cyclone Debby struck Queensland in Australia, which caused damage to the main railway lines carrying coal to the ports and forced miners to declare force majeure. Spot prices temporarily doubled to USD 300 per tonne, as buyers had to seek alternative suppliers. The railway lines were repaired earlier than expected, and spot prices returned to the level of USD 150–170 per tonne in Australia. Since then, spot prices have risen to USD 200 per tonne on the back of strong demand from China. EIU analysts expect contract prices at USD 200 per tonne in 3Q 2017, before they fall by the end of the year.

Figure 6. Iron ore, spot price (Fe 62%, CFR, Tianjin, China, 2017), USD per tonne

Figure 7. Coking coal (FOB, Australia, 2017), USD per tonne

Oct

Sep

AugJul

Jun

MayApr

Mar

Feb

Jan

76636767

586667

898980

Oct

Sep

AugJul

Jun

MayApr

Mar

Feb

Jan

200 186198168147

215243

161163191

Source: WorldSteel Association, EIU, The Steel Index S&P Platts

09

01 Introduction

05 Appendix

Contacts06

Key findings


Consumption trends









According to the EIU, global steel market will return to in 2018. In January 2017 capacities were loaded at 70 percent, in June this figure exceeded 74 percent and further decreased to 72 percent in August. The EIU believes that by the end of 2017 and in 2018 the level of capacity utilization will rise to 75 percent — even on the reduction of China’s capacities and shutdowns in other markets — this is explained by the fact that the growth in demand will be limited, and producers will not support high product prices in the long term. Excess capacity will lead to a reduction in the difference between raw materials and finished products and further decrease in the profitability of manufacturers. Exceptions are protected markets, including the EU and the US, where the exclusion of any product imports increases the profitability of its own production.

However, China’s efforts to shut down facilities in 2017 seem to have been successful and led to a decrease in output of 40 million tonnes of products, giving a positive momentum to fixtures price.

The Chinese government may close another 150 million tonnes of steel-making capacities before the end of 2017, and potentially another 100 million tonnes of capacities will be closed in 2018-2019. In such a scenario, steel and iron prices will gain a long-term growth momentum.

In 2017, steel prices in China remain high. In 2Q 2017 demand exceeded the expected level resulting in an increase in prices to USD 550 per tonnes in August and September. Given the demand, experts believe that prices will remain at higher levels in the third quarter. However, the end of the year will see prices fall, when stocks are restored, unless the production is limited to keep prices at high levels.

Prices in the US and EU markets will depend on regulation: the introduction of a large package of import sanctions by the US will lead to an increase in prices in the US. If the EU follows, prices in the EU market will increase as well. This poses a risk of greater price differences across the markets as larger volumes of metal will be concentrated in a smaller number of markets.

Figure 8. Month-by-month average capacity utilisation across 67 producing countries on a monthly basis (%)

Figure 9. Hot-rolled products prices for 2017 (USD per tonne, FOB Black Sea)

Oct

Sep

AugJul

Jun

MayApr

Mar

Feb

Jan

544 563578478440436443487478493

Capacity utilization, 2017 Capacity utilization, 2016

65

66

71 71 71 72

68 68


7170

7374

7274

72 72

Source: EIU, The Steel Index S&P Platts

10

01 Introduction

05 Appendix

Contacts06

Key findings


Consumption trends









Table 1. Top-20 exporters (2016, million tonnes)

Table 2. Global trade (2016, millions of tonnes)

Table 3. Top-20 importers (2016, million tonnes)

Source: Based on data of WorldSteel Association, EIU forecast (1) excluding intra-European trade(2) including intra-European trade

Million tonnes

1 China 108

2 Japan 41

3 Russia 32

4 South Korea 30

5 EU (1) 30

6 Germany (2) 25

7 Ukraine 18

8 Italy (2) 18

9 Belgium (2) 17

10 Turkey 15

11 France (2) 14

12 Brazil 13

13 Taiwan 12

14 India 10

15 Netherlands (2) 10

16 Spain (2) 9

17 US 9

18 Austria (2) 7

19 Canada 6

20 Iran 6

EU Euro

pe

apar

t fr

om E

U

CIS

NA

FTA

Oth

er

Am

eric

a

Afr

ica

and

the

Mid

dle

East

Chin

a

Japa

n

Oth

er A

sia

Oce

ania

Tota

l im

port

EU 110.7 6.3 15.6 0.3 2.4 1.5 6.4 0.4 7.3 0.1 151.2

Europe apart from EU 9.5 0.7 8.7 0 1.3 0.4 2.2 0.4 1.4 0 24.6

CIS 1.2 0.4 7.9 0 0 0.1 1.8 0 0.3 0 11.8

NAFTA 6 2.5 3.5 17 5.4 0.6 2.4 4.1 9.4 0.2 51.2

Other US countries 0.9 0.7 0.6 1 3.7 0.2 7.1 1.5 1 0 16.7

Africa 6.5 3 6.9 0.1 0.2 2 8.6 1.1 1.2 0 29.7

Middle East 1.6 4.9 5.6 0.2 0.3 5.2 10.5 1.5 3.7 0.1 33.5

China 1.3 0 0.1 0.1 0.1 0.3 - 5.4 6.3 0 13.6

Japan 0 0 0 0 0 0 1.3 - 4.7 0 6

Other Asian countries 2.5 0.3 5.3 0.4 1.2 3 67.1 25.7 26 0.4 131.8

Oceania 0.2 0 0 0 0 0 0.8 0.3 2.3 0.3 3.9

Total export 140.7 18.9 54.2 19.2 14.5 13.4 108.1 40.5 63.6 1 473.9

Extra-regional export 29.9 18.2 46.2 2.2 10.8 6.1 108.1 40.5 37.7 0.7 300.4

Balance (export–import) -10.5 -5.7 42.3 -32 -2.2 -49.8 94.5 34.5 -68.2 -2.9

Million tonnes

1 EU (1) 40

2 US 31

3 Germany (2) 26

4 South Korea 23

5 Italy (2) 20

6 Vietnam 20

7 Thailand 18

8 Turkey 17

9 France (2) 15

10 China 14

11 Belgium (2) 13

12 Indonesia 13

13 Mexico 13

14 Poland (2) 10

15 India 10

16 Spain (2) 9

17 Egypt 9

18 Netherlands 8

19 Taiwan 8

20 Canada 8

ImportEx

port

11

01 Introduction

05 Appendix

Contacts06

Key findings


Consumption trends







Overview of the Russian steel and iron market

03

12

01 Introduction

Key findings



05 Appendix

Contacts06

Output trends

Consumption trends

Exports of ferrous metals

Ferrous product imports


Overview of steel and iron market | Overview of the Russian steel and iron market

Output trends

During 2017, the Russian steel-making industry has tended to cut production. According to the results of the 2Q 2017, the industry’s output in Russia decreased by 3.5 percent year-on-year due to a decrease in production of finished ferrous products (-4.8 percent year-on-year), unalloyed steel (-5.1 percent year-on-year) and cast iron (-2.2 percent year-on-year). It should be noted that production of stainless steel and tubes for oil and gas pipelines contracted at a double-digit pace (+24.4 percent and +36.8 percent year-on-year, respectively).

In August, for the first time in 2017, the index of metallurgical production in Russia showed a positive value. The Ministry of Economic Development forecasts the annual index of metallurgical production at 1.9 percent. Noteworthy, according to Rosstat, in 2017 shipments in monetary terms exceeded the previous year figure by an average of 19 percent, which is higher than the inflation rate, and may be due to an increase in orders from the automotive and oil and gas industries.

Figure 10. Shipments of metallurgical products in 2017 (year-on-year, RUB million)

Figure 11. Index of metallurgical production in 2017 (year-on-year, %)

2017 2016

300 311 335 324 337 357 355 355


361359429 409 389 396 406 433

-9.3

-13.8

-3.5-1.0 -1.0

-2.3 -3.1

4.5


Source: RosStat; calculations by the Russian Ministry of Economic Development mmk.ru, Kommersant

0

13

01 Introduction

Key findings



05 Appendix

Contacts06

Output trends

Consumption trends





Source: Severstal.ru, Interfax, Russian Ministry of Economic Developmentmmk.ru, Kommersant

With a combined steel output of 62.4 million tonnes in 2016, EVRAZ, NLMK, Severstal, MMK, Metalloinvest, and Mechel account for 90 percent of Russian steel output.

In September 2017, Sergey Stepanov, the CEO of JSC Raspadskaya Coal Company (RCC, managing company for coal producing assets of Evraz Group — PJSC Raspadskaya and JSC Yuzhkuzbassugol) said that the company intends to increase the share of its coal deliveries to Evraz Group metallurgical plants from 50 percent to 80 percent over the next two to three years. In physical units, an increase in supplies was estimated at 1.5–2 million tonnes per year on the back of current deliveries to Evraz of 4.5 million tonnes and total deliveries of 15 million tonnes (2016 data). The company plans to increase extraction through higher production of OS-grade and KS-grade coal. Evraz currently purchases coal of these grades from third-party producers.

Magnitogorsk Iron and Steel Works increased its share of supplies to the Russian steel service centers (SSCs) in total shipments of rolled metal to the domestic market: the respective supplies increased from 32 percent in 2015 to almost 40 percent in 2016. Such growth was driven particularly by the use of advanced technology in sales activities.

Figure 12. EBITDA of leading steel-makers in 1H 2017 (year-on-year, USD million)

Figure 13. Steel output of leading steel-makers in 1H 2017 (year-on-year, thousands of tonnes)

8222

6733

5721 62

08

2291

2108

8234

6504

5695 62

48

2373

2217

MechelEvraz MetalloinvestMMK Severstal NLMK

MechelEvraz MetalloinvestMMK Severstal NLMK

749

577

799

702

533

444

1221

1152

1207

907 10

61

694

2017 2016

2017 2016

14

01 Introduction

Key findings



05 Appendix

Contacts06

Output trends

Consumption trends





Consumption trends

Leading indicators of industrial activity show that industrial production will probably continue to grow in September. Manufacturing PMI in August (51.6, Figure 14) was somewhat down from July (52.7), yet remained above the level of 2Q 2017 (51.2) due to a strong growth in the volume of new orders. Rosstat’s Entrepreneurial Confidence Index shows a significant improvement in business sentiment on (in?) the same period last year. The IEP’s Industrial Optimism Index remains positive. Based on the preliminary estimate for 15 September, energy consumption adjusted for seasonality, calendar time, and temperature in the current month is growing by 1.4 percent year-on-year (the same growth was observed in August). At the same time, the annual growth rate of industrial production in September will be adversely affected by the calendar factor associated with fewer working days compared to the previous year (21 day in 2017 against 22 days in 2016).

According to the Ministry of Economic Development, the industrial production growth rate accelerated in August (by 0.4 pp to 1.5 year-on-year) following the recovery of manufacturing industries. The manufacturing industry saw positive dynamics in August (0.7 percent year-on-year and 1.6 percent month-on-month, seasonally adjusted) after a noticeable decline in July (-0.8 percent year-on-year, -2.9 percent month-on-month, seasonally adjusted). The chemical sector and the food industry, which have long been the drivers of the manufacturing industry, gained the growth momentum back (3.1 percent and 4.8 percent year-on-year, respectively). Improvement in manufacturing was also boosted by a slowdown in engineering output decline in August (down to -1.4 percent year-on-year), which was primarily due to volatile product groups like aircraft, trucks, and buses. At the same time, production of passenger cars continued to grow at high rates in August (24.9 percent year-on-year).

According to the results of 1H 2017, the key contributor to the machine-building industry’s growth was the production of other vehicles and equipment (+29.9 percent year-on-year), which, as in previous periods, was incentivised by the government support for domestic rail car builders and an increase in passenger (+20.2 percent year-on-year) and freight cars production (by a factor of 2.3). Production vehicles continues to grow at a double-digit pace (+13.7 percent year-on-year) supported by an increase in production of passenger cars (+16.9 percent year-on-year), freight cars (+9.4 percent year-on-year) and buses (+32.1 percent year-on-year).

Figure 14. Russian Manufacturing Purchasing Managers’ Index (PMI)

Source: Markit Economics, Russian Ministry of Economic Development

A growth of investments in Julywas supported by a continued recovery of the construction industry. The volume of construction works performed has been increasing for the fifth consecutive month (in terms of seasonally-adjusted monthly increments). In year-on-year terms, the construction growth in July was 7.1 percent against 5.3 percent in June. A rebound of the construction industry accelerated the output of construction goods to 7.6 percent year-on-year (2.3 percent year-on-year in the previous month), particularly through an increase in the production of steel pipes and construction metal structures and products.

Sep

AugJul

Jun

MayApr

Mar

Feb

Jan

51.9

51.6

52.7

50.3

52.4

50.4

52.4

52.5

54.7

15

01 Introduction

Key findings



05 Appendix

Contacts06

Output trends

Consumption trends






In 1H 2017, exports of flat-rolled products grew up by 66 percent in monetary terms and by 9 percent in natural terms year-on-year and totaled USD 1,901 million or 3,843 thousand tonnes.

In 1H 2017, exports of tube products grew up by 136 percent in monetary terms and by 75 percent in natural terms year-on-year and totaled USD 810 million or 919 thousand tonnes.

Figure 16. Tube products, quarterly

Table 5. Tube products

Figure 15. Flat-rolled products, quarterly

Table 4. Flat-rolled products1H 2017 1H 2016

Weight (thousand tonnes)

Exports (USD million)



Turkey 1 348 621 936 279Belarus 215 143 168 81Egypt 269 120 59 16Kazakhstan 194 119 113 54Italy 164 74 336 93Uzbekistan 103 72 130 72Iran 155 65 22 8Vietnam 135 61 377 95Ukraine 96 57 84 36LATVIA 116 56 165 53

1H 2017 1H 2016





Finland 375 402 17 9

Kazakhstan 147 127 150 109Belarus 105 89 97 73Usa 80 53 23 17Kyrgyzstan 26 19 22 11Ukraine 16 15 11 8Azerbaijan 17 12 28 16Turkey 24 10 6 3Estonia 15 9 15 7LATVIA 17 9 16 8

1Q 2

016

2Q 2

016

3Q 2

016

4Q 2

016

1Q 2

017

2Q 2

017

16731855

2005 21031922 1921

489657

787 864 934 967

1Q 2

016

2Q 2

016

3Q 2

016

4Q 2

016

1Q 2

017

2Q 2

017

223302 302

476 437483

143200 217

396 384 427

Weight (thousand tonnes) Exports (USD million) Weight (thousand tonnes) Exports (USD million)

Flat-rolled products: TNVED 7208, 7209, 7210, 7211 and 7212, tube products: TNVED 7303,7304,7305 and 7506 Source: FCS of Russia16

01 Introduction

Key findings



05 Appendix

Contacts06

Output trends

Consumption trends






In 1H2017, imports of flat-rolled products grew up by 86 percent in monetary terms and by 53 percent in natural terms year-on-year and totaled USD 1,505 million or 1,203 thousand tonnes.

In 1H2017, imports of tube products grew up by 52 percent in monetary terms and by 62 percent in natural terms year-on-year and totaled USD 509 million or 375 thousand tonnes.

Figure 18. Tube products, quarterly

Table 7. Tube products, key destinationsTable 6. Flat-rolled products, key destinations

1Q 2

016

2Q 2

016

3Q 2

016

4Q 2

016

1Q 2

017

2Q 2

017

455530

740 701 668

837

232319

470365

443

581

1Q 2

016

2Q 2

016

3Q 2

016

4Q 2

016

1Q 2

017

2Q 2

017

182152

183

221192

317

122109

126

150 145

230

Weight (thousand tonnes) Imports (USD million) Weight (thousand tonnes) Imports (USD million)

Figure 17. Flat-rolled products, quarterly

1H 2017 1H 2016


Imports (USD million)



Kazakhstan 684 419 342 164China 303 223 142 91Ukraine 319 176 304 112South korea 70 69 57 53Germany 27 28 29 29Belgium 25 25 37 31Finland 12 13 11 9France 13 12 16 15Turkey 12 11 1 1Poland 6 8 3 4

1H 2017 1H 2016





Germany 82 109 4 24China 54 96 42 71Ukraine 79 63 63 43Kazakhstan 64 57 49 37Belarus 43 35 27 17Italy 10 32 6 18Japan 6 19 5 15Spain 2 12 1 3USA 2 12 3 23France 2 9 1 4

Flat-rolled products: TNVED 7208, 7209, 7210, 7211 and 7212, tube products: TNVED 7303,7304,7305 and 7506 Source: FCS of Russia17

01 Introduction

Key findings



05 Appendix

Contacts06

Output trends

Consumption trends




Steel and iron industry — temperature check

04

18

01 Introduction

05 Appendix

Contacts06

Key findings

The current state of the steel-making industry

Issues, drivers of competitiveness and priority strategies

Global trade

Digitalization and innovations in the steel and iron industry




Overview of steel and iron market | Steel and iron industry — temperature check


In 2H 2017, Deloitte CIS held a comprehensive survey Russian Manufacturing Industry Overview — 2017. As part of the research, we surveyed experts from a number of steel- and tube-making companies. The detailed analysis of this survey allowed us to get a picture of the Russian steel-making industry and identify sentiment and expectations of the market players, as well prospects they have for the future direction of their businesses and the industry as a whole.

Manufacturing companies and steel-makers particularly tend to be positive about the current state of their business (84 percent responded positively and rather positively to this question).

Opinions on the current state of the industry are divided — half of the respondents view the current market conditions as positive, while the other half hold negative views.

The views on the current state of the Russian manufacturing sector are generally somewhat more optimistic (by 4 pp) than the assessments of the steel and iron industry’s current conditions.

Figure 19. Outlook for the respondents

Figure 18. Current state of the respondents

Positive

Rather positive

Rather negative

Negative

The situation will improve

The situation is likely to improve

The situation will not change much

The situation is likely to get worse

The situation will get worse

Company’s current conditions

Industy’s current conditions

20%

46%4%

63%

46%

17%

4%

Outlook for the industry

Outlook for the company33%

38%

8% 46%

42%

8%

17%

4%

4%

More than half of the industry experts shared positive views on the prospects for their companies (55 percent).

At the same time the companies are less optimistic about the outlook for the industry — 58 percent of the respondents expect the situation to remain unchanged or even worsen. Economic expectations on the Russian iron and steel market corresponds to the general situation in the manufacturing sector in Russia in 2017.

19

01 Introduction

05 Appendix

Contacts06

Key findings



Global trade







Figure 23. Top-5 priority business strategies in 2017 (rating from 0 to 1)

Figure 22. Top-3 drivers of competitiveness of the Russian steel-makers in the Russian market (rating from 0 to 1)

Figure 20. Top-3 issues for the steel-making industry (rating from 0 to 1)

Figure 21. Top-3 drivers of competitiveness of the Russian steel-making industry in the global market (rating from 0 to 1)

Compared to our last year survey, the ranking of the key issues has changed significantly: this year the issue of government regulation shortcomings ranked first (rather than currency risks) and the lack of capacities and corruption issues were added to the ranking.

About a quarter of the respondents (26 percent) particularly note the significance of logistics optimization among other drivers of competitiveness of the industry in the global market. At the same time production costs reduction in production costs was mentioned the key driver of competitiveness in the Russian market.

Based on our expert interviews, we prepared a ranking of priority strategies for Russian steel-makers:

• Topping the list is a strategy of bringing new products to the market, which is best illustrated by MMK’s launch of the smelting of new steel grade to be used for the ship building purposes (building of ice-breakers)

• Import substitution in the Russian market and market expansion strategies ranked second and third, respectively.

The next section shows a detailed review of import and export issues.

0.6

0.4

0.3

Shortcomings of government regulation of the industry (administrative, trade, economic and other barriers)

Insufficient manufacturing capacities

Corruption

0.4

0.3

0.3

Logistics (timely procurement to increase the quality of production and streamline the production process)

Lower currency risks

Stability and unambiguity of labor legislation and regulatory policy

0.5

0.4

0.3

Reduction of production costs (including energy resources)

Increased demand in Russia

Improving manufacturing capacity (launch of new facilities)

0.84

0.82

0.77

0.75

Bringing new products onto the market

Replacement of imported products in the local market

Entry onto new markets

Improving manufacturing capacity (launch of new facilities, production increase)

Business development through organic growth 0.64

20

01 Introduction

05 Appendix

Contacts06

Key findings



Global trade






Global trade

Figure 26. Purchases of machinery and equipment

Figure 27. Weighted average share of purchases of raw materials and machinery/equipment

Figure 25. Purchases of raw materials Figure 24. Export revenue in total revenue, % (for 2016)

Figure 28. Export structure of the respondents

The surveyed Russian steel-making companies are active exporters (the weighted average share of export revenue accounts for 28 percent of the total revenue) exporting mainly to the CIS.

Less than 5%

From 5% to 25%

From 26% to 50%

From 51% to 75%

More than 75%

Top-5 buyers

Other buyers from our respondents

21%

33%29%

13%4%

Raw materials

Machinery and equipment

-100% 100%

-100% 100%

-20%

22%

Import Russia

1

Imported raw materials Local raw materials

-1 9% 9%35%48%

Imported machinery/equipment

Local machinery/equipment

1-1 4% 65%13% 17%

Top-5 buyers from our respondents:

Kazakhstan 54%Belarus 43%Germany 33%China 29%USA 29%

Top-5 suppliers to our respondents:

China 33%Kazakhstan 29%Germany 29%Belarus 26%Turkey 17%

Nearly half of those surveyed (48 percent) maintain a balance of local sourcing and imports of raw materials (Figure 25).

Most respondents (65 percent) also purchase machinery and equipment in equal proportions from local and foreign suppliers (Figure 26).

However, generally they reported a predominant use of local raw materials (the average weighted share is -22%, where -100 percent represent the use of Russian materials only and 100% represent the use of only imported materials), while having a predominant reliance on imported equipment (the average weighted share is -20%) (Figure 27).

21

01 Introduction

05 Appendix

Contacts06

Key findings



Global trade






Our latest surveys showed that the steel-making industry is one of the most technologically advanced industries keen on sustainable innovative solutions. The majority of the respondents (64 percent) noted the primacy of process innovation which is mostly used to cut production costs.


Figure 29. Structure of innovation inputs by type*

Figure 30. Innovation inputs (percent of revenue)

RosStat; * See Apendix Type of innovation

Product

Process

Marketing and administrative

27%

64%

9%

Almost two-thirds of the companies surveyed spend 5-15 percent of their revenue on innovation activities And they named staff training and development as their top business priority (77 percent). This trend is going to continue (in 2017 and 2018). Notably, investing in the acquisition of advanced equipment is becoming irrelevant (down by 32 pp from 2016) on the back the growing need for new technologies and market research (up by 13 pp and by 9 pp, respectively).

Among the technologies planned for implementation, it is important to note the automation of selected business processes and automation of business process chains — 68 percent and 64 percent, respectively, plan to introduce these technologies in the near future.

Implemented To be implemented Neither implemented nor to be implemented

Figure 32. Implementation of advanced innovative technology

27%

36%

32%

18%

32%

36%

68%

64%

55%

32%

41%

55%

23%

18%

9%

18%

18%

32%

14%

18%

9%

64%

18%

41%

50%

46%

60%

64%

50%

32%

18%

18%

36%

4%

41%

4%

Advanced ERP systems (CRM, SAP, etc.)

Energy saving technologies

Alternative energy sources

Electronic document management (EDM)

RPA

Full automation of business process chain

Full automation of selected business processes

Internet of things (machine-to-machine communication, IoT-technologies)

Augmented or virtual reality

Blockchain technology

Big data

Computer intelligence

До 5% От 16%11%–15%5%–10%

36%

23%

27%

14%

41%

18% 32

%

9%

Figure 31. Innovation activities

Staff training and development77% 82%Acquisition of advanced equipment and machinery41% 45%

Digitalization of business functions32% 27%Market research and analysis27% 36%Acquisition of technologies23% 36%Acquisition of rights to patents, licenses, etc.18% 18%

Research and development (R&D)73% 41%

2016

2017, 2018

2016

2017, 2018

22

01 Introduction

05 Appendix

Contacts06

Key findings



Global trade





Appendix

Innovation by type

• Types of technology innovation: – Product innovation: – A good or service that is new or significantly improved. This includes significant improvements in technical specifications, components and materials, software in the product, user friendliness or other functional characteristics;

– Process innovation: A new or significantly improved production or delivery method. This includes significant changes in techniques, equipment and/or software.

• Organisational innovation: A new organisational method in business practices, workplace organisation or external relations.

• Marketing innovation: A new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing.

Terms defined in accordance with the Oslo Manual for measuring innovation developed by Organisation for Economic Co-operation And Development (OECD) and Statistical Office of the European Communities (Eurostat)

23

01 Introduction




05 Appendix

Contacts06

Key findings

ContactsAndrew Sedov

Leader of the Metalsgroup in Deloitte, CIS

Partner, Head of Consumerand Industrial ProductsAudit department

[email protected]

Vladimir Perfiliev

Director, Consumerand Industrial

Products Audit (Metals)Deloitte CIS

[email protected]

Dmitriy Kasatkin

Senior SpecialistResearch Centre,Deloitte CIS

+ 7 (495) 787 06 00, ext. 1605

[email protected]

Authors:If you have any questions regarding the survey,please do not hesitate to contact us.

Lora Zemlyanskaya

ManagerResearch Centre Leader,Deloitte CIS

+ 7 (495) 787 06 00, ext. 1524

[email protected]

24

01 Introduction




05 Appendix

Contacts06

Key findings

mailto:asedov%40deloitte.ru?subject=

mailto:vperfiliev%40deloitte.ru?subject=

deloitte.ru

About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms.

Deloitte provides audit, consulting, financial advisory, risk management, tax and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries bringing world-class capabilities, insights, and high-quality service to address clients’ most complex business challenges. To learn more about how Deloitte’s approximately 244,000 professionals make an impact that matters, please connect with us on Facebook, LinkedIn, or Twitter.

This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.

© 2017 ZAO Deloitte & Touche CIS. All rights reserved.

Overview of steel and iron market - 2017 - Deloitte of steel and iron market Global steel and iron...

Documents

Transcript of Overview of steel and iron market - 2017 - Deloitte of steel and iron market Global steel and iron...