Global Billet Market: current state & future outlook

World Steel Semis Market

October 6-8, 2008, Istanbul

Svetlana Delamure

Editor Metal Expert News / Metal Expert Weekly

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Billet market in 2007: export

100% = 32mt Quite concentrated market. The major 7 exporters held 78% of the market or 27mt in 2007 Brazil 7% France 7% Turkey 4% Japan 4% Germany 4% China 10% Other 22% Export from Ukraine and Russia made about 42% of global supplies last year Russia 20% Ukraine 22% High rate of spot trade Thus, market exposed to quick changes

Billet market in 2007: import

Again, high regional concentration

MENA countries accounted for about 30% of global billet trade South Korea 5% Italy 8% Spain 4% Turkey 6% Others 59% Iran 10% Vietnam 5% UAE 3% with Iran being the major importer (around 3.62 mt last year) Import to Asian countries formed some 20% of total Italy is the major importer in EU, accounting for 8% of global imports

Billet market in H1 2008: export

Overall +3% vs H1 07 despite China cutting export almost to zero

9,3 CIS 8,1 Europe 4,1 3,8 2,0 Asia 3,4 Latin America North America MENA 0,3 0,8 0,2 0,2 1,2 1,5 H1 2008 H1 2007

Major decreases

• China 70,000mt down from 2.4mt!

• Brazil -32% to 950,000mt

Major increases

• Japan +55% to 950,000mt • CIS +17% to 9.3mt, inluding Kazakhstan +99% to 0.43mt

• Turkey +76% to 1.4mt

0,0 2,0 4,0 6,0 8,0 10,0

6 mt 5 4 3 2 1 0 +11%

Billet market in H1 2008: import

+14% H1 07 H1 08 -10%

Middle East

• Turkey +35% to 1.43mt

• UAE +67% to around 0.5mt

• Egypt +43% to 0.7mt

• Iran -30% to 1.2mt (due to LC problems) MENA SEA EU

South East Asia

+14% to 4.5mt, particularly South Korea, Taiwan, Indonesia, Philippines

Europe

• Italy and Spain cut import by 29% and 22% to 1.2mt and 0.7mt accordingly

Billet market in 2008: Middle East

UAE 1600 1500 1400 1300 1200 1100 1000 900 800 700 600 500 Jan-08 Domestic rebar, dd Billet, c&f - delayed Mar-08 May-08 Iran 1430 1370 1310 1250 1190 1130 1070 1010 950 890 830 770 710 650 590 530 Jan-08 Mar-08 May-08 Rebar, exw Billet, c&f Bandar-Abbas - delayed Billet, c&f Anzali - delayed Jul-08 Sep-08 Jul-08 Sep-08 If one compare domestic rebar prices with 1.5 months (app. delivery term) delayed imported billet prices – mill’s workable margins are obvious!

Billet market in 2008: South East Asia

South Korea 1150 1110 1070 1030 990 950 910 870 830 790 750 710 670 630 590 550 Jan-08 Rebar, exw Billet, c&f - delayed Mar-08 May-08 Jul-08 Sep-08 1220 1180 1140 1100 1060 1020 980 940 900 860 820 780 740 700 660 620 580 540 500 Jan-08 Taiwan Rebar gr. 40, exw Billet gr. 40, exw Billet, c&f - delayed Mar-08 May-08 Jul-08 Sep-08 If one compare domestic rebar prices with 1.5 months (app. delivery term) delayed imported billet prices – mill’s workable margins are obvious!

Billet prices in 2008: Italy

1365 1325 1285 1245 1205 1165 1125 1085 1045 1005 965 925 885 845 805 765 725 685 645 605 565 525 Jan-08 Rebar, exw Billet, exw Billet, c&f - delayed Mar-08 May-08 Jul-08 Sep-08 Most of the time domestic billet prices in USD were lower than 1.5 months delayed imported billet prices partly due to EUR/USD rate Besides, buying domestically you have shorter delivery time

Billet prices in H2 2008

Suppositions

1. Middle East is the major billet importer 2. and one of the regions with the fastest growth of construction activity, especially in UAE 3. Sky-rocketing longs prices were driving billet quotations 4. So, rebar market situation in Middle East influence global market of both rebar and billet 1600 1400 1200 1000 800 600 400 Jan-08 Rebar to UAE, fob Turkey Billet, fob Black Sea Mar-08 May-08 Jul-08 Sep-08

Billet prices in H2 2008

Turkey were ramping up supplies to UAE this year 1.Turkish mills as well as UAE buyers ‘overestimated’ UAE market 2.Partly not taking into account increased production in UAE 3.UAE buyers will start buying rebar only by the end of the year

To increase production in December, UAE re-rollers have to buy billet in late October

450 400 350 300 250 200 150 100 50 0 850 800 750 700 650 600 550 500 Jan.07

non-UAE U.A.E

Apr.07

2007

Jul.07

2008

Oct.07

Jan.08

Apr.08

UAE rebar market structure (AC growth +30%)

H1 08 H2 08 Production Import Apparent consumption

1140 3394 4534 2150 3744 5894*

Change, 08/07

89% 10% 30% 690 2902 3592 1460

842

2302

Chang, H1 / H2 08

112%

-71%

-36%

Billet prices in H2 2008

1.

With UAE market overstocked, Turkish mills found themselves in August left with about 600 700,000tpm of ‘spare’ rebar 1200 1100 1000 900 2.

Rebar price cuts are not helping to sell 800 700 Billet, fob Black Sea Scrap, c&f Turkey 3.

Lowered rebar prices affected both billet quotations and raw materials (esp. scrap) quotations, bringing down billet production costs!

600 500 400 300 Oct-07 Nov-07 Dec-07 Feb-08 Mar-08 May-08 Jun-08

With scrap prices to Turkey as low as $300/t c&f and in CIS around $200 230/t delivered, billet could go down as low as $400/t fob!

Billet prices in H2 2008

UAE 1600 1500 1400 1300 1200 1100 1000 900 800 700 600 500 Jan-08 Domestic rebar, dd Billet, c&f - delayed Domestic rebar, dd Mar-08 Current prices!

May-08 Jul-08 Sep-08 Nov-08 Behaviour of UAE market could be extrapolated for most of Middle East Thus, Middle Eastern re-rollers will start buying billet in late October Bottom billet prices will depend on scrap quotations available At present scrap prices the minimum for billet is around $400/fob CIS or Turkey At that, local rebar prices still have the room to fall due to both lowered billet and Turkish rebar prices

Summary

• Global billet market is very volatile both in terms of prices and volumes • After strong growth in H1 08, billet prices are falling at even higher pace in H2 • We expect re-rollers in Middle East to start buying billet in late October • Minimal billet price will be defined by scrap quotations. At current scrap levels $400/t fob for billet is quite possible • Billet market recovery in South East Asia and Europe will be lagging behind Middle East, because of delayed slowdown there, compared to Arab countries • Price recovery will be hindered by high stocks of material in CIS

Products

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Raw materials

(scrap, pig iron, DRI / HBI, iron ore, coal, coke, ferro-alloys) -

Steel Semis

(slab, billet, pipe billet)

Finished steel products

(flats, longs, pipes) -

Freight Regions Market & industry news, analysis, statistics, price database

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Turkey

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CIS

(Russia, Ukraine, Kazakhstan)

Europe

: South Europe (Italy, Spain), Central Europe (Poland, Romania, Czech, Slovakia), Balkans (Bulgaria, Serbia, Albania, Bosnia) -

Middle East

(Iran, UAE, Syria, Saudi Arabia, Jordan) & North Africa (Egypt, Algeria)

India

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US

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China

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Southeast Asia

(Taiwan, Thailand, Vietnam, Philippines, Singapore)