Transcript Document

Market perspectives for CIS steelmakers:
order books and steel prices in 3Q-4Q 2010
Presented by Dr. V. Vlasjuk
UPE Co. Research&Consulting, Ukraine
8th Russian Steel Summit
Moscow, 29-30 June 2010
I. Current market analysis
1. Steel prices for rebar and hot-rolled coil in 2009-2010
700
670
$/t fob Black Sea
650
600
665
rebar
hot-rolled coil
543
550
519
505
500
?
469
450
400
350
300
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2009
Source: UPE Co.
2010
Steel prices grew rapidly by 150-200$/t in the 1Q-2010 on the wave of market recovery expectations
and projected cost increase. This growth was largely due to the speculative component and was not
supported by fundamental factors of demand, that led to a sharp drop of steel prices in the 2 quarter
I. Current market analysis
2. Crude steel production in the world in 2006-2010
UPE Co. forecast
1230Mt
1600
1400
UPE Co. current
forecast
1 247
1 346
1 329
2007
2008
1 390
1 218
1200
1000
800
600
400
200
0
2006
2009
2010
forecast
Source: WSA, UPE Co. forecast
Crude steel production in 2010 will exceed the record of 2007 by 44Mt.
China remains the leader with steel production approx. 630Mt (by 66Mt more than in 2009)
I. Current market analysis
3. Crude steel production in China and the rest of World
140
mln. tonnes
120
100
World
(w/o China)
80
60
40
China
20
0
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M
2008
2009
2010
Source: WSA
World crude steel production in Jan-May 2010 have exceeded pre-crisis level Jan-May 2008
by 13.5 Mt
I. Current market analysis
4. Crude steel production in January-May 2007-2010
700
mln. tonnes
China
World (w/o China)
600
500
400
346
320
361
232
300
200
100
196
215
217
5 months 2007
5 months 2008
5 months 2009
269
0
Source: WSA
5 months 2010
For the first 5 months 2010 China has increased steel production by 52Mt, while the rest of
World - by 88 Mt versus 5 months 2009. Nevertheless, the steel production in the rest of World
remains lower than in the pre-crisis 2008 (less by 40 Mt 5months2010-to-5months 2008)
I. Current market analysis
5. Prices for raw materials
(iron ore)
Ore fines price (63,5% Fe)
in Chinese spot market, $/т CIF
210
188
190
173
170
150
136
76
80
165
180
105
100
195
192
Itabira fines, 64.2% Fe
$/t fob Brazil (to Asian market)
120
156
150 152 152
138
60
131
42
130
55
2009
2010
(1Q)
46
36
40
113
55
106
110
21
91
20
90
70
11-Jun-2010
4- Jun-2010
28-May-2010
21-May-2010
14-May-2010
26-Apr-2010
23-Apr-2010
16-Apr-2010
09-Apr-2010
02-Apr-2010
12-Mar-2010
12-Feb-2010
15-Jan-2010
18-Dec-2009
13 Nov 2009
16 Oct 2009
0
2004
2005
2006
2007
2008
Source: UPE Co.
Substantial steel production increase and enhancing demand have resulted in
the iron ore price raise by 93% in 2Q-2010
2010
(2Q)
I. Current market analysis
6. Prices for raw materials
(coking coal, scrap)
$/t fob Rotterdam , HMS -1&2
80:20
$/t fob Australia, Peak Downs
350
450
300
300
425
400
326
350
250
200
250
150
125
115
100
129
129
298
300
200
343
239
225
249
243
200
98
150
58
100
50
50
0
0
2004
2005
2006
2007
2008
2009
2010
(1Q)
2010
(2Q)
2004
2005
2006
2007
2008
2009
2010
(1Q)
2010
(2Q)
Source: UPE Co.
Similar to iron ore price, substantial steel production increase and enhancing demand have
resulted in the coking coal price raise by 55%, scrap price by 38%
I. Current market analysis
7. Steel consumption and macroeconomic indicators in
leading economies
620
finished steel, Mt
20%
Industrial production, % (y/y)
18%
16%
600
14%
580
560
540
12%
10%
603
8%
561
520
6%
4%
2%
500
0%
production
consumption
Jan 10
Feb 10
USA
Mar 10
EU-27
China
Apr 10
May 10
India
Source: WSA, Bloomberg, Eurostat, UPE Co. est.
Fundamental factors (such as industrial production) remains weak in developed countries,
meanwhile Asia including China and India demonstrates strong performance
I. Current market analysis
8. Steel capacity input and utilization in 2003-2010
Mt
World
Ukraine
2100
capacity
steel production
1865
1900
1785
1620
1700
1360
1195
1247
1069
69%
60%
65%
60%
50%
1270
1100
900
70%
475 Mt
78%
80%
1390
1346 1329
30%
1218
1 147
40%
20%
970
10%
0%
700
2003
2004
2005
2006
2007
2008
2009
2010
Forecast
13.01.2010
20.01.2010
27.01.2010
03.02.2010
10.02.2010
17.02.2010
24.02.2010
03.03.2010
10.03.2010
17.03.2010
24.03.2010
31.03.2010
07.04.2010
14.04.2010
21.04.2010
28.04.2010
05.05.2010
12.05.2010
19.05.2010
26.05.2010
02.06.2010
09.06.2010
16.06.2010
23.06.2010
1300
1695
1460
1500
utilization, %
90%
Source: WSA, OECD, UPE Co. est.
Input of new steel capacities has continued despite crisis in 2008-2009. Presently more than 475 Mt of
steel capacities stay idle. Intensive capacity increase (up to 600Mt) in 2003-2009 combined with the market
shrinking creates the basis for the permanent market imbalance in future, especially if growth rate of
Chinese steel consumption will slow down
II. Background for market development in 3Q-4Q 2010
9. Some macroeconomic and financial indicators
Indicators
Jul 08
Jan 09
Jun 10
3 month USD LIBOR/OIS spread, b.p.
70
120
33*
Commercial bank deposits at ЕCB, $ bn
0,6
360
214
Price per share JP Morgan Chase on NYSE, $
41
23
39
* Correspond to pre-crisis level which made up 10-15 (June 2007)
Source: ECB, Bloomberg
Recent deepening of some financial indicators was the result of sovereign debt problems in
Eurozone to be happened in April-May 2010. In turn, these problems caused the significant degree
of economic uncertainty, particularly in banking and finance sector of European countries.
II. Background for market development in 3Q-4Q 2010
10. Industrial production growth and global finished
steel consumption in 3Q-4Q 2010, Mt
Consumption, Mt
Industrial production, % (q/q)
2,5%
2,0%
USA
EU
2,1%
China
350
342,9
345,8
342,4
340
332,6
1,5%
1,0%
1,0%
330
0,9%
321,3
320
0,5%
0,3%
0,2%
310
310
Forecast
0,0%
300
-0,5%
-0,5%
290
-1,0%
3Q-2010
4Q-2010
Source: JP Morgan Chase, Bloomberg
3Q 09
4Q 09
1Q 10
2Q 10
3Q 10
4Q 10
Source: UPE Co. est.
We expect that global finished steel consumption in 3Q 2010 will demonstrate slight decrease
and in 4Q 2010 only a slight increase – by 1% or 3,4 Mt due to decreasing rate of economic
growth in key steel-consuming countries.
II. Background for market development in 3Q-4Q 2010
11. Forecast of raw material prices in 3Q-4Q 2010
160
Itabira fines, 64.2% Fe
$/t fob Brazil (to Asian market)
129
140
$/t fob Australia, Peak Downs
250
225
136
236
200
200
120
105
100
150
80
60
129
Forecast
Forecast
55
100
40
50
20
0
0
2010
(1Q)
2010
(2Q)
2010
(3Q)
2010
(4Q)
2010
(1Q)
2010
(2Q)
2010
(3Q)
2010
(4Q)
Source: UPE Co. est.
Prices for iron ore and coking coal will rise by 23% and 12.5% correspondingly in 3Q-2010.
It should be expected that price will increase by 5% in 4Q-2010
II. Background for market development in 3Q-4Q 2010
12. Steel cost in Ukraine in 1Q-3Q 2010
600
$/t
472
493
others
(labour, other materials, fixed cost)
500
399
114
400
108
300
29
27
200
100
60
29
24
60
133
117
29
24
51
160
97
77
Source: UPE Co. est.
natural gas
scrap
iron ore
113
113
coking coal
0
1Q-2010
el/energy
2Q-2010
3Q-2010
forecast
Steel cost will increase by 20$/t in 3Q-2010, mainly due to growing iron ore prices.
II. Background for market development in 3Q-4Q 2010
13. Billet cost for main exporters in 3Q-4Q 2010
$/t
2Q-2010
600
537
500
400
3Q-2010 Forecast
472 493
560
527 530
424 436
300
200
100
0
Ukraine
Russia
China
Turkey (EAF)
Source: UPE Co. est.
Billet cost will increase by 12-25$/t for main exporters of China, Russia and Ukraine in 3Q-2010
III. Forecast & scenarios
14. Current State of Rebar market
World Rebar Output & Consumption
in 5M 2010, thou tonnes
105 000
Price and Cost (FOB Black Sea adjusted) of
Rebar
750
104 414
$/т
700
104 000
103 000
650
102 000
600
101 000
99 415
100 000
550
99 000
500
98 000
97 000
450
96 000
95 000
400
price, $/т fob Black Sea
USA
EU 27
CIS
Consumption
Current stock level estimation
- Low
Asia (wo China) - Middle
- Middle
China
- High
- Middle
Middle East
- Low
cost+freight
350
300
11-Jan-10
18-Jan-10
25-Jan-10
1-Feb-10
8-Feb-10
15-Feb-10
22-Feb-10
1-Mar-10
8-Mar-10
15-Mar-10
22-Mar-10
29-Mar-10
5-Apr-10
12-Apr-10
19-Apr-10
26-Apr-10
3-May-10
10-May-10
17-May-10
24-May-10
31-May-10
7-Jun-10
14-Jun-10
21-Jun-10
Output
Source: UPE Co. est.
During the 5M 2010 world rebar output exceeded consumption by 5 mln tonnes (5%surplus).
Consequently, the price of rebar has fallen far below the cost at the end of 2Q 2010, as well
as under the influence of speculative factors.
III. Forecast & scenarios
15. Rebar Market in 3Q 2010
Rebar Consumption in Construction by
Regions-Main Importers of Ukrainian Rebar
World Rebar Consumption,
thou tonnes
60 902
62 000
60 147
58 814
35%
3,61 3,62
3,50
3,00
64 000
60 000
4,00
3,21 3,25
30%
29%
30%
2,81
2,81 2,78
2,59
25%
2,50
20%
2,00
58 000
15%
1,50
56 000
1,00 1,06
54 000
1,00
52 000
11%
13%
12%
10%
0,50
5%
0,00
0%
50 000
1Q 2010
2Q 2010
3Q 2010
Est
Source: UPE Co. est.
Middle East
2Q 2010
CIS
India
3Q 2010
Estimated
EU 27
Africa
Share of UA export 4M2010
In spite of seasonal lull in construction, rebar consumption in 3Q 2010 will fall just by 154 thou
tons (1,1%) in regions-main importers of Ukrainian rebar. That will cause a 1% decrease of
Ukrainian rebar stock of export orders to 0.65 mln tons in 3Q.
III. Forecast & scenarios
16. Forecast of Rebar Price in 3Q-4Q 2010
Rebar monthly prices fob Black Sea
700
$/mt
650
600
average price 2010 - $555
550
500
450
average price 2009 - $435
400
350
fact
forecast
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
300
Source: UPE Co. est.
Lowering inventories in main consuming regions will allow producers to raise the price for
rebar in 3-4Q 2010 to offset current negative producers` margins.
III. Forecast & scenarios
17. Current state of hot-rolled coil market
HRC production & consumption in the
world in 5 months 2010
300
263
250
248
HRC price and cost (fob Black Sea adjusted)
800
750
$/т
700
650
200
600
150
550
100
500
50
450
0
400
price, fob Black Sea
350
production cost+transportation and port charges
USA
EU 27
CIS
Consumption
Current stock level estimation
- Low
Asia (wo China) - Low
- Low
China
- High
- Middle
Middle East
- Low
300
11-Jan-10
18-Jan-10
25-Jan-10
1-Feb-10
8-Feb-10
15-Feb-10
22-Feb-10
1-Mar-10
8-Mar-10
15-Mar-10
22-Mar-10
29-Mar-10
5-Apr-10
12-Apr-10
19-Apr-10
26-Apr-10
3-May-10
10-May-10
17-May-10
24-May-10
31-May-10
7-Jun-10
14-Jun-10
21-Jun-10
Production
Source: UPE Co. est.
During first half of 2010 production over paced consumption by 15 mln tones. Speculative
price hike, which took place in March, together with increased stocks resulted a dramatic
price fall in May - June. Currently stock inventories have decreased to low levels.
III. Forecast & scenarios
18.Expected consumption and production cost in 3Q-4Q
World HRC consumption
Slab production cost
180
million tones
160
147,1
151,4
152,1
153,9
600
$/mt
140
500
120
400
489
508
100
80
300
60
200
40
100
20
-
0
I q 2010
II q 2010
IIIq 2010
estimation
IVq 2010
estimation
2q
3q
Source: UPE Co. est.
In 2nd half of 2010 stable growth of consumption is expected. Consumption of HRC in 3rd
quarter is estimated at 152 mln t, in 4th quarter – 154 mln. tones. Export order books of
Ukrainian producers will increase by 1% to 0.9 mln tones in Q3. Production cost will increase
also. CIS slab estimated production cost is $508mt in 3rd quarter
III. Forecast & scenarios
19. Forecast of hot-rolled coil price in 3Q-4Q 2010
HRC monthly prices fob Black Sea
700
$/mt
650
600
600
550
500
450
400
forecast
fact
350
Dec 2010
Nov 2010
Oct 2010
Sep 2010
Aug 2010
Jul 2010
Jun 2010
May 2010
Apr 2010
Mar 2010
Feb 2010
Jan 2010
Dec 2009
Nov 2009
Oct 2009
Sep 2009
Aug 2009
Jul 2009
Jun 2009
May 2009
Apr 2009
Mar 2009
Feb 2009
Jan 2009
300
Source: UPE Co. est.
The price will go up and will reach $650 in October. After that a correction expected during
which the price will go down to $620 in December. The annual average price will stay at
$600. The producer’s order books will grow up till the end of the year.
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