Ukraine could increase the local consumption and demand, if the start to invest in infrastructure
 

emerging in the past few months, growth in demand for steel produced in Ukraine does not mean that the Ukrainian metkombinata automatically be able to improve their situation. Domestic enterprises reduce the sale High conversion and forced to build the supply semi-finished products to countries where the demand for it has increased due to infrastructure projects. No better situation on the domestic market.

Low redistribution

The latest forecast of the World Association began (World Steel Association, WSA) has brought good news for metallurgists. According to the organization, steel consumption in 2009 will be only 8.6% less than in the past, whereas previously expected decline of 14,1%. And already in 2010 WSA expects consumption growth to 9.2%, to 1.2 billion tons
Increased demand will take place against the background of the demand shift toward low output redistributed. In order to reduce costs to producers in South-East Asia, particularly China, have begun to purchase semi-finished products, of which subsequently produce products of higher redistribution, - said the expert GP Derzhzovnishinform Vyacheslav Popov.

Increased demand for intermediate goods already affected the structure of Ukrainian exports. According to GP Derzhzovnishinform, the proportion of square billets and slabs in total exports of Ukrainian metal products for the first 9 months of this year amounted to 45,2%. In the past year - 41,6% (against 35.5% in 2007). I think semi maintain a leading position in Ukrainian exports, second only to long products, and after - the ready-rolled flat products, - the analyst of KBC Securities Ukraine Konstantin Golovko.

Ukrainian companies have been forced to increase production of semi-finished products due to the fact that they are almost completely lost their positions in the markets for products of high processing, says a leading specialist of the Directorate of marketing strategies and sourcing company Donetskstal - Metallurgical Plant Alexei Slugin. Thus, for the three quarters of this year, there were virtually no domestic supply of steel products in the U.S. and Latin America, and significantly reduced flows in the EU and the Middle East. At the same time, increased supply inthe South-East Asia, where governments have initiated massive infrastructure program designed to increase domestic consumption, - notes Slugin.

Home blanks

estimates Ukrainian Mining and Metallurgical Company (UMMC), for the first nine months of 2009, consumption of steel products in Ukraine has decreased by more than 40% over the same period of 2008 and amounted to 4.1 million tons with the greatest total demand fell to the High conversion products, including fixtures (-61%) and I-beams (-69%).

According to marketing director UMMC Ruslana Mazhinskogo, early in the second half compared with the first there was a slight recovery. It should be noted that a real improvement in demand from end-users did not happen - he says. Growing demand in the III quarter was caused by the decline in stocks from metal traders, who feared to remain scarce sizes without rolling, as in this period, Ukrainian producers have focused primarily on foreign markets.

Chairman Mariupol metkombinata them. Lenin Vladimir Boiko said that in October the situation in the metallurgical market somewhat deteriorated. In September in Ukraine has decreased the volume of steel production, which is caused by the completion of the replenishment of stocks. As shown in October, the decline will continue and continue. In a world too quickly there was a growth in production, there was excess supply, - said Mr. Boyko.

overproduction of steel in the world has led to lower prices for steel products. According to recent data, a square deal on harvesting in October, are already at $ 380 /t, whereas in September, prices were $ 430-440. Prices for hot-rolled coils in October fell to $ 480 /t to $ 530-540 in September, - notes analyst with Dragon Capital Sergei IR Gajda.

risk increases

According to Justin Bancroft from Deloitte, the main risk for staleproizvoditeley Ukraine remained the same: the low productivity of most Ukrainian metpredpriyatiy compared with more modern production facilities in China, Brazil and other countries with high demand for steel. The cheapness of Ukrainian steel due to low cost labor and energy. But as the days of cheap gas are over, Ukraine is no longer a producer of low cost. The enterprises of Ukraine are still too many workers, compared with the actual formulation of enterprise, as well as extremely inefficient energy-intensive production , - says Bancroft.
Ukraine could increase the local consumption and demand, if the start to invest in infrastructure to get closer to the European standard of living, - said Justin Bancroft .- Nearly all the bridges and roads in the country in need of repair, with a lot of space to build new freeways and highways of international communication. For these purposes requires a huge amount
metal.

During the crisis we are engaged in short-term projects

Jean Jouet, director general of JSC Mittal Steel Krivoy Rog,

- how to influence your operating deficit of coking coal?

- The deficit became a deterrent to growth in steel production as ArcelorMittal-Krivoy Rog, and throughout Ukraine.

- Are there any prerequisites for the growth of production?

- I would be glad if we had started in III quarter trend continued in IV. But, as practice shows, the winter in the CIS countries the pace of construction, for which we supply products that are reduced. Of course, the situation will be better than at the end of 2008. We expect output growth, but small, and its recovery to the level of the first half of 2008 - not before the end of 2010.

- Globalsteel prices will rise?

- In the short term, I do not see the prerequisites for serious growth.

- In I half of your business for the first time in eight years was a loss. Whether the expected profit for the year?

second half of the year will be better, so we are confident that we can make a difference. Thanks to the I half of the reduction of production costs is the profitability ArcelorMittal-Krivoy Rog increased by several dollars for ton.

- What markets do you consider the main?

- About 20% of steel products shipped to the domestic market, 30% for CIS and Eastern Europe, the remaining 50% - is exported to foreign countries.

- now over 80% of the steel smelted by Ukrainian enterprises is exported. Is this correct?

- Existing Ukrainian steel output many times greater than the volume of Ukrainian market. Because we provide the export of foreign currency into the country. In this case, of course, be developed and the domestic market, and such conditions exist, in particular the implementation of infrastructure projects.

- How were reduced investment in ArcelorMittal, Krivoy Rog in 2009?

- 60%. The crisis has forced them to reconsider their development strategies. Hence, the implementation adopted in the 2008 expansion project on hold pending better times. Construction sinter plant also remains in this list. Decision on the introduction of continuous casting billets will be taken soon. With regard to the transition to the pulverized-coal injection, it is likely we will reinstate the draft in 2010. During the crisis we are more concerned with short-term projects.

The market still lacks effective demand

Andrey Fedoseev, president of the Ukrainian Association of Metal

- whether an increase in the consumption of metal on the domestic market?

- The market is still no effective demand, which are due mainly to the lack of credit. In January-September, the consumption of metal products industry decreased compared to the same period last year by 37%, and the volume of secondary market - at 69%.

- What types of products most in demand?

- claimed by all. For some products, even has a deficit, as Ukrainian staleproizvoditeli emphasize primarily on foreign markets. A shortage of coke does not allow them to build up production volumes.

- On the one hand, there is a deficit, and on the other - there is no demand ... - In general, demand has fallen. This is due primarily to the decline in construction. Nevertheless, we lack in certain types of metal and are forced to import it.

- What kind of products?

- Galvanized steel, very large channel bars and beams, high-tech steel. Products whose production should develop our metkombinata.

- Is there any difference now, prices for Ukrainian metal for the domestic and export markets?

- Until September, prices in the domestic market were lower by 10-12%. Now - no. Periodically, domestic prices are higher than exports, because manufacturers often provide the domestic market as a residual. They are advantageous to work with the internal market, including the fact that about 90% of export trade is carried out through companies registered in countries with preferential tax treatment.

- Has the ratio of consumption of Ukrainian and foreign metal on the domestic market? What to expect in 2010?

- For the three quarters of imports of the metal declined by 70%, due mainly to the lack of proposals to external markets. I think in 2010 the situation will change drastically.

- How can I solve the problem of low demand?

- I think, at the expense of shipment of steel products on credit. If traders have started to lend metal products, and we started to lend to consumers, sales would have increased. Construction companies can build, demand for property there, but there are problems with the assistance of loans. For our part we could find the guarantor bank, which in the case which would cover the debts to the metal-mills.

Eugene Dubogryz, an analyst with BG Capital

Niche Ukrainian steel on the world market, manufacturing products with low added value. In the first nine months of 2009, the proportion of semi-finished products (slabs and billets) in Ukrainian exports of steel products amounted to 51,3% from 18,3 million t. It is this focus has allowed Ukraine to remain in the top ten world's largest steel producers.

reason for this orientation - not a lack of funds from the owners of Steel to modernize the production of rolled (only last year's investment in MMC Ukraine exceeded $ 1.7 billion), and the banal lack of markets for products with high added value. Typically, the production of high-tech steel grades are concentrated in countries with high metal consumption. A supply of finished products to these countries is limited. At the same time the import of semi-finished no restrictions on any of the key to Ukraine's foreign markets.

Another important feature of the world market of semi-finished products - the lack of competition from China. The Chinese government, encouraging the export of finished products, two years ago introduced a 25-percent duty on the export of slabs and billets. Even with the low cost of Chinese semi-finished product turns out to be uncompetitive in comparison with the Ukrainian or Russia.

Production of billets and slabs - in fact, the only direction where Ukrainian producers have a competitive advantage over the Chinese and Russia's metallurgists. Due to low production cost of Ukrainian semi at least the next five years will be needed on their own and traditional markets. A large-scale investments in the production of high-tech metal is not repaid until the home market does not yet rise from the current 3.5 million tonnes per year at least to 10-12 million tons

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