Long products market in the MENA region - Andrey Pupchenko, Arab Steel Summit 2015

1. Long products market
in the MENA region
Arab Steel Summit 2015
November 9-11, 2015, Sharm El-Sheikh, Egypt
Andrey Pupchenko,
Deputy Managing Director,
Metal Expert

2. Contents
I. Consumption to expand moderately
II. Oversupply grows in the region
III. Competition stiffens
© Metal Expert

3. I. Consumption to expand moderately
o Political instability and war conflicts
o Low oil and gas prices
o Withdrawal of Iran sanctions
o Egypt has ambitious plans to renovate
© Metal Expert

4. Long products consumption in MENA in 2014
Total: 77 million t
© Metal Expert
GCC; 20;
26%
Turkey; 16;
21%Iran; 15;
20%
Egypt; 8.8;
11%
others; 17;
22%

5. MENA consumption will grow in 2016, although
at a lower rate than expected earlier
+5.1 million t
+7%
82.6 million t of total consumption
Changes in long products consumption (2016/2014)
© Metal Expert
-2
-1
1
2
3
4
5
GCC Turkey Iran others Egypt Yemen Libya Iraq
milliont

6. © Metal Expert
Markets of consumption increase in 2014-2016
- Low oil and gas export prices
+ Accumulated budget proficit of previous years
+ 3% increase of MEED‘s GCC Projects index in 2015
+4.3 million t
+19%
GCC
Turkey
- Political instability
- World economy slowdown
- Ambitions to grow
+1.9 million t
+11%
Iran
- Sanctions withdrawal will have effect
- World economy slowdown
+ 37% increased of MEED‘s Iranian Projects index in Q3 15
+0.5 million t
+3%

7. © Metal Expert
Iraq
Yemen
Libya
- Military conflicts
-1.6 million t
-38%
- Political instability
- Growth has been delayed so far…
Egypt
- 0.2 million t
-3%
Markets of consumption decrease in 2014-2016

8. © Metal Expert
o New capacities will substantially undercut MENA's
longs import in 2016
o MENA's import of Chinese longs & billets will
continue to influence
II. Oversupply grows in the MENA region

9. Forecast of long products capacity expansion
in 2016
© Metal Expert
Country Capacity change Import in 2014
Turkey 2000 1383
Oman 1580 437
Iraq 950 2010
Egypt 830 1506
Libya 800 363
Syria 600 113
Saudi Arabia 550 1443
Algeria 500 4067
Iran 500 688
Pakistan 100 0
Yemen 0 765
Jordania 0 226
Tunis -250 253
Total 8160 (62% of import) 13253
000' t

10. • MENA's deficit of square billet capacities will be around 2.6 million t in
2016, which will lead to a big redistribution of trade flows
• Billet import into Turkey will additionally increase by 1.2-1.7 million t in
2016
© Metal Expert
Forecast of surplus/deficit in billet
capacities in the MENA region
-5
-4
-3
-2
-1
0
1
2
3
2016 2017
milliont
+ 1.4 million t

11. Forecast of surplus/deficit in billet capacities in the MENA region
New export-oriented billet capacities in Iran will
eliminate deficit in the MENA region in 2017
Country 2016 2017
Iran 1,100 1,950
Oman -2,180 500
Egypt 350 300
Turkey -780 200
Syria -415 0
Jordania -360 0
Yemen -150 0
Saudi Arabia 10 0
Algeria -150 -350
Total -2,575 2,600
© Metal Expert000' t

12. © Metal Expert
MENA's import of Chinese longs & billets more
than doubled in 2014
2.1
4.6
4.0
0
1
2
3
4
5
2013 2014 2015
Milliont

13. © Metal Expert
Million t
New capacities will substantially undercut MENA's
longs import in 2016
Source: World Steel Markets, Metal Expert estimates
77
58
5
8
11
0
10
20
30
40
50
60
70
80
90
Consumption Production in 2014 Сapacity, implemented
in 15-16
Import

14. III. Competition stiffens in MENA
© Metal Expert

15. 'Super cycle' in raw materials comes to an
end as iron ore price loses 2/3 of its value
© Metal Expert
0
2
4
6
8
Oct.99
Aug.00
Jun.01
Apr.02
Feb.03
Dec.03
Oct.04
Aug.05
Jun.06
Apr.07
Feb.08
Dec.08
Oct.09
Aug.10
Jun.11
Apr.12
Feb.13
Dec.13
Oct.14
Aug.15
Ferrous scrap, Turkey, c&f from USA
Iron ore concentrate (61.5%), China, c&f from AustraliaOct.99=1

16. Long products supply into MENA in 2014
Total: 19 million t
Turkey; 6;
32%
China; 5; 24%
Ukraine (to
Iraq & Egypt
mainly); 2;
9%
Western
Europe (to
Algeria &
Morocco); 6;
29%
Others; 1; 6%
© Metal Expert
Including billets

17. © Metal Expert
Chinese mills have negative margins and cannot
follow cheap-export strategy any more
Margins of Chinese mills exporting to GCC countries
-20
-10
0
10
20
30
40
50
60
70 Apr.15
May.15
Jun.15
Jul.15
Aug.15
Sep.15
Oct.15
$/t
billets long products

18. Turkey's long products export (using scrap in
EAFs) is not competitive at current scrap prices
Rebar costs of different suppliers into the GCC market, CFR basis © Metal Expert
296
318
389
200
250
300
350
400
Chinese from iron ore
(at $53/t)
UAE from iron ore
(at $73/t)
Turkey from scrap
(at $195/t)
$/t

19. A. Prices find its bottom finally
B. Steel export from China comes down
C. Iron ore to ferrous scrap ratio defines whether square billet
continues to replace ferrous scrap in Turkey
D. Iranian billets export is yet to come
© Metal Expert
Major factors for MENA's
long products market in 2016

20. Iron ore determines steel price bottom in 2016
Scenario #1
Probability: 70%
IRON ORE PRICE WILL
DECLINE TO NEW LOWS
Iron ore*: 40-50
Scrap parity**: 115-125
Current scrap price***: 195
Consequences:
o Chinese steel export comes down
o Scrap prices will not bottom out at
parity level
o Turkey's steel export will be
competitive only using imported
low-cost billets, as it was in 2015
* - $/t, iron ore, 62% Fe, China, import from Australia, CFR
** - $/t, scrap HMS 1&2 (80:20), Turkey, import from the USA, CFR
*** - valid for early November 2015
© Metal Expert

21. Iron ore determines steel price bottom in 2016
Scenario #2
Probability: 30%
IRON ORE PRICE WILL STAY
IN CURRENT RANGE
Iron ore*: 55-65
Scrap parity**: 140-150
Current scrap price***: 195
* - $/t, iron ore, 62% Fe, China, import from Australia, CFR
** - $/t, scrap HMS 1&2 (80:20), Turkey, import from the USA, CFR
*** - valid for early November 2015
Consequences:
o China will not provide affordable
prices to compensate risks of long-
term delivery to MENA
o Scrap prices will move down to
parity
o Turkey's steel export will get some
support
© Metal Expert

22. Scenario #1: square billet continues to replace
ferrous scrap in Turkey as in 2015
© Metal Expert

23. Conclusions
• MENA's consumption to expand moderately – only by 2.5
million t in 2016
• Oversupply will grow in the region – 8 million of new capacities
in long products will be competing with current import
• Billet demand from re-rollers will grow by around 2.6 million t as
not all capacity-expansion projects will be on time
• Steel export from China will come down notably, as Chinese
mills have negative margins and cannot follow cheap-export
strategy any more
• Turkey's steel export will be competitive only by using imported
low-cost billets, as it was in Q3 2015
© Metal Expert

24. Metal Expert provides exclusive data in
monthly report Turkey & Middle East Steel
- Rebar output by producer in Turkey
- Ferrous scrap inventory at Turkish mills (actual for the time of
publishing – every mid-month)
- Margin assessment (market price minus estimated costs) for
main export destinations and domestic deliveries
- Comparison of in-house billet production cost (using imported
scrap) and prices for billet imports from CIS
- The forecasts of ferrous scrap consumption and prices for the
next three months
Subscription department
+38 056 239 88 50,
+38 056 370 12 06,
+38 056 370 12 07
subscriptions@metalexpert-group.com

25. Thank you for your attention
Andrey Pupchenko
Deputy Managing Director
Metal Expert
+38-056 370-12-07 (ext. 160)
a.pupchenko@metalexpert-group.com