wsm 2010-10

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80

85

90

95

100

J an 10 Apr 10 J ul 10 Oct 10

USD

/JPY

0,65

0,7

0,75

0,8

0,85

USD

/EUR

USD/JP YUSD /E UR

S ource: Metal Expert

Long products. . . . . . . . . . . . . 2

Billet . . . . . . . . . . . . . . . . . . . . . 7

Flat products . . . . . . . . . . . . . 11

Slabs. . . . . . . . . . . . . . . . . . . . 16

Ferrous scrap . . . . . . . . . . . . 19

Pig iron . . . . . . . . . . . . . . . . . . 23

Iron ore . . . . . . . . . . . . . . . . . 28

Coking coal . . . . . . . . . . . . . . 34

Macroeconomics . . . . . . . . . 37

Prices . . . . . . . . . . . . . . . . . . . 38

Contents

Monthly analytical report Issue 10 (44), October, 2010

Forecast of key prices in the world steel markets

Jun.10 Jul.10 Aug.10 Sep.10 Oct.10 Nov.10* Dec.10* Jan.11*

scrap Turkey, HMS1&2 (80:20), c&f from USA 323 346 397 400 380 375 400 430

pig iron CIS, fob Black Sea 448 425 454 465 435 443 450 460

billet Ukraine, fob 453 483 546 557 515 510 530 560

slab Asia-Pacific, c&f from Brazil 645 623 560 561 580 560 560 580

rebar Turkey, fob 533 544 593 606 580 570 595 620

HRC China, (SS400) JIS G3101, fob 608 588 604 612 608 600 615 640

Source: Metal Expert, $/t

* - Metal Expert forecast

Prices may rise in November

The downward trend has strengthened in the global market this month.Since mid-September, prices for square billet and finished products havegone down by $50/t and $25-40/t, respectively. Slab prices have decreased

by smaller amount; however, considering a drop in HR sheet quotations,slab prices are likely to fall further as well.

Meanwhile, prices are unlikely to drop too deep even amid weak demand,as production costs of semis and finished steel stay largely stable or decline

just slightly. According to Metal Experts estimates, trade in the global marketfor steel products will revive when traders and consumers believe (or areforced to believe by producers) that prices are bottom-low and no furtherdecrease is possible.

In the circumstances, producers may take advantage of dollars weakeningagainst major world currencies. In particular, European traders have alreadybenefited from the drop in dollar exchange rate and purchased substantialtonnages of pig iron on stronger euro in October. Demand for imports hasalso grown in Turkey where steelmakers have increased scrap purchases.

Importantly, the rise in buying activity has not resulted in the increase inprices as the supply was sufficient and the suppliers accepted bid prices just to sell as quickly as possible.

According to Metal Experts estimates, demand for raw materials and steel

products may grow worldwide in the second half of November December.In case dollar keeps weakening, traders and consumers will buy as muchsteel products as needed by the end of October, after which prices will startmoving down at slightly higher pace.

Imports get more attractive as longas dollar weakens
http://www.metalexpert-group.com/

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2 World Steel Markets, October, 2010 Metal Expert +38 0562 39 88 50

Long productsLong products price forecast

Scenario No.1: probability 60%Long-term outlook:the demand stimulation programme provides the Chinese domestic market with thesupport enough to keep up consumption at current level. Chinas high consumption and strengthening

yuan stimulate economic recovery in the countries supplying raw materials and finished products to theChinese market. Demand from end consumers grows just slowly in other regions in 2010 and 2011 due tocurtailment of state backing; business activity hikes in global markets mainly when traders replenishstocks. Steelmakers have to cut production when demand drops as profit margins narrow and the risk ofglut is high. The cost of steel production remains high or grows further in 2010 and 2011 owing toconsolidation of supply in raw material markets. The volatility of finished steel product prices increasesbecause prices under long-term contracts for iron ore and coke are revised quarterly now and speculativeactivities intensify in raw materials and steel product markets.

Short-term outlook:- Moderate demand recovery in Europe, US and Asia is possible in end November-December, prior to

New Year and Christmas holidays- The international sanctions imposed by the United Nations against Iran and a sharp decrease in rialexchange rate against the US dollar in the short-term perspective will entail the decrease of importshipments to the country

- Significant growth of demand in the global market is expected no earlier than February-March 2011- In November-December the decrease of capacity utilization is expected- Competition remains high in the global long products markets, putting downward pressure on prices- High production cost prevents long products prices from substantial falling

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Scenario No.2:probability 40%Long-term outlook: due to the downsizing of the government reflation programmes in China, thecountrys domestic market faces oversupply urging a rise in exports. Demand from end consumersstrengthens at a slow pace in other global markets in 2010 and 2011 due to curtailment of state backing.Prices for steel products and raw materials decrease worldwide, market faces ups and downs because ofthe demand/supply imbalance.

S C E NARIO No.1 Turkis h re bar export priceforecast, fob

593

606

580

570 5

95

620

0

150

300

450

600

750

A

ug.1

0

S

ep.1

0

Oc

t.10

Nov.1

0

D

ec.1

0

Jan.1

1

F

eb

.11

Mar.

11

Apr.

11

$/t

foreca s t in report of August 10

S CE NARIO No.1 Italy rebar export priceforecast, fob

580 6

33

600

590

610

625

0

150

300

450

600

750

A

ug.1

0

S

ep.1

0

Oc

t.10

Nov.1

0

D

ec.1

0

Jan.1

1

F

eb

.11

Mar.

11

Apr.

11

$/t

foreca st i n report of August 10

Note: the forecast has been revised downward as in September-October finished steel product demandgrew less than expected

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3World Steel Markets, October, 2010 Metal Expert +38 0562 39 88 50

220

230

240

250

260

270

280

S ep 09 J an 10 May 10 S ep 1060

65

70

75

80

85

90

Rigs in operation, '000 pcs.

P rice for B rent Crude Oil, $/b

Source: Metal E xpert

20

40

60

80

100

J an 09 May 09 S ep 09 J an 10 May 10

'000pcs

Building permits i n Turkey

Source: Metal Expert

Long productsAnalysis

S ep.10 Oct.10

DOMESTIC MARKET (dd)

USA 656 678

Italy 651 651

EXPORT PRICES (fob)

Turkey 606 581

Ukraine 596 565

IMPORT PRICES (c&f)

UAE 636 581

Italy 633 613

Source: Metal Expert, $/t, average monthly

prices

World rebar prices

Steel product demand expected to recover

in Q1 2011

In October, long product prices have been going down worldwide. In mid-October, Turkish rebar was offered at $575/t FOB, down $35/t m-o-m. CIS prices

dropped by $40/t to $560/t FOB; Chinese longs quotations down $10/t to$625/t FOB. Nevertheless, suppliers from Turkey and CIS already started pushingfor price increase.

Demand and prices for steel products used in construction have beendown since mid-September. Although steel products from Turkey and CIS are$10-15/t cheaper than domestic ones, demand in the Middle East and North

Africa is slack. Relatively stable demand is observed only in Iraq and SaudiArabia. End consumer demand in Iran is affected by the unfavourable economicsituation. There are no large-scale governmental infrastructural projects expectedto be implemented before the beginning of a new fiscal year (February-

March); some upturn in demand (in December-January) will be attributed tothe traders stock-building campaigns. End consumer demand in South EastAsia is somewhat stronger than in other regions, but local consumers, havingbuilt up their stocks, now sit on the fence waiting for the prices to decline.Stagnation in the US and European economy on the whole and in the constructionsector, in particular, is having an adverse effect on the demand for steelproducts used in construction. Despite a growth in Euro exchange rate againstUS dollar (from 1.27 in late August to 1.39 in mid-October), European steelconsuming industries will recover slowly having little suppor t from the government.

According to Metal Expert, long product demand will be weak worldwide till2011, but despite that the producers will keep trying to raise their prices. Some

upturn in the US, European and the Middle Eastern markets is expected in endNovember-December; in South East Asia in January on the eve of ChineseNew Year. A significant increase in demand and steel product prices is possiblein February-March.

In November-January, the largest exporters will have their productioncosts high. In late Q4-early Q1, steel scrap prices for Turkish steelmakers willbe on the rise at low supply. Rebar production cost in Turkey will gain 17% byQ2 2011, Metal Expert forecasts. Import semis price will increase by $80/t inDecember-March, according to Metal Expert. CIS production cost will also beon the increase in late 2010-early 2011 owing to a 2% growth in iron ore

quotations, in particular. Production costs in Europe will grow in Q1 2011following a 4% increase in contract prices for iron ore. Thus, high level of theproduction cost will restrain steel product price reduction and will promote pricesin late 2010-early 2011.

Competition will have a negative influence on prices.Weak consumer demandin the Middle East urges Turkish exporters and CIS steelmakers to reduce prices:price for Turkish products is $620/t C&F, for CIS products - $615/t C&F. Prices forChinese products amounted to $685/t C&F, while they were just $30/t abovethose of the traditional suppliers a month ago. This increase is explained by thegrowth of domestic prices, by $10-15/t over the month. Chinese products are

Middle East: stable oil-and-gassector favours development

of regional economy

Turkey: domestic constructionsector may give support to

deteriorating export market

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Long products Analysis

offered in Southeast Asia at $630-650/t C&F, Turkish ones at $610-640/t C&F.Back in August-September, Chinese products were $75/t cheaper. Therefore, demandfor Turkish products is expected to rise in the region soon.

In late August-September, traders in the Middle East and Southeast Asia increasedpurchases pushing up long product supply. In late Q3, Turkey shipped 0.9mt t

of steel products used in construction, up 15%. CIS exports grew by 13% to0.87mt. According to Metal Expert, steel product supply will be movingdown in the global market in November-January due to the reduction inproduction, while in mid-Q1 2011 the shipments will start rising backed up bygrowing demand.

Demand and prices for steel products used in construction will decreaseworldwide in November, Metal Expert forecasts. Some increase is expectedin December-January, while a significant upturn will be possible with thebeginning of a new construction season in March-April.

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Long productsStatistics

Long products prices forecast in major world marketsPRICES

Aug.10 Sep.10 Oct .10 Nov.10 Dec.10 Jan.11 Feb.11 Mar.11 Apr.11

Rebar

China domestic dd Shanghai 662 713 720 725 710 715 720 730 745

(export equivalent)

China export fob (BS4449 grade) 604 620 625 620 640 660 665 680 710

CIS export fob Black Sea 576 596 560 550 585 610 625 655 680

Russia domestic e xw 683 683 685 670 650 665 680 710 735

Ukraine domestic e xw 581 602 615 610 600 610 625 655 680

USA domestic e xw 643 656 675 650 665 680 690 705 730

Italy domestic e xw 590 651 640 625 640 645 670 690 710

Italy import c&f 626 633 610 600 635 660 680 705 730

Turkey export fob 593 606 580 570 595 620 635 660 685

Turkey domestic e xw 598 610 590 575 590 625 640 650 675

Iran import c&f Anzali 630 653 610 600 630 650 675 705 730

Iran domestic e xw 753 824 840 800 780 775 800 795 810

Wire Rod

USA domestic e xw 700 713 735 695 700 710 715 730 750

monthly average prices, $/tSource: Metal Expert

Long products spot prices in major world markets

Oct.09 Jun.10 Jul.10 Aug.10 Sep.10 Oct.10*

Rebar

China domestic dd Shanghai 586 649 625 662 713 716

(export equivalent)

China export fob (BS4449 grade) 493 598 566 604 620 625

South Korea domestic exw 605 580 579 575 568 628

Russia domestic exw 541 641 620 683 683 690

Ukraine domestic exw 531 651 582 581 602 604Ukraine export fob Black Sea 453 507 517 576 596 565

USA domestic e xw 528 653 632 643 656 678

USA import c&f US Gulf 529 587 587 625 638 608

Italy domestic e xw 524 577 588 590 651 651

Italy import c&f 491 549 567 626 633 613

Italy export fob 492 529 556 580 633 608

Spain domestic e xw 569 561 564 604 651 638

Algeria import &f 521 529 575 606 649 629

Poland domestic e xw 522 566 561 622 640 655

Turkey domestic ex w 459 535 544 598 610 595

Turkey export fob 463 533 544 593 606 581

Iran domestic e xw 524 640 652 753 824 844

Iran import c&f Anzali 477 556 567 630 653 613

UAE import c&f Dubai 483 566 569 622 636 581

Japan domestic dd 674 750 722 713 724 736

Japan export fob 500 680 650 620 600 600

Wire Rod

USA domestic e xw 652 718 702 700 713 735


Source: Metal Expert, $/t, average monthly prices

* - data as for the first two weeks of the month

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Long products Statistics

Global long products trade structureTRADE

Apr 10 May 10 Jun 10 Jul 10 Aug 10 7 months 10 7 months 09 % change 10/09REBAR IMPORT 2106 2021 1960 1584 n/a 12564 16703 -25%by countryAlgeria 208 152 96 188 n/a 1020 1984 -49%UAE 131 177 167 85 n/a 789 1145 -31%Iran 54 139 91 85 53 575 505 14%

Egypt 95 33 74 76 16 567 2305 -75%Iraq 50 69 110 124 50 522 905 -42%Others 1567 1451 1422 1027 n/a 9091 9859 -8%

REBAR EXPORT 2097 1970 1958 1620 n/a 12782 17121 -25%by countryTurkey 412 563 646 558 n/a 3507 6039 -42%Ukraine 219 221 158 223 179 1452 1298 12%Spain 157 119 152 144 n/a 889 1404 -37%Germany 149 92 122 30 n/a 708 749 -5%Russia 124 72 61 72 61 577 748 -23%Others 1037 903 818 593 n/a 5649 6882 -18%

WIRE ROD IMPORT 1654 1869 1801 1001 n/a 10561 7970 33%by countryUSA 117 137 117 131 n/a 861 317 3 times

South Korea 149 122 154 106 100 827 301 3 timesGermany 108 128 103 6 n/a 601 551 9%Netherlands 138 150 50 0 n/a 588 523 12%Italy 63 97 97 17 n/a 504 421 20%Thailand 40 73 66 84 37 421 146 3 timesOthers 1039 1162 1213 658 n/a 6759 5712 18%

WIRE ROD EXPORT 1681 1825 1791 1071 n/a 10602 8047 32%by countryChina 181 309 361 228 139 1487 431 3 timesUkraine 170 187 120 89 156 1023 734 39%Germany 182 176 156 49 n/a 952 809 18%Japan 120 109 126 105 112 808 375 2 timesTurkey 92 141 126 97 n/a 662 495 34%Others 936 903 903 503 n/a 5670 5202 9%

OTHER BARS IMPORT 1529 1634 1615 1054 n/a 9824 6884 43%

by countryGermany 198 245 220 54 n/a 1234 983 26%South Korea 96 104 80 120 61 656 241 3 timesUSA 87 98 82 86 n/a 576 421 37%France 78 87 94 79 n/a 563 387 45%Italy 69 75 77 23 n/a 431 314 37%Others 1000 1025 1062 692 n/a 6364 4537 40%

OTHER BARS EXPORT 1585 1613 1807 1145 n/a 10395 6648 56%by countryChina 226 265 354 282 206 1631 436 4 timesItaly 142 148 147 39 n/a 890 768 16%Japan 122 121 120 117 108 799 324 2 timesGermany 112 131 140 37 n/a 762 502 52%Russia 105 79 120 85 84 720 525 37%Others 878 869 925 585 n/a 5592 4092 37%

SECTIONS IMPORT 1871 1972 1823 1047 n/a 11512 8653 33%by countryIran 123 350 207 69 56 1186 564 2 timesSouth Korea 162 112 84 74 63 841 439 91%Germany 79 137 83 1 n/a 542 550 -1%Canada 88 64 81 80 n/a 481 387 24%France 60 70 77 55 n/a 477 443 8%Others 1360 1239 1291 768 n/a 7986 6270 27%

SECTIONS EXPORT 1786 1736 1762 1037 n/a 11222 8406 33%by countryChina 240 229 269 163 61 1502 500 3 timesSpain 182 208 210 115 n/a 1246 807 54%Turkey 137 131 150 111 n/a 941 889 6%South Korea 186 142 135 110 132 941 908 4%Germany 150 135 125 26 n/a 798 592 35%

Others 892 892 874 512 n/a 5794 4710 23%Source: ISSB, customs statistics; Metal Expert estimation (in 000 tonnes)

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Billet price forecast

Billet



Short-term outlook:- Moderate demand recovery in the global markets is possible in end November-December, prior to New Year

and Christmas holidays; significant growth of demand is expected no earlier than February-March 2011- The fall of prices and profitability of the steel products manufacturers will cause the decrease in

capacities utilization in November-December 2010, which will entail the reduction of semis consumption- High production cost prevents billet price from substantial falling- Competition remains high in the global billet markets, putting downward pressure on prices- Square billet supply may become excessive by the end of this year

Back to top

Scenario No.2:probability 40%Long-term outlook: due to the downsizing of the government reflation programmes in China, thecountry s domestic market faces oversupply urging a rise in exports. Demand from end consumers strengthensat a slow pace in other global markets in 2010 and 2011 due to curtailment of state backing. Prices forsteel products and raw materials decrease worldwide, market faces ups and downs because of thedemand/supply imbalance.

S C E NARIO No.1 Ukrainian billet priceforecast, fob

546

557

515

510

530

560

100

200

300

400

500600

700

Aug.1

0

Sep.1

0

Oc

t.10

Nov.1

0

Dec.1

0

Jan.1

1

Fe

b.1

1

Mar.

11

Apr.

11

$/t


S C E NARIO No.1 Iranian billet price foreca s t,c&f Anza li

609

639

595

575

590

620

100

200

300

400

500

600

700

Aug.1

0

Sep.1

0

Oc

t.10

Nov.1

0

Dec.1

0

Jan.1

1

Fe

b.1

1

Mar.

11

Apr.

11

$/t



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9,9

10

10,1

10,2

10,3

10,4

10,5

10,6

J an 10 Apr 10 J ul 10 Oct 10

US D /IR R e xchange rate


World billet prices

Sep.10 Oct.10

IMPORT PRICES (c&f)

SEA 588 574

Iran 639 600

USA 558 568


average monthly prices

Billet price unlikely to rise before December

Since late September, billet prices have been going down in the world market.In mid-October, CIS billet was priced at $530-535/t FOB Black Sea, thoughcontracts were signed at $510-515/t, down $50/t m-o-m. Turkish exporters havereduced the prices by $45/t to $530/t FOB. Import price for square billet in Iran

has decreased by $65/t to $580/t C&F Anzali.

Unfavourable situation in finished product segment is having an adverseeffect upon the market for square billet. Weak demand for long products in theMiddle East and North Africa has caused a considerable drop in steel productprices in Saudi Arabia, the UAE and Egypt in October (down $30/t ). Septembersboom in Iranian long product market has been replaced by the reduction indemand and prices related to a sharp decrease in rial exchange rate againstthe US dollar (down 6% since early September). Besides, the UAE, which usedto open letters of credit necessary for Irans steel product imports, has suppor tedthe international sanctions imposed by the United Nations. The situation in the

Southeast Asia is somewhat better, demand being very unstable, though. Someupturn has been observed in Taiwan and Singapore, but sufficient stock volumesand weak construction sector will depress demand in October-November.

According to Metal Expert, the global market will be experiencing a downturnin demand and prices till end-November-December. Some increase is possiblein late Q4, when producers try to raise prices. A significant growth in demandis not expected before end-February-March.

Square billet demand is weak worldwide. Most trading companies in theMiddle East already built up their stocks in August-September, so they are notinterested in import semis now. Besides, a billet price is unreasonably high

comparing with a finished product one, despite the discounts allowed: thedifference between rebar and square billet price amounted to $60/t in mid-October, against $85-90/t in June-July. Slack demand for import square billetsin Turkey is attributed to the decreases in steel product markets and moreattractive prices for steel scrap. In October, the difference between rebar andbillet price in Turkey is $45/t (against minimally acceptable $60/t), while themargin steel scrap - rebar amounted to $200/t (minimum $180/t). In SouthKorea, as well as in some other countries of the region, weak demand forimport semis is explained by sufficient stocks, while in other countries of Southeast

Asia the price for square billet is high: the difference between rebar andsquare billet price in Taiwan is about $25/t. The difference in Philippines and

Thailand is at the minimum acceptable level of some $60-65/t. According toMetal Expert, square billet demand in main consuming regions will remainweak. Some upturn is expected in December-January. Demand and prices inthe world market of semi-products will start growing in mid-Q1.

High production cost will restrain the reduction of billet prices.In September-October, CIS square billet production cost grew by $25-30/t m-o-m, whichresulted in decrease in expor ters average margin to $80/t. The 2-10% increasein CIS iron ore and coke prices expected in Q1 2011 will result in a growth ofproduction cost and underpin export quotations of square billets. In Turkey,prices for HMS 1&2 (80:20) from the USA and the EU dropped by $20-25/t inOctober; however, already in November-December, Turkish consumers may resumethe material purchases, which will promote scrap prices. According to Metal

Iran: decrease in rial exchangerate against dollar will make

square billet importsunprofitable

Billet Analysis

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BilletAnalysis

Back to top

Expert, square billet production cost in Turkey will grow by 17% in Q1 2011owing to a $80/t increase in scrap quotations, in particular.

The global market for square billets may see some excess of supply tillthe end of the year. In September, square billet exports from CIS amounted to1mt , up 12% m-o-m, capacity utilization making about 70%. Meanwhile,

Turkish suppliers boosted shipments by 10%. The market will get oversaturatedif demand for square billets stays weak in November-December. In January-March, supply will reduce and underpin demand, so the market may evenface some shortage.

A drop in demand for semis will also be determined by an increase inproduction in importing countries.In Q1 2011, producers of the Middle Eastplan to put into operation some steelmaking plants having total capacity of5.6 mtpy (Khorasan Steel 1.2 mtpy, Khouzestan Steel 2.8 mt). YolbulanBastug Metalurji, one of the Turkeys largest billet producers, keeps boostingthe output: 120,000 t planned to be produced in October (3-fold increase

since the plant was launched in June 2010), which makes 55% of an averagemonthly square billet imports in Turkey in 2010.

According to Metal Expert, square billet price will be down worldwide inlate October-early November. Some upturn in business activity is expectedin December and the second half of January. A significant increase indemand and prices is possible in late February-March.

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Billet


Far East import c&f from CIS 472 524 543 582 588 580



Turkey export fob 432 483 500 557 574 548

Russia export fob Far East 448 497 516 554 561 553

Russia export fob Black Sea 407 453 486 545 557 523

Ukraine export fob Black Sea 406 453 483 546 557 523

Brazil export fob 438 550 528 506 532 545

China export fob 581 663 646 685 713 710


Italy domestic exw 464 518 528 539 572 598



Billet spot prices in major world marketsPRICES

Global square billet trade structureTRADEApr 10 May 10 Jun 10 Jul 10 Aug 10 7 months 10 7 months 09 % change 10/09

IMPORT 2842 2716 2785 2102 n/a 19339 18807 3%

by country

Iran 261 370 471 288 136 3208 2676 20%

Turkey 199 273 187 259 n/a 1536 2350 -35%

Vietnam 188 150 120 60 196 993 1200 -17%

Taiwan 105 112 94 71 n/a 858 538 60%

Egypt 169 111 81 109 52 826 920 -10%

South Korea 119 62 130 161 141 750 495 51%

Saudi Arabia 141 116 115 167 15 742 210 4 times

Lebanon 92 125 137 154 96 699 809 -14%

Philippines 86 84 120 23 122 687 317 2 timesOthers 1484 1314 1330 810 n/a 9041 9292 -3%

EXPORT 2928 2776 2574 2030 n/a 18067 17703 2%

by country

Russia 606 599 526 369 521 4423 4736 -7%

Ukraine 533 559 523 534 450 3567 4741 -25%

Turkey 395 229 274 257 n/a 2015 980 2 times

France 150 152 152 130 n/a 978 987 -1%

Japan 93 122 95 122 108 832 790 5%

Brazil 134 83 92 86 81 622 638 -3%

Germany 86 88 89 3 n/a 478 362 32%

Others 931 944 823 529 n/a 5154 4469 15%

Source: ISSB, customs statistics; Metal Expert estimation (in 000 tonnes)

Back to top

Statistics

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Flat productsFlat products price forecast



Short-term outlook:- Moderate demand recovery in the global markets is possible in end November-December, prior to New Year

and Christmas holidays; significant growth of demand is expected no earlier than February-March 2011- Cancellation of the VAT rebate on Chinese HRC export restrains supply of Chinese non-alloyedproducts on the global markets

- Competition remains high in the global flat products markets, putting downward pressure on prices- Decrease of iron ore prices under the long-term contracts in Q4 allows steelmakers to decrease their

production costs; in Q1 2011 iron ore prices will grow again

Back to top

Scenario No.2: probability 40%Long-term outlook: due to the downsizing of the government reflation programmes in China, thecountrys domestic market faces oversupply urging a rise in exports. Demand from end consumersstrengthens at a slow pace in other global markets in 2010 and 2011 due to curtailment of statebacking. Prices for steel products and raw materials decrease worldwide, market faces ups and downsbecause of the demand/supply imbalance.

S C E NARIO No.1 R uss ian hot-rolled coilsexport price forecas t, fob

598

623

600

575

600

615

0

200

400

600

800

Aug.1

0

Sep.1

0

Oc

t.10

Nov.1

0

Dec.1

0

Jan.1

1

Fe

b.1

1

Mar.

11

Apr.

11

$/t


S C E NARIO No.1 Chine se hot-rolled coi lsexport price forecas t, fob

604

612

608

600

615

640

0

200

400

600

800

Aug.1

0

Sep.1

0

Oc

t.10

Nov.1

0

Dec.1

0

Jan.1

1

Fe

b.1

1

Mar.

11

Apr.

11

$/t

foreca s t in report of August 10


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99

100

101

102

103

Aug.09 Nov.09 Feb.10 M ay.10 Aug.10

Italy Korea

Turkey China


0

5

10

15

20

25

SouthKorea

Italy Turkey Iran

mt

H1 2009 H1 2010


+43%

+63%

+145%

+127%

World HRC prices

Sep.10 Oct.10

EXPORT PRICES (fob)

Russia (fob Black Sea) 623 620

China 625 633

DOMESTIC PRICES (exw)

Turkey 648 638

Italy 678 713

IMPORT PRICES (c&f)

SEA import from CIS 672 661

Italy 664 670


prices

Demand for flat products will be low in Q4

This month, the largest suppliers have begun to reduce prices on weak demand.So, prices for HRC of Russias MMK have gone down by $20-35/t to $590-610/t FOBBlack Sea. Chinese HRC SS 400 and SAE 1006 are priced at $600-610 /t and$625-645/t FOB, respectively, down $5-15/t m-o-m.

In H2 compared to H1, major importing countries will reduce flatsconsumption, so demand will weaken as well. Meanwhile, South Korea, thelargest flats importer, has increased consumption considerably this year. In H1,the countrys apparent consumption of flats (mostly sheet) grew by 43% y-o-y.Considering GDP forecast for 2010 and current macroeconomic situation, SouthKoreas flats consumption will drop by 15-20% in H2. Meanwhile, Europes GDPgrew just by 0.6% y-o-y in Q1 and by 1.7% in Q2. Due to curtailing ofgovernmental support programmes, steel consuming industries keep reducingproduction this year. In Iran, apparent consumption of HR flats increased to 6.5 mtin H1, the share of imports grew from 34% to 54%. According to Metal Experts

estimates, the share of imports in Iranian flats consumption will drop further in H2due to toughening of sanctions imposed by UN against the country. Turkey, onthe contrary, more than doubled consumption of flats in H1 thanks to favourableeconomic situation (GDP increased by 11.7% y-o-y in Q1 and by 10.3% in Q2).However, judging by the decrease in leading indicators, in H2 flats consumptionis expected to be lower than in the first six months of the year.

Chinas steel product consumption is growing quickly along with the nationaleconomy. According to IMF, the countrys GDP will rise by about 10% this year.Thanks to the growth in carmaking and construction industries, in H1 theestimated consumption of HR sheet increased by 30% in China, of plate and

CR flats - by 20% and 41%, respectively. Meanwhile, to avoid economyoverheating, the Chinese authorities toughen the crediting policy. As a result,steel product consumption is likely to reduce in H2. However, the countryseconomic growth will slow down gradually, so steel product consumptionwill stay rather high, according to Metal Experts estimates.

In Q4, a weak demand for flats will push prices down. A slack demandand cheap imports ruined plans of European producers to raise domesticprices when vacations season ended. This year, Turkey increased consumptionof flat products. In November, however, flats purchases will be scarce becauseof decreasing product prices and low exports of Turkish welded pipes. In

December, prices will get bottom-low and purchases are expected to resume. InAsia-Pacific, demand for flat products is weak, and consumers have no need inreplenishing stocks. Despite this, South Korean producers have decided tokeep prices at September level while granting some discounts. Contrary to theworld trend, Chinese steelmakers are planning to raise domestic prices. Theirplans can be hindered by high stocks and adverse conditions in exportmarkets. According to Metal Experts estimates, demand for HR products fromthe main importers will be low in November. In December, sales will get slightlyimprove in the EU and the USA, as consumers will build stocks before Christmasholidays. In January, some revival will be registered in Southeast Asia. Asteady growth of consumer activity in world markets is expected to start in mid-Q1, at the earliest.

In H1, apparent consumption

of flats increased in largestimporting countries

OECDs leading indicatorsdecrease predicts the economy

slowdown in H2

Flat products Analysis

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Flat productsAnalysis

Back to top

During the next six months,the leading world suppliers of flats will face thegrowth of production costs, which willrestrainthe decrease in prices. In Q4,iron ore and coking coal prices will go up $3-8/t in CIS. In early 2011, thegrowth is likely to continue. The Far Eastern steelmakers will also have theirproduction costs increased. Having been lowered to $127-135/t C&F China,contract prices for iron ore (October-December delivery) are yet 2-2.5 times as

high as in 2009, while HR flats prices grew only by 15%-25% during the year.By Metal Experts estimates, iron ore prices will go up 5-12% worldwide in Q1.

In general, supply and demand are currently balanced in the globalmarket for flat products. This year, producers respond quickly to market changesby cutting production to avoid the problems they had in 2009. Starting frommid-Q2, mills have been decreasing utilization of production capacities ondemand decline. As a result, the global flats output dropped 8% in July fromMay. According to Metal Experts estimates, in H2 production of flats will belower than in the first six month of the year.

In Q4, demand from the main importers of HR flats will stay weak, soprices will keep decreasing. Some improvement is expected in December,while a stronger growth of demand and prices is likely to start in mid-Q1.

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Flat products prices forecast in major world marketsPRICES

Aug.10 Sep.10 Oct.10 Nov.10 Dec.10 Jan.11 Feb.11 Mar.11 Apr.11

HRC

China domestic dd Shanghai (incl. VAT) 639 652 660 658 680 700 690 720 740

China export fob 604 612 608 600 615 640 645 665 690

Russia export fob Black Sea 598 623 600 575 600 615 640 655 685

Ukraine export fob Black Sea 571 593 580 550 570 595 610 630 655USA import c&f US Gulf 634 655 645 600 630 650 675 690 720

USA domestic e xw 650 649 620 610 640 670 690 720 730

Italy domestic e xw 665 678 695 670 675 690 710 740 750

Italy import c&f 645 664 655 635 660 670 690 720 730

Turkey import from Russia c&f 603 639 620 595 615 630 660 675 700

Turkey import from Ukraine c&f 589 617 600 570 590 615 630 655 675

Iran import c&f Anzali 609 658 640 600 615 635 655 685 710

Iran domestic e xw 591 607 630 610 620 630 640 655 700

monthly average prices, $/t


Flat products spot prices in major world markets


HRC

China domestic dd Shanghai (incl. VAT) 525 637 625 639 652 651

China export fob 471 608 617 643 625 633

Far East import from CIS c&f 537 600 610 642 672 661

Russia domestic e xw 530 644 612 606 595 602


Ukraine domestic e xw 484 641 610 567 586 594


USA domestic exw 630 728 665 650 649 638



Italy import c&f 552 623 633 645 664 670

Poland domestic exw 624 741 715 719 750 779

Poland import daf 565 647 676 658 680 724

EU export fob 572 710 669 665 674 700

Turkey domestic e xw 623 645 617 645 648 638

Turkey import from Russia c&f 558 636 606 603 639 648

Iran domestic exw 584 598 593 591 607 630



Japan domestic dd 697 818 823 830 843 820

Japan export fob 560 760 720 670 675 680

CRC

China domestic dd Shanghai 637 746 688 703 699 700

(export equivalent)

China export fob 598 726 685 728 720 725Far East import from CIS c&f 600 713 699 740 771 768



USA domestic exw 732 829 775 755 751 735



Italy import c&f 680 731 748 751 792 824

Poland domestic exw 698 842 809 806 831 882

Poland import daf 668 748 750 756 784 832

Turkey domestic e xw 720 731 705 743 765 780

Turkey import from Russia c&f 652 749 716 747 755 758

Iran domestic exw 693 789 783 765 799 805

Iran import c&f Anzali 630 710 716 761 769 768Source: Metal Expert, $/t, average monthly prices


Flat products Statistics

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Flat productsFlat productsStatistics

Global flat products trade structureTRADE

Apr.10 May.10 Jun.10 Jul .10 Aug.10 7 months 10 7 months 09 % change 10/09HR SHEET 10 mm EXPORT 2264 2354 2472 1694 n/a 14690 11815 24%by countryChina 520 575 645 502 222 3295 1571 2 times.Japan 272 289 348 325 329 2289 1887 21%South Korea 236 220 189 163 144 1325 1165 14%Ukraine 168 151 155 97 103 1050 840 25%Germany 218 156 165 70 n/a 1001 880 14%Others 850 963 969 537 n/a 5730 5473 5%

CR UNCOATED PRODUCTS IMPORT 3352 3429 3528 2117 n/a 21783 16662 31%by country

China 475 435 437 439 397 3045 2878 6%Germany 216 201 191 15 n/a 1161 950 22%Italy 161 169 200 54 n/a 1023 861 19%France 119 126 144 120 n/a 888 685 30%India 137 137 133 112 111 821 579 42%Others 2244 2360 2424 1376 n/a 14845 10709 39%

CR UNCOATED PRODUCTS EXPORT 3408 3488 3602 2433 n/a 22483 17214 31%by countryJapan 514 495 518 489 471 3481 1954 78%South Korea 353 351 349 397 396 2525 2453 3%China 238 321 504 384 306 1977 363 5 times.Germany 260 246 235 54 n/a 1450 997 46%Taiwan 210 240 182 176 n/a 1448 1229 18%Others 1834 1834 1814 934 n/a 11602 10219 14%

COATED FLAT PRODUCTS IMPORT 4661 4770 5147 2913 n/a 30471 21876 39%by countryChina 431 393 422 403 410 2794 1793 56%Germany 371 380 421 5 n/a 2214 1967 13%France 226 207 246 185 n/a 1585 1190 33%USA 209 237 235 207 n/a 1435 1031 39%Thailand 174 187 194 195 266 1242 513 2 times.Others 3249 3366 3629 1918 n/a 21200 15382 38%

COATED FLAT PRODUCTS EXPORT 4690 4763 5166 3150 n/a 30637 21680 41%by countryChina 721 782 981 854 664 4720 1404 3 times.Japan 595 575 605 594 616 4042 2078 94%South Korea 452 421 416 425 397 3008 2303 31%Germany 403 392 423 80 n/a 2509 2063 22%Belgium 424 413 487 65 n/a 2508 2330 8%Others 2095 2180 2255 1132 n/a 13849 11502 20%

Source: ISSB, customs statistics, Metal Expert estimation ( in 000 tonnes)

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SlabsSlab price forecast


yuan stimulate economic recovery in the countries supplying raw materials and finished products to theChinese market. Demand from end consumers grows just slowly in other regions in 2010 and 2011 dueto curtailment of state backing; business activity hikes in global markets mainly when traders replenishstocks. Steelmakers have to cut production when demand drops as profit margins narrow and the risk ofglut is high. The cost of steel production remains high or grows further in 2010 and 2011 owing toconsolidation of supply in raw material markets. The volatility of finished steel product prices increasesbecause prices under long-term contracts for iron ore and coke are revised quarterly now and speculativeactivities intensify in raw materials and steel product markets.

Short-term outlook:- Moderate demand recovery in the global markets is possible in end November-December, prior to

New Year and Christmas holidays; significant growth of demand is expected no earlier than February-March 2011

- During Q4 slabs demand decrease weighted down by flat products market slump- In H2 slabs demand from China will remain low due to the decrease of production costs in the

domestic market- Decrease of iron ore prices under the long-term contracts in Q4 allows steelmakers to decrease their

production costs; in Q1 2011 iron ore prices will grow again

Back to top

Scenario No.2: probability 40%Long-term outlook: due to the downsizing of the government reflation programmes in China, thecountrys domestic market faces oversupply urging a rise in exports. Demand from end consumersstrengthens at a slow pace in other global markets in 2010 and 2011 due to curtailment of state backing.Prices for steel products and raw materials decrease worldwide, market faces ups and downs because ofthe demand/supply imbalance.

S CE NAR IO No.1 E U slabs price forec ast, c&f

544

575

565

545

555

565

0

100

200

300

400

500

600700

Aug.1

0

Sep.1

0

Oc

t.10

Nov.1

0

Dec.1

0

Jan.1

1

Fe

b.1

1

Mar.

11

Apr.

11

$/t

forecas t in report of August 10

S CE NAR IO No.1 S E A slabs price forec as t,c&f

560

561 5

80

560

560

580

0

100

200

300

400

500

600700

Aug.1

0

Sep.1

0

Oc

t.10

Nov.1

0

Dec.1

0

Jan.1

1

Fe

b.1

1

Mar.

11

Apr.

11

$/t

foreca st i n report of August


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Difference between HRC and slabs prices inregions

-200

-100

0

100

200

300

Jan.10 Apr.10 Jul.10 Oct.10

$/t

China SEA USA


0

200

40 0

60 0

80 0

1000

1200

1400

Jan.10 Mar.10 May.10 Jul.10

'000tonnes

fla ts products slabs impor t

Source: Metal Ex pert

SlabsAnalysis

Back to top

Sep.10 Oct.10

IMPORT PRICES (c&f)

SEA 561 561

Iran 549 555USA (US Gulf) 583 583

EU 575 580


prices

World slab prices

Slab demand to weaken in Q4

In October, slab offers from CIS to SE Asia remain at $580-600/t C&F. Meanwhile, dueto weak demand, the latest deals have been made at $570-580/t C&F SE Asia.

The slowdown of finished flats market restrains the growth of slab prices .

This month, Chinese and Russian exporters have cut HR sheet prices by $5-15/tand $20-35/t, respectively. Apart from a decrease in import quotations, SE Asianmarkets face a decline of domestic prices. In South Korea, for instance, suppliersoffer substantial cuts in actual deals even though the general price level is stillthe same as in September. In the USA, due to weak demand for flats and thedecrease in scrap quotations, suppliers have been forced to reduce HRC pricesby $40/t to $610/t EXW. In Europe, domestic prices for flats have dropped bysome EUR 20/t. Metal Expert believes flats quotations will keep going down inNovember. The global market is likely to see some revival of demand in December-January urged mostly by the need to restock. Meanwhile, end consumer demandwill hardly grow earlier than mid-Q1.

In October, demand for import slabs stays low in SE Asia because ofsufficient inventories of feedstock and weak demand for finished flats. Slabimports get less attractive in the region as the difference between prices forHRC and slabs supplied from CIS has narrowed from $80-100/t in September to$35-45/t this month. In the USA, this difference has reduced from $65-70/t to$45-50/t. Europe shows little demand for slabs as well, the drop of finished flatsproduction being among the reasons behind that. For instance, Italy, the largestslab importer in the region, cut flats production by 30% in Q3. The country isunlikely to increase flat product output much this year because demand staysweak. According to Metal Experts estimates, slab demand will remain low in a

short-term outlook to start improving no sooner than the end of Q4.

Slab prices will be supported by the growth of production costs. In Q4,CIS slab production costs will increase due to the 5-8% rise in iron ore pricesand the 3-4% increase in coke and coking coal prices. At the beginning of2011, domestic prices for raw materials will keep growing in CIS because ofsteady demand in China and somewhat limited supply. Brazil is also expectedto see the rise in iron ore quotations as Vale will step up export prices.

Slab quotations are likely to decline soon due to weak demand and lowprices for finished flats, Metal Expert believes. The growth of prices will

resume not earlier than December.

Slab demand is weak in Italybecause of reduced output

of finished flat products

Demand for import slabs gets

weaker in major markets

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Far East import c&f from CIS 473 533 533 560 561 561



EU import c&f 421 510 521 544 575 580

Brazil export fob 433 585 563 529 553 553

Russia export fob Far East 448 505 505 524 556 560





Slab spot prices in major world marketsPRICES

Global slab trade structureTRADE

Apr.10 May.10 Jun.10 Jul.10 Aug.10 7 months 10 7 months 09 % change 10/09

IMPORT 2220 2388 2290 1972 n/a 15689 11314 39%

by countrySouth Korea 276 338 376 337 358 2666 1960 36%

USA 303 410 361 503 n/a 2469 462 5 times.

Taiwan 342 320 268 194 n/a 1978 1475 34%

Thailand 273 234 233 298 98 1703 873 95%

Italy 284 289 224 230 n/a 1599 827 93%

Others 741 798 828 410 n/a 5274 5717 -8%

EXPORT 2290 2301 2925 2025 n/a 16245 11472 42%

by country

Russia 571 655 1005 596 637 4793 3026 58%

Ukraine 530 540 595 576 271 3443 2047 68%

Brazil 346 249 471 296 253 2212 1605 38%

Japan 267 216 364 210 398 1999 2129 -6%

Canada 93 127 107 164 n/a 902 14 65 times.

Others 483 515 382 182 n/a 2897 2651 9%

Source: ISSB, customs statistics, Metal Expert estimation ( in 000 tonnes)

Slabs Analysis

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Ferrous scrap





- The fall of prices and profitability of the steel products manufacturers will cause the decrease incapacities utilization in November-December 2010, which will entail the reduction of scrap consumption

- In Q4 demand increase from China may urge the scrap price growth in the global market- In end-October-January 2010 scrap supply remains low

Scrap price forecast

Back to top


SCENARIO No.1 Price forecast for US

HMS1&2 scrap imports to Turkish market, c&f

400

430

380

375

400

397

0

100

200

300

400

500

Aug.1

0

Sep.1

0

Oct.10

Nov.1

0

Dec.1

0

Jan.1

1

Feb.1

1

Mar.11

Apr.11

$/t

forecast in report of August 10

SCENARIO No.1 Price forecast for Japanese

HMS2 scrap imports to South Korean market,

c&f

385

385

388

376

420

445

0

100

200

300

400

500

Aug.1

0

Sep.1

0

Oct.10

Nov.1

0

Dec.1

0

Jan.1

1

Feb.1

1

Mar.11

Apr.11

$/t



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0

5

10

15

20

25

30

2006 2007 2008 2009 2010*

mt

EAF steel production

Scrap imp ort

Source: Metal E xpert*estimation

0

200

400

600

800

1000

Oct 09 F eb 10 J un 10 Oct 10

'000t

-40

-20

0

20

40

60

80

100

$/t

Scrap importDifference between import and domes tic prices


Sep.10 Oct.10

IMPORT PRICES (c&f)

Turkey 400 390

Europe ( Italy*, Spain) 392 388SEA (South Korea,

import from USA) 410 393


prices

* - cpt

Global scrap prices

Back to top

Ferrous scrap Analysis

Scrap prices likely to go up in December

In October, scrap prices have been decreasing worldwide. In the middle of themonth, HMS1&2 (80:20) scrap originating from EU and the USA was quoted toTurkish customers at $370-380/t C&F against $395-400/t C&F in September. Inthe Far East, the US material of HMS1 grade is available at $385/t C&F, down

$30/t from the previous month. Japanese HMS2 has fallen in price by $25/t to$360/t C&F over the same period.

The decline in demand and prices seen in the finished steel product segmentadversely affects scrap market. Amid sluggish demand for construction steel fromMiddle Eastern consumers, Turkish exporters were forced to cut quotations by $35/t fromSeptember, to $575/t FOB. In Southeast Asia, low construction activity and heavy steelstocks resulted in a $10-15/t reduction of longs prices in October. In China, thegovernment measures aimed at curtailment of excessive capacities keep depressingsteel production. Meanwhile, finished product inventories are still high in the country(in September, they shrank just by 2%), which will restrain the further growth of

domestic steel product quotations and, accordingly, push down scrap demand. Untilthe end of 2010, global steel product demand will remain weak, Metal Expertbelieves. In November-December, some temporary upswing in traders activity may beobserved in the market, yet end-consumer demand may go steadily up ahead of thenew fiscal year and construction season, i.e. in February-March.

Scrap demand is not expected to surge until January-February . In early Q4,the necessity for stock replenishment prompted Turkish scrap consumers to resumepurchases. Despite the decline in finished steel product prices, demand for importscrap was strong as compared to semis the difference between rebar andscrap quotations is $200/t in October ($205/t in the previous month), while the

gap between steel product and billet prices was $45/t. In November-December,scrap demand is unlikely to improve notably in Turkey. The material will bepurchased just occasionally and mainly for immediate needs. In Southeast Asia,the landslide of scrap prices has made scrap more attractive to buyers inOctober, the spread between rebar and scrap quotations increased by $65/t to$250/t. Nevertheless, scrap demand is slack in the region due to the fall in steelproduct demand and prices. In China, scrap demand is still weak, althoughimport material has become more attractive owing to the decrease in prices inthe global market. In October, prices for import scrap were just $15/t higher thandomestic ones (in September, the difference was $35/t).

In late Q4-early Q1,it will be tight supply that will support scrap prices.Even though scrap quotations have lowered in the home markets of the largestexporters (in October, domestic prices lost $25/t in the USA and Japan), untilthe year end supply from these countries will remain moderate in the globalmarket due to low levels of industrial production and, consequently, scrapgeneration. In winter, CIS scrap will be in short supply because of bad weatherhampering scrap collection.

In November, scrap demand and prices will be moving down, Metal Expertforecasts. Limited supply, however, will curb the price drop to pushquotations up in December-February. In March-April, stronger demand forsteel products will buoy the upward price trend in the global scrap market.

China: domestic scrap is stillmore price-competitive than

import material

South Korea: slow recoveryof steel industry keeps scrap

imports down

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Ferrous scrapStatistics

Oct.09 Jun.10 Jul.10 Aug.10 Sep.1 0 Oct.10*

Turkey import c&f 280 323 346 397 400 390

Europe (Italy**, Spain) import c&f 280 369 352 370 392 388

Italy domestic market cpt, VAT included 267 378 367 376 392 375

Europe (Rotterdam) export fob Rotterdam 259 287 315 364 369 350

USA export fob East coast 249 284 306 360 364 353

Russia (European part) domestic market cpt, VAT excluded 245 250 260 291 298 300

Russia export fob Black/Baltic Sea 254 305 305 343 361 361

SEA (South Korea, import from USA) import c&f 330 382 366 395 410 393

SEA (South Korea, import from Japan) import c&f 297 349 346 385 388 382

China domestic market dd Jiangsu, VAT included 369 439 438 447 457 460

Japan export fob 277 327 318 362 365 359

USA export fob West oast 280 324 323 363 371 363



** - cpt

Steel scrap spot prices in world major marketsPRICES

Global freight rates at steel scrap shipments

Vessel t ype Loading por t Count ry D ischarging port Count ry Apr.10 May.10 Jun.10 Jul .10 Aug.10Sep .10 Oct.10

Handysize St. Petersburg Russia Iskenderun Turkey 29 33 34 46 45 46 47

Sea-river Rostov-on-Don Russia ports of Marmara Sea Turkey 31 32 32 25 28 15 15

Sea-river St. Petersburg Russia North ports Spain 34 34 32 35 35 33 38

Sea-river Nakhodka Russia Pusan South Korea 26 38 27 27 27 28 28


Back to top

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TRADE Global steel scrap market structure


EXPORT 9932 9571 8413 5633 n/a 57094 55074 4%

by country

USA 1729 1967 1708 1651 n/a 11312 12929 -13%

Japan 694 446 420 446 479 3950 6416 -38%

Russia 377 422 446 285 472 2055 1828 12%

France 618 495 610 539 n/a 3895 2819 38%

Great Britain 769 600 479 312 n/a 4264 3048 40%

Canada 986 523 336 247 n/a 2914 3081 -5%

Hong Kong 110 87 67 117 75 621 655 -5%

Belgium 359 252 283 183 n/a 1975 1931 2%

Romania 240 275 271 178 n/a 1414 1473 -4%

Germany 790 870 863 153 n/a 4755 4015 18%

Czech Republic 179 185 173 144 n/a 1051 844 25%

Netherlands 489 366 374 115 n/a 2767 2237 24%

Kazakhstan 126 129 104 68 45 550 460 20%

Ukraine 124 114 65 33 69 430 353 22%

Thailand 47 50 47 48 53 344 172 100%Switzerland 59 43 43 50 45 345 340 1%

Others 2235 2746 2125 1066 n/a 14452 12472 16%

IMPORT 9932 9571 8413 5633 n/a 57094 55074 4%

by country

Turkey 1455 2140 1409 1248 n/a 10035 8339 20%

China 558 360 323 506 531 3563 8872 -60%

South Korea 894 767 727 566 437 5096 4238 20%

Taiwan 394 444 406 467 n/a 2893 1850 56%

Canada 230 266 168 290 n/a 1567 757 2 times

USA 538 304 246 258 n/a 2368 1570 51%

India 295 186 178 213 15 1861 3481 -47%

Vietnam 235 153 117 200 20 962 1155 -17%

Thailand 163 50 96 109 72 781 608 28%

Pakistan 93 51 84 151 9 526 1470 -64%

France 211 210 238 150 n/a 1301 1449 -10%

Japan 52 57 53 85 40 307 62 5 times

Belarus 165 191 152 116 n/a 835 720 16%

Egypt 216 390 289 68 n/a 1575 690 2 times

Hong Kong 33 28 29 30 30 207 219 -5%

Germany 540 539 528 44 n/a 2679 2285 17%

Brazil 4 4 4 5 35 85 13 7 times

Italy 301 487 560 40 n/a 2127 2193 -3%

Others 3556 2945 2805 1086 n/a 18326 15103 21%

Sources: Metbl Expert, ISSB (in 000 tonnes)Back to top

Ferrous scrap Statistics

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Ferrous scrap StatisticsPig iron

Scenario No.1: probability 60%Long-term outlook: the demand stimulation programme provides the Chinese domestic market with thesupport enough to keep up consumption at current level. Chinas high consumption and strengtheningyuan stimulate economic recovery in the countries supplying raw materials and finished products to theChinese market. Demand from end consumers grows just slowly in other regions in 2010 and 2011 due tocurtailment of state backing; business activity hikes in global markets mainly when traders replenishstocks. Steelmakers have to cut production when demand drops as profit margins narrow and the risk ofglut is high. The cost of steel production remains high or grows further in 2010 and 2011 owing toconsolidation of supply in raw material markets. The volatility of finished steel product prices increasesbecause prices under long-term contracts for iron ore and coke are revised quarterly now and speculativeactivities intensify in raw materials and steel product markets.



- The fall of prices and profitability of the steel products manufacturers will cause the decrease incapacities utilization in November-December 2010, which will entail the reduction of demand in thespot markets for raw materials

- Pig iron demand remains low until December 2010, not allowing suppliers to push prices up- In Q4 the risk is high that the merchant pig iron supply will become excessive- High production cost promotes pig iron prices

Pig iron price forecast

Back to top

Scenario No.2:probability 40%Long-term outlook: due to the downsizing of the government reflation programmes in China, thecountrys domestic market faces oversupply urging a rise in exports. Demand from end consumersstrengthens at a slow pace in other global markets in 2010 and 2011 due to curtailment of statebacking. Prices for steel products and raw materials decrease worldwide, market faces ups and downs

because of the demand/supply imbalance.

SCENARIO No.1 Price forecast for pig iron

export s from CIS, fob Black Sea

454

465

443

435

450

460

0

100

200

300

400

500

600

Aug.10

Sep.10

Oc

t.10

Nov.10

Dec.10

Jan.11

Fe

b.11

Mar.

11

Apr.

11

$/t


SCENARIO No.1 Price forecast for pig iron

import s to the US market, c&f

456

465

475

440

435

473

0

100

200

300

400

500

600

Aug.10

Sep.10

Oc

t.10

Nov.10

Dec.10

Jan.11

Fe

b.11

Mar.

11

Apr.

11

$/t



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0

0,5

1

1,5

2

2,5

3

3,5

4

J un 09 Oct 09 F eb 10 J un 10

mt

0%

5%

10%

15%

20%

25%Es timated pig iron consumption

Share of import


0

30

60

90

120

150

180

May 10 J un 10 Aug 10 Oct 10

$/t

Difference between pig iron andstee l scrap prices


Global pig iron prices

Sep.10 Oct.10

IMPORT PRICES (c&f)South Korea 485 483

USA 473 448

Europe 473 468


prices

AnalysisPig iron

Pig iron demand to stay slack till steel product

markets improve

By mid-October, prices for Brazilian pig iron have dropped by $45/t since theprevious month, to $390-395/t FOB southern ports and $410-415/t FOB northern

ports. Meanwhile, Russian suppliers have cut offer prices by $30/t to $430/t FOB.

Demand and prices in finished steel product market are falling. In the EU,despite attempts of major flats producers to raise prices, quotations are decliningdue to non-existent demand from consumers (down $20 /t in 4 weeks). Thesituation is similar in the US. According to Metal Experts estimates, traders mayincrease steel product purchases in the US and the EU in end-November -December, ahead of Christmas holidays. In SE Asia, Taiwan and Singapore inparticular, suppliers can hardly keep current price level amid heavy stocks ofsteel products. Activity in the region may increase before Lunar New Yearsholidays. Metal Expert expects steel product market to remain unfavorable till

the end of this year, which will influence demand for pig iron. Exporters willattempt to lift prices for finished steel products in November-December, howevera significant rise in demand and prices can be expected no sooner thanFebruary-March.

Pig iron demand remains sluggish in major consuming regions.Producersof steel products in the EU and the US were not increasing capacity utilizationrates in September-October; besides, rather heavy inventories that consumershave, are also depressing demand. Moreover, steel scrap is growing moreattractive in the US, with its prices sliding down gradually (the price spreadbetween import pig iron prices and domestic scrap prices in the US is $ 110/t).

In the Far East, demand for pig iron is also remaining weak due to better scrapprices the difference between pig iron and scrap prices is some $80-100/t,against $60/t in August. Buying import pig iron is also unprofitable for China -domestic material prices are $80/t below the import ones (including all taxesand delivery). Turkey accounting for 6% of global trade may become analternative market, for CIS suppliers first of all. Import pig iron is growing moreattractive for Turkey: the difference between steel product and pig iron priceshas grown to $190/t by October (from the beginning of the year, the differencewas $170/t on average), whereas the difference between pig iron and scrapprices has dropped from the traditional $100/t to $75-80/t. Metal Expert expectsglobal demand for pig iron will stay slack till the end of this year. However, in

January-March, a hike in steel scrap prices as well as improving markets forsteel products will cause a rise in pig iron demand.

In October traders in EU and Turkey bought significant volumes of pig iron,urged both by hopes for the end-user demand surge and US dollar weakeningto the local currencies. In the second half of November stocks at traderspremises will restrain the possible price growth, and if end-user demandremains low during this period, prices will keep decreasing in the pig ironmarket by end-Q4.

Global market of pig iron will remain oversupplied in late Q4. Despite a

short-time revamp of a blast furnace at Svobodny Sokol, merchant pig ironsupply in CIS will increase due to expanded production at Tulachermet

SE Asia: pig iron prices are lessattractive than scrap ones

USA: increasingly dependenton import pig iron

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Pig iron

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Analysis

October output plan is 180,000 t, up 76% m-o-m. In October-November, exportof merchant pig iron produced by Novolipetsk steel plant in Russia is also setto increase. The company decreased significantly its raw and finished steelproduction volumes due to overhaul works. According to Metal Expert estimations,the excess pig iron production volumes (at least 50,000 tonnes) will be sold tothe export markets. Pig iron capacities in Brazil were operating at 30-35% in

October, since producers have hard time selling their products in both domesticand export markets. Metal Expert believes imbalance between demand andsupply worldwide will exert some pressure on pig iron quotations.

High production costs will keep pig iron prices from plummeting. Domesticiron ore prices in Brazil will be staying steady till the end of Q4, as Vale willretain a system of discounts for the material due to low prices for Brazilian pigiron in the US. In Q1, a global 4% rise in long-term contract prices for iron orewill boost up prices for the material in domestic market of Brazil, which willaffect production costs accordingly. Production costs in the CIS countries willremain high till the end of this year, however iron ore and coke prices will move

up by 2-10% in January-March. Therefore, high production costs will limit adecrease in pig iron prices till the end of Q4 and will serve as anotherargument for a price rise in early 2011.

According to Metal Experts estimates, sluggish market for steel productswill cause a decline in pig iron prices till the end of this year. At thesame time, the decline will be restrained by high production costs. Inlate Q1-early Q2 2011, improving demand for steel products will pushup merchant pig iron prices.

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PRICES Pig iron spot prices in world major markets


USA import c&f 330 451 445 456 473 448

Europe import c&f 313 451 438 453 473 468

China domestic market cpt, VAT included 383 471 458 456 490 496

South Korea import c&f 325 461 443 446 485 483

Brazil export fob, south ports 324 441 457 438 443 408

Russia domestic market exw, VAT included 422 563 525 510 507 488

Russia (Black/

Baltic Sea) export fob Black/ 304 448 425 454 465 448

Baltic Sea

Russia

(Far East) export fob Far East 319 434 423 438 459 448

Ukraine

(Black Sea) export fob Black Sea 290 418 406 431 443 425



Global freight rates at pig iron shipments

Vessel type Loading port C ount ry Discharging Count ry Apr.10 May.10 Jun.10 Jul.10 Aug.10 Sep.10 Oct.10

port

Panamax Illyichevsk Ukraine Margera Italy 21 21 19 17 22 14 18

Panamax Yuzhny Ukraine New Orlean USA 28 31 25 25 22 25 24

Handysize St. Petersburg Russia ARA Netherlands/ 14 16 18 19 20 17 19

Belgium


Pig iron Statistics

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Pig ironStatistics

BALANCES Global pig iron market structure


PRODUCTION 88183 90289 86235 84499 84386 606573 490622 24%

by country

China 51623 52263 49766 47578 48841 350623 304565 15%

Japan 6682 7168 6840 7085 6844 47850 34536 39%

India 3100 3200 3353 3180 3180 22718 17130 33%

Brazil 2569 2585 2692 2780 2764 18439 12181 51%

South Korea 2646 2676 2676 2461 2488 17984 14838 21%

Germany 2464 2637 2428 3250 2250 18063 9806 84%

Ukraine 2470 2401 2011 2011 2037 15870 14335 11%

United States 2025 2560 2526 2525 2100 15987 9358 71%

Italy 828 716 746 770 625 5185 3124 66%

Others 9508 9946 9387 9097 9499 65883 46886 41%

EXPORT 1165 1120 1480 949 n/a 7748 7475 4%

by country

Russia 239 226 696 188 288 2479 2362 5%

incl. to Italy 30 48 342 54 1 942 849 11%incl. to USA 0 0 199 0 164 229 363

Ukraine 181 40 194 95 120 866 779 11%

Brazil 223 272 231 163 87 1398 1805 -23%

incl. to USA 118 175 195 154 50 1007 773 30%

India 33 4 2 33 30 168 222 -24%

SAR 70 39 46 53 n/a 371 247 50%

Others 418 539 311 418 n/a 2466 2060 20%

IMPORT 1165 1120 1480 949 n/a 7748 7475 4%

by country

USA 241 552 385 445 n/a 2479 1232 2 times

China 122 16 92 80 22 573 2073 -72%

Thailand 18 1 71 36 62 133 136 -3%

Italy 89 157 99 62 n/a 587 688 -15%

South Korea 86 64 64 72 20 714 375 91%

Taiwan 54 21 23 58 n/a 344 94 4 times

Japan 117 30 24 25 30 246 47 5 times

Belgium 35 35 25 30 n/a 197 181 9%

Spain 39 40 25 21 n/a 261 175 49%

Others 363 204 671 120 n/a 2215 2473 -10%

STEEL PRODUCTION 120436 124530 118234 114364 118039 820274 652204 26%

APPARENT CONSUMPTION 88183 90289 86235 84499 84386 606573 490622 24%

Sources: Metal Expert, World Steel Association, ISSB (in 000 tonnes)

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yuan stimulate economic recovery in the countries supplying raw materials and finished products to theChinese market. Demand from end consumers grows just slowly in other regions in 2010 and 2011 due tocurtailment of state backing; business activity hikes in global markets mainly when traders replenishstocks. Steelmakers have to cut production when demand drops as profit margins narrow and the risk ofglut is high. The cost of steel production remains high or grows further in 2010 and 2011 owing toconsolidation of supply in raw material markets. The volatility of finished steel product prices increasesbecause prices under long-term contracts for iron ore and coke are revised quarterly now and speculativeactivities intensify in steel product market.

Short-term outlook:- Favourable situation on the finished steel market in China in Q4 10 and Q1 11 will support iron ore prices

- In Q4 decrease of prices under the long-term contracts will entail growth of import share in iron oreconsumption in China- In Q1 10 iron ore prices under the long-term contracts will increase by 5-12%- Import ore demand in China grows in December due to necessity to build stocks before Lunar New

Year celebrations- No oversupply is seen in the iron ore spot market- Raw materials consumption stays extensive in China- Strengthening of the leading exporters national currencies favours a surge in iron ore export prices in

the spot market

Iron ore price forecast

Iron ore

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SCENARIO No.1 Import price forecast forIndian concentrate (63.5%) in China, c&f

(spot prices)

149

158

172

170

163

155

0

50

100

150

200

Aug.10

Sep.10

Oc

t.10

Nov.10

Dec.10

Jan.11

Fe

b.11

Mar.

11

Apr.

11

$/t


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200%

250%

300%

350%

Apr.10 Jun.10 Aug.10 Oct.10

difference between domestic HRC andimport iron ore prices in China


0

100

200

300

400

500

Q1 Q2 Q3 Q4

mt

2009 2010


Iron oreAnalysis

S ep.10 Oct.10

IMPORT PRICES (c&f)

Import from India(63.5% Fe) 149 157

Import from Brazil (65% Fe) 158 161

Import from Australia

(62% Fe) 147 153

DOMESTIC PRICES (exw, VAT included)

66% Fe 175 183

64% Fe 122 124


prices

Chinese iron ore concentratespot prices

Iron ore contract prices to grow in Q1

Offers of Indian concentrate (Fe 63.5%) have increased to $153-157/t C&F toChinese buyers in the middle of October, from $145-149/t C&F at the beginning ofthe month. Brazilian material (Fe 64.5-65%) is still available at $160-163/t C&F.

Chinese domestic market for finished products will stay relatively strong,which will buoy iron ore prices.In Chine, prices for HR flats and longs haveincreased by 2-10% since the middle of September. Business activity is likely tostart reviving in these segments in the second half of October to support steelproduct prices after national holidays are over in the country. At the same time,weak demand from abroad and high steel product stocks at home will restrainthe growth of domestic finished product quotations. As steel products are inpoor demand in other markets of the world, suppliers will have to cut pricessoon. The increase in steel product prices is unlikely to resume in most ofglobal markets until December, Metal Exper t estimates. Global market for finishedsteel is expected to improve notably in February-March.

The Chinese have bought little iron ore abroad in the first half of October. According to Metal Experts estimates, iron ore demand from the largestimporting country is expected to grow from the middle of Octoberasprices for foreign material will be more attractive. At the beginning of October,the price gap between domestic HR flats (without VAT) and imported concentratewidened to $405-415/t, which is by 3-6% more than in early September and15% more than the Q2 average.

In H2, iron ore consumption will be lower than in January-June . Theglobal average daily production of pig iron amounted to about 2.7 mt in July

and August, down from some 2.9 mt per day in H1. According to MetalExperts estimates, in Q4 pig iron output will increase by about 3% everywhereexcept China, and the total volume will add only 1%. At the same time, globalconsumption of non-agglomerated iron ore will grow by 12-14% y-o-y in 2010due to strong pig iron production in H1.

According to Metal Experts estimates, contract pricesfor iron ore may gainabout 5-12% in Q1 2011.Quotations of iron ore fines from Brazils Vale and

Australias BHP Billiton will grow by 5-7% (considering the average spot price inChina in September-November). The increase in prices for January-Marchshipments of Rio Tintos iron ore may be as big as 12% as contract prices for

the material produced by Rio Tinto depend on the average prices effective inthe previous quarter. So, contract prices for the companys iron ore may be$142/t FOB.

According to Metal Experts forecast, iron ore prices will stay largelystable until the end of the year. In Q1 2011, spot prices for iron ore mayclimb further up due to some improvements in global steel productmarket and the expected increase in long-term contract prices.

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In China, price gap betweenfinished products and iron ore

15% wider than in Q2

Global iron ore consumptionto grow in 2010

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PRICES Chinese iron ore concentrate spot prices dynamics


Import from India (63.5% Fe) import c&f 95 151 135 155 149 148

Import from Brazil (65% Fe) import c&f 96 156 142 165 158 158

Import from Australia (62% Fe) import c&f 91 156 135 154 147 153

66% Fe domestic market cpt, VAT included 116 169 166 179 175 183

64% Fe domestic market cpt, VAT included 80 112 110 119 122 124



Global freight rates at iron ore shipments

Vessel t ype Loading port Count ry D ischarging port Count ry Apr.10 May.10 Jun.10 Jul.10 Aug.10 Sep .10 Oct.10

Capesize Tubarao Brazil Qingdao China 25 31 29 22 19 29 28

Capesize ports of Australia Qingdao China 11 13 10 8 7 11 11

Australia

Panamax Yuzhny Ukraine North ports China 42 45 47 43 43 46 45


StatisticsIron ore

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Statistics Iron ore

Global non-agglomerated iron ore market structure

Q2 09 Q3 09 Q4 09 Q1 10 Q2 10* % change Q/Q % change 10/09

PRODUCTION 415029 436246 458718 438909 486842 11% 17%

China 98518 112319 121685 95911 131920 38% 34%

Australia 99528 106980 107796 103663 103316 0% 4%

incl. BHP Billiton** 25271 27360 29683 28390 28435 0% 13%

incl. Rio Tinto** 53393 56808 55778 53488 53207 -1% 0%

Brazil 68905 70061 66632 72384 75961 5% 10%

incl. Vale 57656 64153 60776 66452 73153 10% 27%

India 57767 47748 52306 59510 59506 0% 3%

Russia 22757 24231 24664 23891 24977 5% 10%

Ukraine 14459 18662 19184 18855 19913 6% 38%

USA 3361 5820 9400 9940 11894 20% 4 times

South Africa 13091 14459 15161 15067 14900 -1% 14%

Canada 8057 5925 8305 7171 9769 36% 21%

Sweden 3872 3664 6489 6158 6223 1% 61%

Iran 6190 6447 6456 6341 6662 5% 8%

Kazakhstan 3915 4690 4554 4398 4656 6% 19%Others 14609 15241 16086 15620 17146 10% 17%

EXPORT 204696 232563 229130 225980 230464 2% 13%

by country

Australia 92938 104161 104369 100110 105309 5% 13%

Brazil 54887 66728 61997 60619 57245 -6% 4%

Ukraine 4646 5444 34442 4570 5632 23% 21%

Netherlands 2294 3985 4672 4025 4700 17% 2 times

Russia 4055 2713 2632 2303 2646 15% -35%

Indonesia 629 2193 1882 1429 3449 2 times 5 times

Canada 3104 3089 2758 1249 2644 2 times -15%

Kazakhstan 2400 2550 2000 1714 2364 38% -2%

Mexico 130 454 291 796 968 22% 7 times

Chile 1279 1821 1954 1449 1368 -6% 7%

Sweden 784 1377 1504 1104 1023 -7% 30%

South Africa 505 706 571 681 881 29% 74%

Others 37045 37341 10058 45932 42237 -8% 14%

IMPORT 204696 232563 229130 225980 230464 2% 13%

by country

China 157373 163344 151641 149327 149661 0% -5%

Japan 19746 27781 31058

wsm 2010-10

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