Global Market and Ukrainian Steel

Industry in 2013-2014

Vlasjuk V.S.SE UPE Co. Research & Consulting, Ukraine

75th Session of the OECD Steel Committee Meeting, Paris, 05-06 December 2013

SE UEX Co. Research & Consulting

Ministry of Industrial Policy of Ukraine

31,833,1 34,1

36,938,7 38,6

40,942,8

37,3

29,9

33,935,3

33,0 33,3

0

5

10

15

20

25

30

35

40

45

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E

1. In 2010-2013 crude steel production in Ukraine has stabilized in range of 33-35 million tonnes

This year crude steel production in Ukraine will increase by 0.3 Mt (+0.9% y-to-y) to 33.3 Mt

due to export growth

Source: State Statistics Service of Ukraine

Crude steel production, Mt

By the results of 10 months 2013 Ukraine holds 10th place (with share 2.1% from the world production) in the rating of the largest steel-producing countries

2. Ukraine remains in the top10 world largest steel producers

Ukraine

Source: WSA, State Statistics Service of Ukraine

77,271,7

65,7

77,1 79,5 80,083,8

0

10

20

30

40

50

60

70

80

90

2007 2008 2009 2010 2011 2012 2013E

20,619,5

17,418,6

19,6 18,917,7

0

5

10

15

20

25

2007 2008 2009 2010 2011 2012 2013E

3. Iron ore production in Ukraine has steady increased since 2010, but coke production has downtrend in 2012-2013

The growth of iron ore production in Ukraine 2010-2013 was caused mainly by increase of exports to

China (17.5Mt in 2013). In contrary, the current production of coke fell to level 2009

Source: State Statistics Service of Ukraine

Coke, MtIron ore, Mt

20,8 18,1 15,7 11,8 11,0 10,2

21,7 26,426,4

29 29 29

3,3 3,33,3 3,3 3,3 4,6

45,8 47,845,4 44,1 43,3 43,8

0

10

20

30

40

50

60

2007 2008 2010 2011 2012 2013

Electric Furnaces

Oxygen Blown Converters

Open Hearth Furnaces

4. Structure of Ukrainian steel capacity by process

During 2011-2013 5.5 Mt of open-hearth furnaces were decommissioned

whereas EAF (1.3 Mt) were commissioned.

Complete replacement of open hearth technology in Ukraine is planned till 2018

Source: State Statistics Service of Ukraine

Ukrainian steel capacities by process, Mt

45,847,8

45,4 45,4 44,1 43,3 43,842,8

37,3

29,9

33,9 35,333,0 33,3

0

10

20

30

40

50

2007 2008 2009 2010 2011 2012 2013E

capacity crude steel production

5. Current Ukrainian steel capacity utilization corresponds to the world average level

During 2013 crude steel capacity in Ukraine was utilized at 76.1%

Source: State Statistics Service of Ukraine

Capacity utilization (%) Ukrainian

Mt

Source: WSA, OECD, UPE Co.

93,5%

78,0%

65,8%

74,6%

80,1%

76,2% 76,1%

82,9%

77,8% 68,1%74,3%

76,4%

74,7%76,3%

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

2007 2008 2009 2010 2011 2012 2013E

Ukraine World

28,326,3

22,623,8 24,3

22,6 23,1

0

5

10

15

20

25

30

2007 2008 2009 2010 2011 2012 2013E

6. Ukrainian export continues to play an important role. However, in 2009-2013 it was significantly below pre-crisis level

After record 2007, in 2009-2013 Ukraine’s steel export reduced by 5.2 Mt, especially to America, Turkey, Middle East and Asia

Ukrainian steel exports, Mt

estimation based on 10 months 2013

Source: State Statistics Service of Ukraine

7. Ukrainian export market is well diversified. EU and CIS remain the biggest partners

The shares of the EU and the CIS in the structure of exports from Ukraine are 27% and 20% in 2013

Regional structure Ukrainian steel export

Source: State Statistics Service of Ukraine

EU2718%

Europe (non-EU)

17%

CIS15%

Africa13%

Middle East18%

Asia10%

America9% 2007

EU2727%

Europe (non-EU)

15%

CIS20%

Africa14%

Middle East15%

Asia8%

America1% 2013E

-14,8%

4,1%5,2%

0,2%

-1,0%

1,8%

-20,0%

-15,0%

-10,0%

-5,0%

0,0%

5,0%

10,0%

2009 2010 2011 2012 2013E 2014F

8. Outlook 2014: GDP, industrial production, construction will rise moderately …

Source: State Statistics Service of Ukraine

GDP % Industrial production % Construction %

-21,9%

11,2%

7,6%

-1,8%

-5,2%

0,3%

-25,0%

-20,0%

-15,0%

-10,0%

-5,0%

0,0%

5,0%

10,0%

15,0%

2009 2010 2011 2012 2013E 2014F

-48,2%

-5,4%

11,0%

-14,0%-20,0%

4,5%

-60,0%

-50,0%

-40,0%

-30,0%

-20,0%

-10,0%

0,0%

10,0%

20,0%

2009 2010 2011 2012 2013E 2014F

3,44,2

4,9

6,87,5

8,28,7

10,9

9,2

5,3

6,9

8,2 8,3 7,8 8,1

0

2

4

6

8

10

12

9. …as a result Ukrainian steel consumption 2014 will increase

The expected growth rate of apparent steel consumption is 3.5% in 2014 after reduction by 5.8% in 2013.

This year Ukraine will import up to 1.78 Mt of steel products or 22.8% of total consumption.

In 2014 steel import to Ukraine is expected nearly 1.7 Mt

Source: State Statistics Service of Ukraine, UEX Co. (forecast),

Steel products, Mt

total consumption

import

31,833,1 34,1

36,938,7 38,6

40,942,8

37,3

29,9

33,935,3

33,0 33,3 34,2

0

5

10

15

20

25

30

35

40

45

10. Crude steel production in Ukraine in 2014 will grow …… but it still remains far below record 2007

Expected growth of steel production in 2014 was 2.7% versus 0.9% in the current year.

It will be determined by the growth of exports (+0.5Mt) and domestic consumption (+0.3Mt)

Source: State Statistics Service of Ukraine (fact), UEX Co. (forecast)

Mt

Investments in energy efficiency

and environment protection

19,2 15,37,8 9,4 9,5 7,0 6,4

22,0 20,220,7 21,6 23,2 23,9 24,6

2,2 2,1 1,8 2,3 2,6 2,0 2,3

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011 2012 2013E

Open Hearth Furnaces Oxygen Blown Converters

Electric Furnaces

12. In 2011-2013 modernization of Ukraine's steel industry has accelerated

The share of steel production by energy-intensive open-hearth technology in Ukraine has

decreased by more than twice from 44.2% (2007) to 19.2% (2013)

Source: State Statistics Service of Ukraine

Ukrainian steel production by process

Open Hearth Furnaces

44,2%

Oxygen Blown

Converters50,7%

Electric Furnaces

5,1%2007

Open Hearth Furnaces

19,2%

Oxygen Blown

Converters73,9%

Electric Furnaces

6,9%2013E

13. Implementation of pulverized coal injection technology in Ukraine has advanced substantially

coke + PCI10%

coke + natural

gas90%

2010

coke + PCI39%coke +

natural gas61%

2013

In 2010-2013 PCI technology was implemented in four Ukrainian iron&steel works

– Alchevsk ISW, Zaporozhstal ISW and Mariupol Ilyich ISW

Structure of pig iron production by usage coke, natural gas and pulverized coal

Source: State Statistics Service of Ukraine

7 338

6 459

4 086

5 173 5 173

3 8863 130

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

2007 2008 2009 2010 2011 2012 2013E

14. Implementing PCI has led to a decrease in consumption of natural gas per 1 tonne of pig iron in Ukraine

Compared with 2008, the consumption of natural gas per 1t pig iron production

decreased from 81.3 m3 to 23.6 m3 in 2013

Source: Metallurgprom

Natural gas consumption in Ukrainian metallurgy, million m3

Natural gas consumption per 1t pig iron, m3/t

81,3

57,3

75,868,5

35,923,6

0

10

20

30

40

50

60

70

80

90

2008 2009 2010 2011 2012 2013

15. Due to the closures of obsolete steel capacities in Ukraine, steel sector have decreased CO2 emissions

Closure of open-hearth furnaces

Donetsksteel (2012) – 0.99Mt, Azovstal ISW (2012) – 3.15Mt, Nizhnedneprovskii TRP (2012) – 0.78Mt

Closure of coke battaries Azovstal ISW (2012), sinter plant Azovstal ISW (2013)

72,7

62,7

49,853,9 56,1

51,8 51,9

0

10

20

30

40

50

60

70

80

2007 2008 2009 2010 2011 2012 2013E

1,701,68

1,67

1,59 1,591,57

1,56

1,45

1,50

1,55

1,60

1,65

1,70

1,75

2007 2008 2009 2010 2011 2012 2013E

CO2 emissions in steel sector, Mt CO2 emission per 1t steel production, t

Source: State Statistics Service of Ukraine, Metallurgprom, UEX