Nlmk sbb steel markets europe, spain, 26-may-2011

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Nlmk sbb steel markets europe, spain, 26-may-2011

  1. 1. EUROPE & THE CIS:What does the futurehold?SBB European Steel Conference Global reach; local impact ANTON BAZULEV DIRECTOR OF EXTERNAL RELATIONS NLMK Barcelona, May 2011
  2. 2. CIS steel sector at a glance 12 mt CIS crude steel production CIS steel consumption 10 8 6 4 2 0 Source: Word Steel Association (WSA). State statistics organizationso Surplus of steel is exported from Russia and the CIS countries mostly as semi- finished productso There is a huge potential for the CIS steel consumption 2
  3. 3. Steel exports: CIS is a largest player LARGEST STEEL EXPORTERS CIS EXPORTS BY PRODUCT mt % Slabs EU HRC CRC Coated LongsJapan Source: Statistic services (2005-2009) CIS EXPORTS BY DESTINATIONChina % EU MENA CIS Asia NAFTA Other 0 50 100 Source: WSA Source: WSA, Statistic services (2005-2009) 3
  4. 4. Crude steel production costs CIS STEEL PRODUCTION ADVANTAGE Energy $/t 250 Other 200 Labor Labor 150 Scrap 100 Iron ore Scrap 50 Coal 0Iron ore Cost advantage Coke o Cost advantage mainly lies in the access to low-cost raw materials Coal $/t o Ongoing assets rewamp in CIS to eat into EU advantages – energy 0 100 200 300 efficiency and labor productivity CIS W.Europe Source: WSD, Company estimates 4
  5. 5. CIS: further productivity growth STEEL SECTOR PRODUCTIVITY 3 Per.hours/t Productivity index, 1993=100 2.5 EU 2 Japan 1.5 USA 1 0.5 Russia 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 0 5 10 Source: WSA Russia USA Japan EU Source: McKinsey researco Modernization and business processes optimization significantly improved productivity of the CIS steel sectoro Still remain further room for improvement 5
  6. 6. Raw material access favorsproduction growth TOP 3 IMPORTERS %o CIS has the largest raw materials reserves: 11% 23% EU o #1 in iron ore 19% 7% EU o Top 3 – coking coal Asia LatAmo CIS Steel sector is vertically integrated 49% China 61% Asia in captive raw materials supply o >65% - coal self-sufficiency Iron ore imports C/coal imports Source: WSA o >70% - iron self-sufficiency PRICES: COKING COAL AND IRON OREo This leaves the sector shielded from $/t 500 the raw materials market fluctuations 400 300 200 100 0 Jan 02 Jan 01 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jul 01 Jul 02 Jul 03 Jul 04 Jul 05 Jul 06 Jul 07 Jul 08 Jul 09 Jul 10 Iron ore C/coal 6 Source: SBB, Bloomberg
  7. 7. BF production steadily becomes less andless efficient in Europe 95% % 90% 85% 80% 75% 70% 65% 60% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 BOF (EU15) run rate BOF (CIS) run rate Source: WSA, Company estimateso During the last decade BOF steel production in EU was steadily decliningo During the downturn the BOF operations become less efficient…o Available low cost semis allow EU steel sector to reduce costs at the trough of the cycle 7
  8. 8. CIS & EU – natural trading partners in steel RUSSIAN EXPORTS OF SEMIS CIS EXPORTS TO EU BY PRODUCT25.000 ,000 t %20.000 25%15.00010.000 75% 5.000 4.430 5.623 4.418 5.764 3.678 0.000 Semis & other Finished steel 2006 2007 2008 2009 2010 EU 27 ROWSource: Russia’s Federal Statistics Agency Source: Eurostat o 35% of semis exported to EU o 75% of CIS exports to EU are semis o … demonstrates an excellent cross border value chain integration of low cost semis producers in CIS offering competitive pricing (as compared to EU marginal cost of 8 steel production) and short lead times due to geographic proximity of the regions
  9. 9. Russian quotas to the EU IMPORT QUOTAS COVERED4000 Exports are sustainably lower % ,000 t than quotas envisage 80%35003000250020001500 20%1000 500 Flat imports (CIS) Longs imports (CIS) 0 2005 2006 2007 2008 2009 2010 Remaining volumes available for imports based on import quotas Source: Russian Union of Metal Exporters Source: Russian Union of Metal Exporterso 80% of quotas for flat steel and 20% for long steel are coveredo Imported flat steel feedstock is used for further processing and value creation by EU re-rollers and manufacturing businesseso Possibility to add value to long steel is limited, so local production is more competitive in the regional markets
  10. 10. EU: market position supported by CIS240 supply STEEL FLOWS: CIS TO EU mt - Slab supply220 - Finished steel from EU CIS: 6.7 mt200 ROW: 1.2 mt Russia180 Ukraine Kazakhstan160140120 ROW: 15.3 mt100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 CIS: 1 mt ASU EU27 Steel production EU27Source: WSA o Crude steel becomes economically 25 Source: Eurostat justified only when steel prices are high mt 20 Value added o EU is one of the largest exporters and in order to maintain its market position in 15 the global steel market it requires a HRC 10 substantial imports of semi-finished steel as the level of ASU is matching steel 5 Semis production 0 EU Exports EU Imports 10 Source: Eurostat
  11. 11. EU is efficient in steel–intensive industries EU EXPORT OF MACHINERY PRODUCTS EU: VALUE ADDED BUSINESS MODEL2500 ,000 t €/t € 955 € 1,455200015001000 € 500 500 0 2006 2007 2008 2009 2010 1 imported Value added 1 exported Mechl engineering Locomotives & railcars ton ton Vehicles Ships, etc Source: EurostatSource: Eurostato Developed manufacturing sector in EU (auto, engineering) shapes the steel sector business model favoringo … efficient high-value tailor made products manufacturers offeringo … intensive service which requires significant technical collaboration 11
  12. 12. RUSSIA & EU: further development trends Trend 1: Upstream integration Trend 2: Downstream development Strengthening Russia’s and Developing EU processing CIS’s role as supplier of semi- outlets closer to Russian steel finished and finished steel for suppliers and consumers in the EU the CIS• Quality improvement • Automotive• Expanding product range • Mechanical engineering• Captive downstream assets in the EU (NLMK, Mechel, Evraz, others) BOTH TRENDS ARE BENEFICIAL FOR THE EU AND RUSSIA! 12
  13. 13. NLMK: Unique and competetive business model Plate BU : 1,750,000 t capacity Annual production capacity (end of 2011 forecast) 12,400,000 t of steel Available slabs 7,000,000 t Strip Product BU : 2,600,000 t capacity A fully integrated supply chain with own raw material sources, conversion and logistics system 13
  14. 14. Conclusion: CIS and EU - partners in steelo CIS position in low cost crude steel production perfectly fits massive sustainable market in EU which make us natural partners in steel value chaino Last decade Russia completely overhauled its crude steel facilities making it one of the modern in the world. Around $32 bn were invested in 2000-2010o Finished steel exports from Russia are not always able to meet local demand in EUo EU-based rolling facilities can offer an extension to Russian steelmakers that match the demand from European customerso Finished steel imported from EU saturates growing demand in innovative steel solution in Russia. We are an excellent example of a win-win cooperation in the global economy! 14
  15. 15. THANK YOUSBB European Steel Conference Global reach; local impact

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