E U R O P E & T H E C I S : W h a t d o e s t h e f u t u r e h o l d ?
SBB European Steel Conference Global reach; local impact
Barcelona, May 2011
ANTON BAZULEV
DIRECTOR OF EXTERNAL RELATIONS
NLMK
CIS steel sector at a glance
0
2
4
6
8
10
12CIS crude steel production CIS steel consumption
o Surplus of steel is exported from Russia and the CIS countries mostly as semi-finished products
o There is a huge potential for the CIS steel consumption
2
Source: Word Steel Association (WSA). State statistics organizations
m t
Steel exports: CIS is a largest player
0 50 100
CIS
China
Japan
EU
CIS EXPORTS BY PRODUCT
Slabs
HRC
CRC
Coated
Longs
CIS EXPORTS BY DESTINATION
EU
MENA
Asia
NAFTA
Other
LARGEST STEEL EXPORTERS
Source: WSA
Source: WSA, Statistic services (2005-2009)
Source: Statistic services (2005-2009)
3
m t %
%
Crude steel production costs
CIS STEEL PRODUCTION ADVANTAGE
0
50
100
150
200
250
Cost advantage
Labor
Scrap
Iron ore
Coal
o Cost advantage mainly lies in the access to low-cost raw materials
o Ongoing assets rewamp in CIS to eat into EU advantages – energy efficiency and labor productivity
0 100 200 300
Coal
Coke
Iron ore
Scrap
Labor
Other
Energy
CIS W.Europe
Source: WSD, Company estimates 4
$/t
$/t
CIS: further productivity growth
0
0.5
1
1.5
2
2.5
3
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
Productivity index, 1993=100
STEEL SECTOR PRODUCTIVITY
0 5 10
Russia
USA
Japan
EU
Russia USA Japan EU
o Modernization and business processes optimization significantly improved productivity of the CIS steel sector
o Still remain further room for improvement
Source: WSA Source: McKinsey researc
5
Per.hours/t
Raw material access favors production growth
TOP 3 IMPORTERS
49%
19%
11%
Iron ore imports
EU
Asia
China61%
7%
23%
C/coal imports
EU
LatAm
Asia
PRICES: COKING COAL AND IRON ORE
0
100
200
300
400
500
Jan
01
Jul 0
1
Jan
02
Jul 0
2
Jan
03
Jul 0
3
Jan
04
Jul 0
4
Jan
05
Jul 0
5
Jan
06
Jul 0
6
Jan
07
Jul 0
7
Jan
08
Jul 0
8
Jan
09
Jul 0
9
Jan
10
Jul 1
0
Jan
11
Iron ore C/coal
o CIS has the largest raw materials reserves:
o #1 in iron ore
o Top 3 – coking coal
o CIS Steel sector is vertically integrated in captive raw materials supply
o >65% - coal self-sufficiency
o >70% - iron self-sufficiency
o This leaves the sector shielded from the raw materials market fluctuations
Source: SBB, Bloomberg
Source: WSA
6
%
$/t
BF production steadily becomes less and less efficient in Europe
60%
65%
70%
75%
80%
85%
90%
95%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
BOF (EU15) run rate BOF (CIS) run rate
o During the last decade BOF steel production in EU was steadily declining
o During the downturn the BOF operations become less efficient…
o Available low cost semis allow EU steel sector to reduce costs at the trough of the cycle
Source: WSA, Company estimates
7
%
CIS & EU – natural trading partners in steel
o 35% of semis exported to EU
o 75% of CIS exports to EU are semis
o … demonstrates an excellent cross border value chain integration of low cost semis producers in CIS offering competitive pricing (as compared to EU marginal cost of steel production) and short lead times due to geographic proximity of the regions
3.678 4.430 5.623 4.418 5.764
0.000
5.000
10.000
15.000
20.000
25.000
2006 2007 2008 2009 2010
EU 27 ROW
RUSSIAN EXPORTS OF SEMIS
,000 t
75%
25%
Semis & other Finished steel
CIS EXPORTS TO EU BY PRODUCT
Source: Russia’s Federal Statistics Agency Source: Eurostat
8
%
Russian quotas to the EU
0
500
1000
1500
2000
2500
3000
3500
4000
2005 2006 2007 2008 2009 2010Remaining volumes available for imports based on importquotas
o 80% of quotas for flat steel and 20% for long steel are covered
o Imported flat steel feedstock is used for further processing and value creation by EU re-rollers and manufacturing businesses
o Possibility to add value to long steel is limited, so local production is more competitive in the regional markets
80%
20%
Flat imports (CIS) Longs imports(CIS)
IMPORT QUOTAS COVERED
,000 t Exports are sustainably lower than quotas envisage
Source: Russian Union of Metal Exporters Source: Russian Union of Metal Exporters
%
10
100
120
140
160
180
200
220
240
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009ASU EU27 Steel production EU27
o Crude steel becomes economically justified only when steel prices are high
o EU is one of the largest exporters and in order to maintain its market position in the global steel market it requires a substantial imports of semi-finished steel as the level of ASU is matching steel production
EU: market position supported by CIS supply
0
5
10
15
20
25
EU Exports EU Imports
Value added
HRC
Semis
STEEL FLOWS: CIS TO EU
Russia Ukraine
Kazakhstan
- Slab supply
- Finished steel from EU CIS: 6.7 mt
ROW: 1.2 mt
CIS: 1 mt
ROW: 15.3 mt
Source: WSA
Source: Eurostat
Source: Eurostat
mt
mt
EU is efficient in steel–intensive industries
11
0
500
1000
1500
2000
2500
2006 2007 2008 2009 2010
Mech'l engineering Locomotives & railcars
Vehicles Ships, etc
€ 500
€ 1,455 € 955
1 importedton
Value added 1 exportedton
EU: VALUE ADDED BUSINESS MODEL
,000 t
EU EXPORT OF MACHINERY PRODUCTS
o Developed manufacturing sector in EU (auto, engineering) shapes the steel sector business model favoring
o … efficient high-value tailor made products manufacturers offering
o … intensive service which requires significant technical collaboration
Source: Eurostat Source: Eurostat
€/t
BOTH TRENDS ARE BENEFICIAL FOR THE EU AND RUSSIA! 12
Strengthening Russia’s and CIS’s role as supplier of semi-finished and finished steel for
the EU
• Quality improvement
• Expanding product range
• Captive downstream assets in
the EU (NLMK, Mechel, Evraz,
others)
Developing EU processing outlets closer to Russian steel
suppliers and consumers in the CIS
• Automotive
• Mechanical engineering
RUSSIA & EU: further development trends
Trend 2: Downstream development Trend 1: Upstream integration
NLMK: Unique and competetive business model
A fully integrated supply chain with own raw material sources, conversion and logistics system
Plate BU : 1,750,000 t capacity
Strip Product BU : 2,600,000 t capacity
Available slabs 7,000,000 t
Annual production capacity (end of 2011 forecast)
12,400,000 t of steel
13
14
Conclusion: CIS and EU - partners in steel
o CIS position in low cost crude steel production perfectly fits massive sustainable market in EU which make us natural partners in steel value chain
o Last decade Russia completely overhauled its crude steel facilities making it one of the modern in the world. Around $32 bn were invested in 2000-2010
o Finished steel exports from Russia are not always able to meet local demand in EU
o EU-based rolling facilities can offer an extension to Russian steelmakers that match the demand from European customers
o Finished steel imported from EU saturates growing demand in innovative steel solution in Russia. We are an excellent example of a win-win cooperation in the global economy!
T H A N K Y O U
SBB European Steel Conference Global reach; local impact
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