Transcript Document

Presented by Dr. V. Vlasjuk
Director, UPE Co. Research&Consulting, Ukraine
The 17th CIS Metals Summit,
Moscow, 14-16th February 2012
Capacity utilization %
84%
83,1%
82%
80%
Excessive capacities
78%
76,3%
76%
74%
72%
2007
2011
before crisis
700
Production cost, $/t
588
600
500
400
Increasing cost
365
300
200
100
0
2007
2011
before crisis
Despite the increase of the steel production in 2010-2011, two unfavorable factors for
steelmakers have dominated on the market – high cost and low capacity utilization.
In the worsening economic situation, it enhances competition dramatically and carries significant
risks for outdated and inefficient mills, especially for those which are not vertically integrated
Financial institution
United Nations
World Bank
International Monetary
Fund
HSBC
World GDP growth, %
Oct 2011
Dec 2011 – Jan 2012
3.6%
2.6%
3.6%
2.5%
4.2%
3.3%
2.6%
1.9%
During October 2011 – January 2012 leading financial institutions have permanently revised
rate of GDP growth downward. The main reasons for revision were escalation of Italy`s and
Spain`s debt and budget problems, downgrading of credit ratings for France, Italy, Spain,
Portugal, Ireland, Austria; risk of USA technical default and downgrading of USA credit rating
by S&P to AA+
3. Also, the financial indicators demonstrated deterioration in
economic conditions
Indicators
Interest rate of Federal
Reserve System (USA), %
Interest rate of European
Central Bank (EU), %
Interest rate of Bank of Japan,
%
3 month USD LIBOR/OIS
spread, b.p.
Commercial bank deposits at
ЕCB, $ bn
Price per share JP Morgan
Chase on NYSE, $
Source: ECB, Bloomberg
Jul 08
Jan 09
Feb 11
Sep 11
Jan 12
Feb 12
2
0,25
0,25
0,25
0,25
0,25
4,25
2
1
1,5
1
1
0,5
0,1
0,1
0,1
0,1
0,1
70
120
15
25
47
39
0,6
360
27
232
528
495
41
23
45
33,5
34,9
38,3
GDP
Industrial Production
18%
12%
2010
2011
2012F
2011
2012F
15,7%
16%
9,6%
10%
2010
14%
8,3%
12%
8%
11,2%
11,0%
10,3%
10%
8,2%
6%
4,9%
4,3%
4,8%
6%
3,5%
4%
2,8%
2,7%
2%
8%
2,8%
1,9% 1,8%
4%
7,1%
5,8%
5,1%
4,2%
3,7%
4,0%
2%
0%
0%
-0,5%
-2%
-2%
USA
EU-27
China
Russia
Ukraine
World
-1,0%
USA
EU-27
China
Russia
Ukraine
World
Source: IMF, Bloomberg, UPE Co
GDP growth rate in the world in 2012 will decrease to 2.8% versus 4.0% in 2011
Growth rate of industrial production will be reduced even more substantially
from 8% (2011) to 4% (2012)
200
139
150
1 800
100
1 600
Crude steel production, Mt
Annual growth of steel production, Mt
67
61
47 57
50
19
forecast 2012
1 575
1 520
36
0
1 400
1 323
-50
1 200
World (w/o China)
-100
1 000
-200
forecast 2012
856
837
901
-172
2009
800
1 218
China
-150
2010
2011
2012F
600
652
400
World
World (w/o China)
200
0
1952
1958
1964
1970
1976
1982
1988
1994
2000
2006
2012F
Source: WSA (fact), UPE Co. (forecast 2012)
In 2012 we shall see further record of steel consumption, but the annual growth rate
will diminish from 7.3% (104Mt) in 2010 to 3.6% (+55Mt)
World (w/o China)
31,8
World
55,1
136,1
54,2
China
81,0
22,5
7,3
India
4,4
15,4
Asia, other
10,8
NAFTA
3,4
CIS
3,1
Latin America
2,7
12,0
6,6
4,0
-3,8
Africa
2,6
3,6
Middle East
Annual increase, Mt
1,7
5,6
EU27
1,7
Turkey
2,1
2011-2010
2012-2011
1,0
-20
0
20
40
60
80
100
120
140
160
Source: WSA, UPE Co. est.
If the growth rate of the world steel consumption in 2011 was 9.8% (+136 million tons),
the growth in 2012 will be only 3.6% (+54 million tons)
In China, the growth of steel consumption will be reduced significantly
from 81Mt (2011) to 22-23Mt (2012)
World capacity and production
of crude steel, mln. tonnes
Capacity utilization, %
90%
2300
capacity
2100
2 070
1 990
steel production
1900
1 789
1 709
1 624
1700
1300
495 Mt
470 Mt
1 520
1 360
1 270
1 575
1 346 1 329
1 247
75%
77,8%
76,4% 76,1%
74,3%
70%
1 218
68,1%
1 147
1 069
900
80%
1 424
1 195
1100
82,9%
81,2%
1 460
1500
85%
1 916
85,4%
84,3%
84,2%
65%
970
60%
700
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F
Source: WSA, OECD, UPE Co. est.
As intensive putting into operation of new steel capacities in 2009-2011 has been
continued in spite of the crisis, currently about 470 million tons of capacities stay idle.
In 2012 this indicator will reach 495Mt
Hard coking coal Peak
Downs $/t fob Australia
Vale Carajas fines (CJF) 66% Fe,
$/t fob Brazil (to Asian market)
350
180
171
160
140
300
157
289
250
120
80
191
150
60
40
230
200
115
100
100
59
129
50
20
0
0
2009
2010
2011
2012F
2009
2010
2011
2012F
Source: UPE Co. est.
It is expected that the average price of iron ore in 2012 will decrease comparing to 2011
by 8.2% for quarterly contracts and by 3.6% on the spot market.
Average price for coking coal in 2012 for quarterly contracts will fall comparing to 2011
by 20% to $ 230
500
Scrap HMS 1&2 (80:20 mix),
$/t fob Rotterdam
450
400
439
450
2011
2012F
350
300
322
250
200
249
150
100
50
0
2009
2010
Source: UPE Co. est.
Due to insufficient supply of scrap by the main exporters of the EU and the CIS and
the rising demand, the average price for scrap in 2012 will increase by 2-5%
depending on the region
Billet cost ($/t ExW) in Ukraine
(for non-integrated mills)
700
+118$
600
500
470
588
117
18
400
300
200
112
31
40
17
24
39
89
61
118
-23$
565
Other
117
18
34
42
Natural Gas
93
Transport
106
Scrap
96
100
122
Ferroalloys
Coking coal
175
155
2011
2012 F
Iron ore
0
2010
Source: UPE Co. est.
We expect that billet cost in 2012 will decrease compared with the 2011 by 23$ to
565 $/t, which is due to lower prices for iron ore (-12%) and coking coal (-10%). At
the same time the price of ferrous scrap will increase by 5%.
11. High price for scrap will allow integrated CIS producers
to compete in MENA
Billet, $/t
2009
700
588
600
2010
2011
2012F
631 615
565
564
525 510
470
500
400
443
600 610
504
433
385
339
314
300
200
100
0
Ukraine
Russia
China
Turkey (EAF)
Source: UPE Co. est.
In 2012 the difference between Ukrainian (OBC) and Turkish (EAF) billet cost will
increase to 45$/t.
Billet, $/t fob Black Sea
1400
Excessive
capacities
1200
1000
753
800
632
600
533
497
601
380
400
Production cost
average monthly
200
annual average
0
J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N
2007
2008
2009
2010
2011
2012
Source: UPE Co. est.
Unlike 2009-2011, when average prices rose by $ 100-150 / t, we expect that
average prices will decline in 2012 as a result of reduced costs and growing
pressure of excessive supply
1400
1200
1200
1000
809
1000
800
671
753
800
632
600
533
497
601
400
200
average monthly
200
541
646
423
380
400
600
582
average monthly
annual average
annual average
0
0
J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N
2007
2008
2009
2010
2011
2012
J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N
2007
2008
2009
2010
2011
Source: UPE Co. est.
In 2012 the average prices for billet and HRC will be 600$/t and 646$/t
respectively, which is by $ 25-30 lower than in 2011
2012
700
Billet, fob Black Sea
$/t
680
660
632 $/мт
640
620
601 $/мт
600
monthly average - fact
yearly average
580
forecast nov 2011
forecast feb 2012
2011
December
November
October
September
August
July
June
May
April
March
February
January
Expectation for improvement of
macroeconomic situation and steel
consumption a bit later - in 2H 2012
December
November
October
September
August
July
June
May
April
500
January
520
Price is nearing bottom level.
Squeezed margins of Turkish
producers and signs of demand
improvement in Asia and Turkey
will help to stabilize prices
March
540
February
560
2012
At the beginning of Nov 2011 we forecasted a w-shaped dynamics of billet price in winter 2011-2012. It was
a right anticipation, except for scale of dip (or heightened volatility). It was caused by worsening of
macroeconomic situation due to deterioration of financial market participants sentiment .
This was a main reason for our 2012 price trend revision – shift of yearly peak to Sep-Oct 2012
1. Lack of markets
2. The growing threat of trade restrictions
3. Export expansion from China
Steel market:
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