Overview of the steel and iron ore market 2020...Key Findings Overview of the global steel and iron...

Обзор рынка черной металлургииИсследовательский центр компании «Делойт» в СНГ

Москва, November 2020 года

Overview of the Steel and Iron Ore MarketDecember 2020

Deloitte CIS Research Center

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Contents

Foreword 4

Key Findings 5

Overview of the Global Steel and Iron Ore Market 6Production Trends: the Global Market 7Production Trends: China 8Production Trends: the EU and North America 9Consumption Trends: the Global Market 10Consumption Trends: China 11Consumption Trends: the EU and North America 12Prices of Raw Materials: Iron Ore 13Prices of Raw Materials: Coking Coal 14Prices of Raw Materials: Ferrous Scrap 15Steel Prices 16The Global Steel Trade 17

Overview of the Russian Steel and Iron Ore Market 18Production Trends 19Financial Performance of Leading Russian Steelmakers 20Consumption Trends 21Exports of Ferrous Metals 22Imports of Ferrous Metals 23Key Industry Events 24Measures to Combat COVID-19 25

Contacts 26

01 ForewordKey Findings

02 Overview of the Global Steel and Iron Ore Market

03 Overview of the Russian Steel and Iron Ore Market

04 Contacts

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We are pleased to present you with the full version of our analytical report on the steel and iron ore market in 2020. This document contains a summary of preliminary data for nine months of 2020 and our experts’ outlook for 2020–2021.

We have published this report every year since 2015 with the aim of providing a comprehensive study of the metals industry.

Please feel free to contact us if you have any questions regarding this report.

In 2020, the iron and steel industry was significantly affected by the COVID-19 pandemic.

According to our analysts’ forecasts, in 2020 global steel output will be 1,799 million tonnes (-2.8 percent YoY), and consumption will amount to 1,782 million tonnes (-4.3 percent YoY).

Despite the pandemic, steel output and consumption will continue to grow in 2020 in China due to large-scale initiatives aimed at boosting investments. By the end of 2020, China’s share in global steel production will reach 57 percent (+3 pp compared to 2019).

Russian steel output in January–September 2020 was 52.5 million tonnes(-2.9 percent YoY). By year end, metals production is expected to be down by 3 percent year-on-year.

Foreword

Andrew SedovPartner, Leader of the Metals [email protected]

Vitaly MikhalchukResearch Projects Leader of Deloitte CIS Research Center [email protected]

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04 Contacts

Key Findings

Overview of the global steel and iron ore market

• In 2020, global steel production is expected to decrease by 2.8 percent YoY, to 1,799 million tonnes.

• China’s output will continue to grow in 2020 (by 4 percent YoY) due to initiatives aimed at boosting investments. China’s share in global steel production will reach 57%.

• Steel consumption will shrink by 4.3 percent year-on-year. Decline in demand for steel will be uneven across the world, depending on epidemiological trends and government support measures.

• It is highly probable that a second wave of coronavirus will result in volatile demand and prices for steel at the end of 2020 and first half of 2021. Average prices will be at USD 491 per 1 tonne in 2020.

Overview of the Russian steel and iron ore market

• In January–September 2020, steel output went down by 2.9 percent YoY, to 52.5 million tonnes. By the end of 2020, the Russian Ministry of Economic Development expects metals output to decline by 3 percent year-on-year in comparable prices.

• For nine months of 2020, NLMK, EVRAZ, Severstal, MMK, and Metalloinvest had a combined output of 45.4 million tonnes, or 87 percent of Russian steel production in this period.

• The aggregate revenues of five companies (excluding EVRAZ) for nine months of 2020 were USD 24 billion (-18% percent YoY), while EBITDA was USD 6.6 billion (-23 percent YoY). The EBITDA margin dropped by 2 pp: to 27.4 percent.

• In 2019, steel consumption in Russia amounted to 43.7 million tonnes. In 2020, consumption is expected to decline to 40 million tonnes (-8.5% percent YoY).

-2.8 %Decrease in global steel production -3.0 %

Decrease in Russian steel production

57 %

China’s share in global steel production 87 %

Share of major Russian steel producers for the three quarters of 2020

-4.3 %

Decrease in global steel consumption -8.5 %

Decrease in Russian steel consumption

491 USD

Average price for 1 tonne of hot-rolled products (FOB EU) 44 %

Share of exports in steel production in Russia

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04 Contacts

Overview of the Global Steel and Iron Ore Market

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Production Trends: the Global Market

Production Trends: China

Consumption Trends: the Global Market

Production Trends: the EU and North America

Consumption Trends: China

Consumption Trends: the EU and North America

Prices of Raw Materials: Coking Coal

Prices of Raw Materials: Iron Ore

Prices of Raw Materials: Ferrous Scrap


04 Contacts

Steel Prices

The Global Steel Trade

Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Global Steel and Iron Ore Market

In the last quarter of 2019, a sharp fall in prices for steel amid still high prices for raw materials resulted in lower margins and a decline in global steel output. Steel production growth rates were down to 3.0 percent in 2019 overall (compared to a growth of 4.5 percent and 5.6 percent in 2018 and 2017 respectively).

In Q1 2020, steel output declined by 1.2 percent year-on-year. Steel output grew by 1.2 percent year-on-year in China while decreasing by 4.1 percent globally.

Q2 2020 was more thoroughly affected by the COVID-19 pandemic. Chinese steel output remained the same, while the rest of the world saw a decline of 20 percent year-on-year.In the first eight months of 2020, steel production was down by 4.2% percent year-on-year. In August 2020, production grew on a year-on-year basis for the first time since May 2019 (158 million tonnes against 155 million tonnes).

EIU experts forecast a decline in global steel production by 2.8 percent in 2020, which will be followed by 5.6 percent growth in 2021.

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140 159 151 145 149158 155 152 149 158152 164 151 151 137 156157 156 148 147 153

Figure 1. Global steel output

Figure 2. Steel output, by month (mln tonnes)

Steel production (mln tonnes)

Growth (%/ year-on-year)

Source: Economist Intelligence Unit (EIU)

Source: World Steel Association

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04 Contacts

Steel Prices





In 2019, Chinese steel production rose 8 percent YoY to 993 million tonnes, accounting for 54 percent of global steel output.

Despite the pandemic, in January–August 2020 steel production grew by 3.4 percent YoY. The Chinese government announced its readiness to boost investments to avoid a decrease in production. Given the current output rates, which exceed 1 billion tonnes per year, EIU analysts forecast a 4 percent rise in 2020.

Since 2016, a major part of China’s old capacities have been replaced with new and more advanced ones, which keeps overall capacity at approximately 1.2 billion tonnes per year.

In 2022, Chinese steel output will be 1.1 billion tonnes, with capacity utilization at over 80 percent.

Table 1a. Forecast steel production (%, year-on-year)

Table 1b. Forecast steel production (mln tonnes)

2019 2020 2021 2022

Global production 3.0% -2.8% 5.6% 4.7%

Asia 5.4% 0.5% 4.6% 4.1%

China 8.0% 4.0% 3.8% 3.5%

Other Asian countries -1.5% -10.0% 7.2% 6.0%

EU -5.4% -16.0% 9.0% 5.0%

North America -0.7% -15.0% 14.0% 9.0%

CIS -0.5% -4.0% 3.0% 4.9%

2019 2020 2021 2022

Global production 1,850 1,799 1,900 1,988

Asia 1,329 1,335 1,396 1,453

China 993 1,033 1,072 1,110

Other Asian countries 336 302 324 343

EU 159 134 146 153

North America 119 101 115 126

CIS 101 97 99 104

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Steel Prices



Production Trends: the EU and North AmericaFigure 3. Global steel consumption (%, 2020)

China (57%)

Other Asian countries (17%)

EU (7%)

North America (7%)

CIS (5%)

South America (2%)

Other European countries (2%)

Middle East (2%)

Africa (1%)

Australia & New Zealand (<1%)

The EUIn Q4 2019, ArcelorMittal, USS Slovakia, Arvedi, SSAB, Liberty, and Salzgitter in the EU reduced their steel production volumes, which resulted in a drop in steel output by 5.4 percent in 2019. The weakening of demand due to COVID-19 has resulted in the closedown of several plants. ArcelorMittal, Thyssenkrupp, Liberty, SSAB, British Steel, Tata, and other steel makers have postponed restarting blast furnaces, closed down rolling trains, or shut down blast furnaces.

In H1 2020, EU steel production dropped by 18.7 percent YoY. A gradual output rebound started in August-September, and according to EIU forecasts there will be a 16 percent decrease in steel output at the end of 2020.

Despite the recovery expected for 2021, certain highly indebted EU metals companies will struggle to survive.

North America (US, Canada, Mexico)North American steel plants were also partially closed down due to a decline in orders in March 2020. Average utilization rates were at 52 percent in H1 2020, and some companies are likely to be closed for most of the year.

In January-August 2020, US steel output fell by 19.8 percent YoY; regional steel production will have reduced by 16 percent in 2020.

The year 2021 will see a recovery, with new capacities being put into operation at Nucor, Steel Dynamics, and Big River Steel, although some of these have been postponed until 2023–2025. In addition, as demand for fuel and power output will likely be weakening steadily, full production recovery is not possible.


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04 Contacts

Steel Prices



Consumption Trends: the Global MarketSteel consumption grew by 4 percent and 3.9 percent in 2018 and 2019 respectively. Meanwhile, only China saw demand rise in 2019, while it remained at the 2018 level in other countries, falling by 3 percent year-on-year in EU countries against the backdrop of the economic slowdown.

According to EIU forecasts, demand for steel will contract by 4.9 percent in 2020. Depending on the spread of COVID-19 and government support initiatives, demand will be weakening unevenly across the globe. Flattening demand will be brought about by a sharp reduction in production and capital investments.

Demand for steel started recovering in H2 2020. If an effective coronavirus vaccine is successfully distributed by the end of 2021, demand will continue growing in 2022 as a result of suppressed demand in 2020– 2022, the necessity of stock replenishment, and government investments.


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Figure 4. Global steel consumption

Figure 5. Steel supply and demand balance (mln tonnes)

Steel consumption (mln tonnes)

Growth (%/ year-on-year)

Steel production

Steel consumption

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Steel Prices




In 2019, China accounted for 48 percent of global steel consumption, while Asia as a whole was responsible for 70 percent. Among major steel consuming countries, the Chinese market showed the strongest growth (+9 percent YoY) due to government support for the infrastructure sector.

The Chinese construction sector accounts for about two-thirds of the country’s steel consumption. In Q1 2020, reduced private investments in this segment were offset by the growth of state infrastructure spending. China plans to support demand in the construction sector until private investments rebound in H2 2020.

The manufacturing industry (ship building, the automotive sector, household appliances) accounts for one-third of Chinese steel consumption. In Q1 2020 these segments witnessed a recession, followed by a subsequent rise in Q2 2020 as compared to 2019.

In 2020, consumption growth in China will amount to 4.5 percent YoY (950 million tonnes), and the country’s share in global consumption will be 53 percent.


Table 2a. Forecast steel production (%, year-on-year)

Table 2b. Forecast steel consumption (mln tonnes)

2019 2020 2021 2022

Global consumption 3.9% -4.3% 6.2% 4.8%

Asia 6.5% -0.1% 4.4% 4.3%

China 9.0% 4.5% 3.1% 4.0%

Other Asian countries 1.2% -11.0% 7.8% 5.0%

EU -3.0% -18.0% 11.0% 5.0%

North America -1.0% -17.0% 15.0% 7.0%

CIS 1.0% -6.0% 4.5% 4.5%

2019 2020 2021 2022

Global consumption 1,862 1,782 1,893 1,983

Asia 1,296 1,294 1,350 1,408

China 909 950 979 1,018

Other Asian countries 387 344 371 390

EU 166 136 151 159

North America 149 124 142 152

CIS 40 38 40 41

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Steel Prices




The EUIn Europe, manufacturing accounts for approximately 60 percent of regional steel consumption. This demand driver has been in recession ever since 2019, and the pandemic has only reinforced this trend.

European output will be slowly recovering in H2 2020. Low business and consumer activity will have an impact on capital expenditure and retail sales.

According to the EIU, a further 18% decline is in store for steel demand in 2020. In 2021, demand is expected to rebound by 11 percent; however, the aggregate figures in the region will be below the 2019 level.

North America (US, Canada, Mexico)The US accounts for 75 percent of steel consumed in North America. According to the American Iron and Steel Institute (AISI), in 2018 43 percent of steel was used in the construction sector, 27 percent in the automotive sector, and 10 percent in the fuel and power complex. Slumping energy prices have affected direct investments and related construction business. Automotive plants resumed operations only in the middle of May, after being closed down for six weeks.

Canada and Mexico have been less affected by COVID-19 than the US. Steel demand in both countries will largely suffer from low energy prices, as the fuel and power complex is a major steel consumer.

Overall, the region will see a 17 percent drop in demand. The Federal Reserve System is taking a number of measures to boost the economy, but their effect will only be perceivable in 2021.


Figure 6. Global steel consumption (%, 2020)

China (53%)

Other Asian countries (19%)

EU (8%)

North America (7%)

Middle East (4%)

Africa (3%)

South America (2%)

CIS (2%)

Other European countries (2%)

Australia & New Zealand (<1%)

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04 Contacts

Steel Prices



Prices of Raw Materials: Iron OreFigure 7. Price of iron ore, USD/tonne, 2019–2020 (iron ore fines, Fe 62% CFR, Tianjin, China)

Despite the closing down of a number of integrated plants in Europe, Japan, and other countries, prices for iron ore (Fe 62% CFR, China) were kept at above USD 80 per 1 tonne in 2019. This is primarily attributable to high demand for iron ore in China and uncertainty around supply volumes.

Due to the outbreak of COVID-19, Brazil may be exposed to further output contraction in 2020, which has resulted in prices rising above USD 100 per 1 tonne, as the country accounts for 18 percent of global iron ore exports.

Iron ore production in India, South Africa, and Canada has also been affected by coronavirus-related restrictions. Although these countries account for 11 percent of global export, Chinese iron ore buyers cannot put extremely reduced supply at risk as steel output remains high.

Subject to further growth in Chinese steel production, iron ore prices will go down to USD 90–100 by the end of 2020, when supply partially rebounds.

Source: Investing.com

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87 109 90 86 10393 91 92 92 12376 99 93 92 84 12686 120 85 88 109

Figure 8. Forecast price of iron ore, USD per tonne (iron ore fines, Fe 62% CFR, Tianjin, China)

Source: World Bank, CIBC’s consensus forecast (September 2020)

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Steel Prices



Prices of Raw Materials: Coking CoalFigure 9. Prices of premium-grade hard coking coal, USD/tonne, 2018–2020 (FOB DBCT, Australia)

Deficits, growing demand from Chinese metals companies, and supply disruptions brought about by natural disasters in Asia and Australia kept prices at around USD 200 per 1 tonne (FOB, Australia) in H1 2019.

Prices started falling in H2 2019 against the backdrop of stabilizing supply, as well as China’s policy of ensuring its own coal supplies and Australian coal import restrictions.

At the beginning of 2020, coking coal prices grew as a result of high demand in China and coal supply disruptions (the closing of borders with Mongolia, a force majeure event at the Moranbah North mine in January, the closing of major coal ports in Australia for three days in mid-March).

Source: UMMC

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Figure 10. Forecast prices of premium-grade hard coking coal, USD/tonne, (FOB DBCT, Australia)

Source: UMMC

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However, the beginning of April saw coking coal prices plummet. Demand in major Asian coking coal importing countries (other than China) decreased due to COVID-19. Meanwhile, Australia, as the key coking coal exporter, managed to ensure steady supplies. This resulted in supply exceeding demand and lower prices: the price for premium-grade coking coal in Australia in June went below USD 100 per tonne.

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Steel Prices



Prices of Raw Materials: Ferrous ScrapFigure 11. Prices for ferrous scrap and iron ore, 2019– 2020, USD/tonne Scrap is a substitute for iron ore,

and these raw materials had similar price trends, except for H1 2019.

In January-June 2019, iron ore prices grew compared to scrap prices as a result of the disaster at Corrego de Feijao ore mine in January 2019, after which Vale (Brazil) operated below its production capacity. In 2020, metals processing plants faced high volatility of scrap prices. The 15% price reduction in H1 2020 was associated with a contraction in steel demand due to the pandemic. Prices grew to USD 300 per tonne in September 2020, and demand rebounded in Q3 2020.

Consolidation will be the key factor on the ferrous scrap market in 2020–2021. Continuous price depreciation during the year adversely affected the financial standing of many processing companies. They are currently looking for opportunities for vertical integration in large steel companies or consolidation with other ferrous scrap processing plants.

Source: Investing.com

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87 109 90 86 10393 91 92 92 12376 99 93 92 84 12686 120 85 88 109

Price for ferrous scrap (Steel Scrap Futures, SSCc1)

Price for iron ore (iron ore fines, Fe 62% CFR, Tianjin, China)

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04 Contacts

Steel Prices



Steel Prices

In H1 2020, steel demand was falling faster than supply, which resulted in price deflation to USD 430 per tonne in Q2 2020.

As restrictions were gradually removed in H2 2020, demand began to outstrip supply, which drove prices up to USD 510 per tonne in Q3 2020.

Due to the second wave of the COVID-19 pandemic, steel demand and prices will likely display high volatility from the end of 2020 through H1 2021.

In H2 2021, government incentives will have a significant impact, and business confidence will rebound due to the potential distribution of a vaccine, which may be followed by rapid price growth and full recovery of global steel output by the end of 2021.

Figure 12. Hot-rolled steel price trends and forecast, USD/tonne, 2018–2022 (FOB EU export)


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Steel Prices



The Global Steel TradeChina remains the world’s largest exporter, although its export figures show a downward trend for the second year in a row (by 5 million tonnes compared to 2018). Japan still comes second, with exports decreasing by 2.7 million tonnes. Russia has moved to fourth place and posted exports of 29.5 million tonnes.

The top five steel importing markets have remained unchanged since 2018. The EU is the leader (-4.7 million tonnes compared to 2018), then comes the US (-3.6 million tonnes compared to 2018), followed by Germany (-3.5 million tonnes compared to 2018). China moved from ninth to seventh place on the 2019 rating.

(1) excluding intra-European trade (2) including intra-European trade

Table 4. Top 20 exporting countries(2019, mln tonnes)

Table 3. Global steel trade (2019, mln tonnes)

Table 5. Top 20 importing countries(2019, mln tonnes)

1 China 63.82 Japan 33.13 South Korea 29.94 Russia 29.55 EU (1) 27.86 Germany (2) 24.17 Turkey 19.78 Italy (2) 17.99 Belgium (2) 17.210 Ukraine 15.611 France (2) 13.612 India 13.413 Brazil 13.314 Taiwan 11.215 Netherlands (2) 10.116 Iran 8.717 Spain (2) 8.718 US 7.319 Austria (2) 720 Poland (2) 5.8

1 EU (1) 40.22 US 27.13 Germany (2) 23.14 Italy (2) 20.15 Thailand 16.76 South Korea 16.47 China 15.58 Vietnam 15.49 France (2) 14.510 Indonesia 13.411 Mexico 1312 Belgium (2) 12.913 Turkey 12.414 Poland (2) 10.915 Spain (2) 10.116 Netherlands (2) 9.717 India 8.918 Malaysia 7.419 Canada 7.320 Taiwan 7.3

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EU 111.5 10.1 15.3 0.2 1.3 1 3.2 0.3 8.8 0.1 151.6 40.2

Other European countries 8.8 0.9 5.3 0 0.4 0.9 0.7 0.3 1.1 0 18.6 17.7

CIS 1.8 0.5 10.2 0 0 0 2.5 0.1 0.4 0 15.6 5.3

North America 6.3 0.6 1.7 15.8 7.6 1 1.6 2.9 7.7 0.4 45.6 29.8

America (other countries) 1.1 1.5 0.6 1.3 3.5 0 6.6 1.1 1.1 0 16.8 13.3

Africa 4.4 3.9 3.9 0.1 0.1 5.8 5.3 0.9 1 0 25.4 19.6

Middle East 1.4 4.4 4.3 0.1 0.3 5.8 5.6 0.9 3.8 0.1 26.5 20.8

China 1.2 0 0.2 0.1 0.1 0.1 - 5 8.8 0 15.5 15.5

Japan 0.1 0 0 0 0 0 1.3 - 5 0 6.5 6.5

Other Asian countries 2.4 1.7 7.5 0.3 1 5.6 36.3 21.4 34.7 0.5 111.3 76.6

Oceania 0.3 0.2 0 0 0 0 0.8 0.2 1 0.2 2.6 2.4

Total exports 139.3 23.7 49.1 18 14.3 20.1 63.8 33.1 73.3 1.3 436 247.7

Non-regional exports 27.8 22.8 38.8 2.2 10.8 8.6 63.8 33.1 38.7 1.1 247.7

Balance (export/import) -12.4 5.2 33.5 -27.6 -2.5 -31.9 48.3 26.7 -38 -1.3


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04 Contacts

Steel Prices


Overview of the Russian Steel and Iron Ore Market

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04 Contacts

Imports of Ferrous Metals

Production Trends

Key Industry Events

Consumption Trends

Financial Performance of Leading Russian Steelmakers

Measures to Combat COVID-19

Exports of Ferrous Metals

Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Russian Steel and Iron Ore Market

Production TrendsFigure 13. Metal products shipped (RUB billion)

Figure 14. Steel output, by month (mln tonnes)

Source: Russian Federal State Statistics Service (RosStat)


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5.7 6.1 5.8 5.8 5.65.8 5.8 6.2 5.8 5.66.2 6.3 5.8 6.3 5.7 5.96.1 6.1 5.7 6.1 5.8

In 2019, steel output in Russia contracted by 0.6 percent (71.7 million tonnes), meaning that by the end of 2019, Russia was the fifth largest steel producer globally, following China, India, Japan, and the US. It accounted for approximately 4 percent of global output.

In January-September 2020, steel production decreased by 2.9 percent YoY to 52.5 million tonnes. Starting from April 2020, steel output did not exceed 6 million tonnes per month. In 2020, the Russian Ministry of Economic Development expects metals production to have fallen by 3 percent year-on-year in comparable prices.

In 2019, major Russian steel producers presented their updated growth strategies up to 2023, which provided for an increase in capital expenditure to expand and upgrade production capacities. Starting from 2021, these investments will result in a rebound of Russian steel production.

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04 Contacts


Production Trends

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Consumption Trends





Financial Performance of Leading Russian SteelmakersFigure 15. Steel output by leading steelmakers, for nine months of 2019 and 2020, mln tonnes

9m 2019

9m 20203.

6

NLMK MetalloinvestEVRAZ MechelSeverstal MMK

8.5

8.3

11.9

3.7

10.2

2.8

9.1

9.4

11.9

10.4

2.7

For the nine months of 2020, NLMK, EVRAZ, Severstal, MMK, Metalloinvest and Mechel had a total output of 45.4 tonnes, accounting for 87 percent of domestic output for the period.

The aggregate revenues of these companies (excluding EVRAZ) for the nine months of 2020 were USD 24 billion (-18 percent YoY), while EBITDA was USD 6.6 billion (-23 percent YoY). The EBITDA margin decreased by 2 pp to 27.4 percent.

The lower revenues and EBITDA were attributable to price deterioration and weakening of demand in major countries that consume Russian ferrous metals. The impact of these factors on profitability was partially offset by a reduction in cost of sales due to the ruble depreciating.

Source: Company data

Table 6. Financial performance of leading Russian steelmakers

Source: Company data *) excluding EVRAZ

Revenue, USD million EBITDA, USD million EBITDA margin

H1 2019 H1 2020 9М 2019 9М 2020 H1 2019 H1 2020 9М 2019 9М 2020 H1 2019 H1 2020 9М 2019 9М 2020

EVRAZ 6,140 4,983 n/a n/a 1,482 1,073 n/a n/a 24% 22% n/a n/a

NLMK 5,666 4,631 8,242 6,860 1,430 1,176 2,084 1,755 25% 25% 25% 26%

Severstal 4,208 3,367 6,319 5,242 1,416 1,056 2,203 1,712 34% 31% 35% 33%

MMK 3,835 2,978 5,844 4,543 937 668 1,462 1,018 24% 22% 25% 22%

Metalloinvest 3,584 3,075 5,328 4,572 1,410 1,059 2,115 1,632 39% 34% 40% 36%

Mechel 2,353 1,901 3,404 2,720 466 318 686 435 20% 17% 20% 16%

Total 25,786 20,935 29,137* 23,937* 7,141 5,350 8,550* 6,552* 28% 26% 29%* 27%*

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Consumption TrendsIn 2019, Russia consumed 43.7 million tonnes of steel. In April-May 2020, COVID-19-related restrictions resulted in a significant decline in production activity.

According to World Steel Association forecasts, in 2020 consumption is expected to contract to 40 million tonnes (by 8.5 percent YoY), which is attributable to low business activity caused by the pandemic.

The construction sector accounts for about 70 percent of domestic demand for ferrous metals in Russia. In H1 2020, construction activities shrank by 0.5 percent in comparable prices.

Another major demand driver — the manufacturing industry — is expected to reduce its output by 1.5 percent YoY in 2020.

According to the baseline scenario, starting from 2021 ferrous metals consumption will be fueled by the accelerated implementation of national infrastructure and residential construction initiatives, which will drive demand up to 42 million tonnes.

If strict quarantine measures are re-introduced, ferrous metals consumption will only rebound in 2022.

Figure 16. Russian Purchasing Managers Index (PMI)

Figure 17. Ferrous metals consumption in Russia, million tonnes

Source: Markit Economics


2012

2016

2020

2013

2017

2021

2014

2018

2015

2019

43.3 40.9 42.039.8 43.742.8 38.7 40.043.1 41.2

Janu

ary

2019

May

201

9

Sept

embe

r 201

9

Janu

ary

2020

May

202

0

Febr

uary

201

9

June

201

9

Oct

ober

201

9

Febr

uary

202

0

June

202

0

Mar

ch 2

019

July

201

9

Nov

embe

r 201

9

Mar

ch 2

020

July

202

0

Apr

il 20

19

Augu

st 2

019

Dec

embe

r 201

9

Apr

il 20

20

50.1 48.6 47.2 48.2 49.451.8 49.1 47.5 36.250.9 49.8 46.3 47.9 31.352.8 49.3 45.6 47.5 48.4

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Value (USD mln) Weight (‘000 tonnes)

H1 2019 H1 2020 H1 2019 H1 2020

Uzbekistan 41 287 38 234

Bulgaria 7 202 8 180

Kazakhstan 261 162 278 209

Turkmenistan 7 121 6 96

Belarus 102 98 120 131

India 12 49 1 22

Bangladesh 0 43 0 1

US 155 41 169 56

Azerbaijan 36 24 44 34

Algeria 0 16 0 13

Exports of Ferrous Metals In H1 2020, flat-rolled product exports grew by 8 percent in volume terms, while falling by 11 percent in value terms compared to the same period of 2019, amounting to 3.7 million tonnes (USD 1.7 billion). Major importers of Russian flat-rolled products by value were Turkey (806,000 tonnes), Belarus (310,000 tonnes), and Poland (286,000 tonnes).

Figure 18. Exports of Russian flat-rolled products

Table 7. Exports of Russian flat-rolled products by country

In H1 2020, exports of pipe products grew by 31 percent by volume compared to the same period of 2019 and 45 percent by value, amounting to 1.2 million tonnes (USD 1.2 billion). Major importers of Russian pipes included Uzbekistan (234,000 tonnes), Kazakhstan (209,000 tonnes), and Bulgaria (180,000 tonnes).

Figure 19. Exports of Russian pipes

Table 8. Exports of Russian pipes by country

Source: Russian Federal Customs Service (TNVED 7303, 7304, 7305, 7306)

Source: Russian Federal Customs Service


H1 2019 H1 2020 H1 2019 H1 2020

Turkey 435 319 905 806

Belarus 192 184 283 310

Uzbekistan 207 166 290 249

Poland 171 122 308 286

Latvia 148 115 243 210

Kazakhstan 122 113 182 194

Vietnam 62 85 127 240

Italy 55 74 116 191

France 30 51 57 119

Belgium 6 45 12 105

Weight (‘000 tonnes)

Value (USD mln)


Value (USD mln)

Source: Russian Federal Customs Service (TNVED 7208, 7209, 7210, 7211, 7212)

Source: Russian Federal Customs Service

1,705 2,1911,7311,737 1,5381,774

973 979863971 748977

2019 2020

Q1 Q1Q2 Q2Q3 Q4

506 694524404 501669

477 707565351 490690

2019 2020

Q1 Q1Q2 Q2Q3 Q4

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H1 2019 H1 2020 H1 2019 H1 2020

Kazakhstan 376 306 635 601

Ukraine 264 150 483 331

China 181 81 240 101

South Korea 83 67 84 70

Germany 47 37 41 35

Belgium 31 19 29 21

Italy 6 15 2 10

Finland 13 9 10 8

Slovakia 9 9 8 8

France 11 9 10 9


H1 2019 H1 2020 H1 2019 H1 2020

China 172 134 79 71

Kazakhstan 89 51 90 63

Japan 28 28 11 10

Spain 4 25 1 2

Belarus 34 25 37 33

Italy 25 22 8 6

Germany 26 22 4 5

Mexico 4 18 1 2

Argentina 8 10 3 5

Ukraine 26 10 12 4

Imports of Ferrous MetalsIn H1 2020, imports of flat-rolled products decreased by 21 percent in volume terms and 31 percent in value terms compared to the same period of 2019, amounting to 1.2 million tonnes (USD 730 million).

Figure 20. Imports of flat-rolled products

Table 9. Imports of flat-rolled products by country

Imports of pipes in H1 2020 decreased by 52 percent by volume compared to the same period of 2019 and 35 percent by value, amounting to 234,000 tonnes (USD 437 million).

Figure 21. Imports of pipes

Table 10. Imports of pipes by country

Source: Russian Federal Customs Service (TNVED 7208, 7209, 7210, 7211, 7212) Source: Russian Federal Customs Service (TNVED 7303, 7304, 7305, 7306)

Source: Russian Federal Customs ServiceSource: Russian Federal Customs Service

1,005 672682568 564782

676 389424384 341552

2019 2020

Q1 Q1Q2 Q2Q3 Q4

408 206 269263 231442

344 120151148 114386

2019 2020

Q1 Q1Q2 Q2Q3 Q4


Value (USD mln)


Value (USD mln)

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Mechel announces the sale of the Elginsky coal mine and finishes restructuring its state bank loansPursuant to an agreement, Mechel sold its 51 percent ownership interest in OOO Elgaugol, OOO Elga-doroga, and OOO Mechel Trans Vostok to OOO A-Property. The deal was worth RUB 89 billion, including a premium for the controlling interest; the buyer has also fully repaid Mechel’s obligations to State Development Corporation VEB.RF, which amounted to USD 107 million.

Simultaneously, Mechel signed an agreement on debt restructuring with Gazprombank and VTB Bank. Under the terms of these agreements, revenues from selling the 51 percent interest in the Elginsky coal mine should be used to repay debt obligations to these two banks pro rata to their shares in the Mechel Group’s debt.

TMK completes a deal to acquire OOO ParusTMK has finalized a deal to acquire a 100% participation interest in OOO Parus, a metals company.

The company consist of casting and rolling facilities that produce rolled steel with a capacity of over 300,000 tonnes per year. The core business is fittings and continuous cast billet for rerolling. The company has demonstrated stable operational and financial performance, with its share of the Russian fittings market being at 4 percent since 2016.

Metalloinvest launches a bar-rolling mill at OEMKThe bar-rolling mill will produce about 43,000 tonnes of rolled steel grinding balls annually to meet the needs of Metalloinvest’s entities. The project also envisions the production and shipment of new products to third parties.

The construction of the bar-rolling mill began in September 2019. Metalloinvest invested about RUB 1 billion in the project.

Key Industry Events

Source: Interfax

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EVRAZ supports the construction of an infectious disease hospital in NovokuznetskEVRAZ has allocated RUB 200 million to the construction of a municipal infectious disease hospital in Novokuznetsk, as well as supplying rolled metals for the project.

In June-August, EMI’s Novokuznetsk branch shipped over 400 tonnes of shaped bars and long products produced by EVRAZ ZSMK and EVRAZ NTMK. These included fittings, INP beams, angles, and channels. They plan to ship about 400 more tonnes of rolled metals in September, primarily fittings.

The construction of the hospital will be finished by year end: modern frame and panel technology will reduce the construction timeline by several times as compared to traditional methods. The clinical complex will include a main four-storey building and 10 auxiliary buildings, with a total area of 27,800 square meters. The new medical establishment will replace Municipal Hospital No. 8.

MMK imposes strict measures to combat COVID-19Preventive measures primarily include wearing face masks when going to and from work.

“We have supplied employees with safety equipment and insist on their strict compliance with the rules, which have been clearly defined and communicated to staff members. This process is now being monitored at entrance checkpoints”, noted Pavel Shilyaev, General Director of PJSC MMK.

According to him, social distancing is also of great importance. Traffic routes at MMK are designed to minimize how often staff cross paths, with access to premises clearly demarcated. The company has also imposed measures to reduce the number of relocations, inspections, meetings, and meeting participants. Wearing face masks is obligatory.

Metalloinvest allocates RUB 550 million to support the public health service of the Orenburg RegionMetalloinvest is supplying medical organizations in the Orenburg Region with hi-tech equipment, personal protective equipment for medical staff, and medicines for a total of RUB 550 million.

Overall, Metalloinvest has purchased six CT scanners, three diagnostics labs, 82 artificial lung ventilation units, blood gas analysis units, oxygen concentrators, ECG units, defibrillators, cardiostimulators, observation beds and transport carts, biosafety cabinets, air sanitizers, personal protective equipment for medical staff, and other medical equipment.


Source: Company data

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Andrew Sedov

Partner, Leader of the Metals Group

[email protected]

Vitaly Mikhalchuk

Research Projects Leader at the Deloitte CIS Research Center

[email protected]

Daniil Shelomentsev

Junior Specialist at the Deloitte CIS Research Center

[email protected]

Kamilla Zhalilova

Head of the Project Office for Key Clients and Markets

[email protected]

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Overview of the steel and iron ore market 2020...Key Findings Overview of the global steel and iron...

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