Ukraine Metals Industry Update Quarter 3 2011

  • June 2014
  • -
  • Business Monitor International
  • -
  • 51 pages

We maintain our view that Ukrainian steel production growth will be more subdued in 2011 following strong growth the previous year, while cost pressures caused by the rising prices of gas and scrap will continue to erode margins. Moreover, output levels in Ukraine will remain significantly below pre-crisis levels.
According latest data from the Ukrainian association of metal producers Metallurgprom, crude steel output in Ukraine increased by 0.3% month-on-month (m-o-m) in May 2011, rising to 3.01mn tonnes.
This brought growth to 5.8% year-on-year (y-o-y) during the period between January and May 2011, reaching 14.7mn tonnes. Although this follows on from the strong growth rate seen in 2010 of 12.7% to 33.56mn tonnes, steel output in Ukraine remains well below pre-crisis levels and most recent data suggest that growth rates could be slowing somewhat. Indeed, according to news releases, Ukrainian metallurgical firms ' average daily output of steel in May 2011 declined to levels previously seen in February, with crude steel declining by 3.0% m-o-m to 97,300 tonnes. Moreover, reports suggest that Ukraine's average daily output of pig iron also declined by 2.6% m-o-m in May to 87,300 tonnes.
While we see this early summer lull in output as a downside risk to our year-end production projection, we maintain the view that Ukrainian steel output will grow by a still-strong 7.2% in 2011 to 35.98mn tonnes in 2011. Our own estimate is only marginally above the 6.0% projection by Metallurgprom, but lower than the 13% estimated by Ukrainian steelmakers earlier in 2011. Moreover, we projection hot-rolled output rising 9.0% to 29.85mn tonnes in 2011, which again is above Metallurgprom's estimate of 7.0%, but lower than the 16% projection by Ukraine's steelmakers. Our outlook is based partly on the effects of civil unrest on demand from North Africa and the Middle East, particularly Egypt and Syria, which are among Ukraine's largest industries, on the export growth outlook. Additionally, the effects of rising oil prices and austerity measures will depress growth rates in the EU.
The cost of steel production in Ukraine grew 40% y-o-y to US Dollar 137/tonne by end-2010. Domestic iron ore prices grew 96%, coal increased 77% and scrap rose 55%. Earlier in 2010, Metallurgprom warned that the country's steelmakers were likely to see their annual production costs increase by a further UAH3.4bn (US Dollar 427mn) due to higher natural gas prices, iron ore and coking coal prices.
Although we expect a full recovery in aluminium by 2015, this is dependent on RusAl maintaining its operations in Ukraine. Debt-ridden RusAl indicated even before the financial crisis that it may close the 130,000tpa Zaporizhsky Alyuminievy Kombinat (Zalk) smelter as it was unprofitable to keep it running due to high electricity prices. Output from the smelter has declined from 112,800 tonnes in 2008 to 50,000 tonnes in 2009 and just 25,000 tonnes in 2010.

Table Of Contents

CONTENTS . 3
Executive Summary 5
Industry SWOT Analysis 6
Ukraine Political Environment and Risk Analysis 6
Ukraine Economic Environment and Risk Analysis . 6
Ukraine Business Environment SWOT 7
World Market Overview 8
Steel Projection . 8
Steel to Average USD 580/tonne In 2011 8
BMI Steel Projection . 8
Steel Prices . 9
Cost Push On The Supply Side 9
Few Supply Constraints In Sight, For Now . 10
Commodities Projection 14
Commodity Strategy - Metals Update 14
Aluminium. 14
Copper 15
Gold 16
Lead 17
Nickel 18
Tin. 19
Zinc . 20
Regional Overview 21

Market Projection Scenario . 26
Steel . 26
Aluminium 30
Data : Ukraine's Metals Market ('000 tonnes unless stated) from 2007 to 2015 31

Competitive Landscape 32
Aluminium. 32
Steel 33
Macroeconomic Projection 36
Ukraine - Economic Activity 38
Company Monitor 39
ArcelorMittal Kryviy Rih 39
RusAl 40
Azovstal 41
Zaporizhstal 42
World Assumptions, Q311. 43
Data : World Assumptions, from 2009 to 2015 43
Data : World And Regional Real Gross Domestic Product Growth, from 2010 to 2013 (% change y-o-y) . 44
Data : Selected Exchange Rates, from 2010 to 2013 (average) 44
Developed States . 45
Data : Developed States’ Gross Domestic Product Growth, from 2010 to 2013 (% change y-o-y) 45
Emerging Industries 47
Data : Emerging Industries’ Gross Domestic Product Growth, from 2010 to 2013 (% change y-o-y) 48
Ukraine Metals Report Q3 2011
© Business Monitor International Ltd Page 4
Consensus Projections . 49
Data : Bloomberg Consensus Gross Domestic Product Growth Projections, from 2011 to 2012 (% change y-o-y) . 49
BMI Methodology 50
How We Generate Our Market Projections . 50
Petrochemicals Market . 50
Cross Checks 51
BMI Methodology 52
How We Generate Our Market Projections . 52
Cross Checks 52

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