Semis ex-CIS in Middle Eastern market: current state and future outlook

Svetlana DelamureEditor

Metal Expert Weekly / Metal Expert News

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Metal Expert in brief:

Middle East in the world steel semis trade today…

6 major importing countriesIran, Syria, Saudi Arabia, UAE, Jordan, Oman

18% (5.8mt) of billet imported globally

3% (0.9mt) of globally traded slabs

Share of semis ex-CIS supplied to Middle East – 85%

67184322Total

13%89614%605Slabs

87%582286%3718Billet

share2007share2005Middle Eastern countries import mainly billets…

Share of semis from CIS has been growing constantly for the last 3 years …

85%81%77%CIS share

651041104322Total

338280639Others

115170276United Kingdom

55533262China

587854Belarus

486410342Kazakhstan

153213051084Ukraine

342715341866Russia

200720062005

Middle East is an important market for CIS suppliers, consuming…

23% of Russian semis

13% of Ukrainian, and

85% of Kazakh billet and slabs

59%582236683717Total

21%252209221Oman

19%440370349Jordan

78%578325366UAE

7%606567687Saudi Arabia

47%701476463Syria

89%324617191631Iran

y-o-y200720062005

44%

56%

47%

0

1000

2000

3000

4000

5000

6000

2005 2006 2007*

Iran

Others

Middle East increased semis import significantly

Most countries of the region import square billet…

…and only two buy slabs

430

217

819

197

63116

050

100150200250300350400450500550600650700750800850

2005 2006 2007*

Iran

Saudi Arabia

…but growth rates are impressing in both cases

What is behind increased billet consumption?

The major reason is extremely high construction activity in the region, especially in Iran and UAE, and other countries are on their way…

During 2007 rebar shipments to the region went up by 2mln tonnes year-on-year, mainly toIran +1mtUAE +1mt

Rerollers’ demand for imported billet was estimated at around 7.6mt in 2007 with account of new capacities launched

Middle East domestic rebar prices, $/t exw

600630660690720750780810840870900930960990

1020105010801110

May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08

Iran, exw, $/t

Syria, exw, $/tUAE, exw, $/t

Other factors supporting billet prices…Crude steel production costs, $/t

Raw materials costs

Absence of Chinese semis due to high costs and 25% export duty

‘Newly’ emerged semis market in South East Asia

Consolidation of CIS semis production

250

300

350

400

450

500

550

600

Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08

China, iron ore and coke

Turke, scrap

Export price for Chinese billet with production costs of $600/t is around $890-900/t fob = $970-980/t c&f Gulf

Even more factors…

Freight rates, $/t

15

25

35

45

55

65

75

Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08

Astrakhan-Anzali, 3,000t of steel

Odessa-Dubai, 40,000t of steel, FILO

Freight rates

Logistics problems in the Caspian and Black Sea ports in winter

USD depreciation

Financial restrictions while working with Iran

All the factors mentioned resulted in higher billet prices… will the situations persist?

Imported billet prices, $/t c&f

Some figures for Middle East market

Imported billet prices – by 65-75%

Average domestic rebar prices grew 55-70% since May 2007

Freight rates – by 30% in case of Odessa-Dubai route and 133% in Astrakhan-Anzali case

490

530

570

610

650

690

730

770

810

850

890

930

970

May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08

Iran (Anzali)

UAE

Syria

Demand side:• Strong rebar demand and shortage in Middle East will maintain high rebar prices which supports rerollers demand for billet• New steel-making facilities to be introduced in 2008 won’t be brought to full capacity within the year

Billet prices promise to be strong in 2008 due to…

-41%4620778041807340Total

109%4802302500Oman

9%7106508020Jordan

-52%48010000520Syria

25%1250100016501400UAE

-53%800170010001900Saudi Arabia

-72%900320012003500Iran

Chng, 08/07

Billet demand, 2008

Billet demand, 2007

Long products

Crude steel

Supply side:• Absence of Chinese billet in the market due to high production costs and export duty ‘gives freedom’ Turkish and CIS suppliers

• In 2007 Russia and Ukraine decreased billet exports by 480,000t and 600,000t respectively

• Russian Yartsevo and Rostov mini-mills will launch rolling capacities of 750,000t totally in 2008, though…

• In Ukraine new billet producer emerged – Electrostal – with 300,000tpy capacity

•Turkey will add about 2.9mt of crude steel capacity vs 1.9mt rolling capacity, but it will partially offset existing billet shortage in Turkish market

Billet prices promise to be strong in 2008 due to…

Products:- Scrap- Pig iron- Billet- Steel long products- Freight

Regions:- Turkey- CIS (Russia, Ukraine, Kazakhstan)- South Europe (Italy, Spain)- Central Europe (Poland, Bulgaria, Romania)- Middle East (Iran, UAE, Syria, Saudi Arabia, Jordan)- North Africa (Egypt, Algeria)- US- China- South East Asia (Taiwan, Thailand, Vietnam, Philippines, Singapore)

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