mena billet market development & outlook
TRANSCRIPT
MENA Billet Market Development & Outlook
CIS Steel & Raw Materials on the World Markets April 25-26, 2016, Baku, Azerbaijan
Andrey Pupchenko, Deputy Managing Director, Metal Expert
Contents
I. Billet remains the most attractive feedstock
II. Consumption growth to continue
III. CIS suppliers to restore market share
© Metal Expert
I. Billet remains the most attractive feedstock
© Metal Expert
-50
-40
-30
-20
-10
0
10
20
Au
g.1
5
Se
p.1
5
Oct.1
5
No
v.1
5
De
c.1
5
Jan
.16
Fe
b.1
6
Ma
r.1
6
Ap
r.1
6
rebar, using CIS-origin billets
rebar, using US-origin scrap
Billet remains the most attractive feedstock in the long-term
Rebar production margins of mini-mills on export in Turkey $/t © Metal Expert
iron ore expenses (+28 $/t)
billet producers' profit (+115 $/t)
rebar price increase (+143 $/t)
rebar mills' profit(0 $/t)
0
10
20
30
40
50
60
70
80
90
Billet producers are main beneficiaries of rebar price hike in Q1
© Metal Expert
Turkey's case: a typical re-roller
scrap expenses (+87 $/t)
rebar mills' profit(+56 $/t)
rebar price increase (+143 $/t)
0
20
40
60
80
100
120
140
160
Scrap suppliers make long exporters profitable again
© Metal Expert
Turkey's case: EAF-mill
Key factors influencing rebar/billet market in the Middle East
Iron ore and finished products price hike in Q1 was speculative
© Metal Expert
Traders were key buyers at that stage which made them exposed to any sudden price drop
Imbalance in long products market in MENA put producers into weak position
As a result billet and scrap suppliers took bulk of profit from recent finished prices hike
Fall in long products prices will lead to a correspondent decrease in square billet prices
Scrap suppliers will reduce prices slowly, as they did in 2015, conceding market share
II. Consumption growth to continue
© Metal Expert
0%
1%
2%
3%
4%
5%
6%
7%
8%
0
10
20
30
40
50
60
70
80
2013 2014 2015 2016
long products consumption (LS) growth rates of longs consumption (RS)
Longs consumption is growing, but rates are slowing down
Note: in million t © Metal Expert
GCC; 22.6; 30%
Turkey; 18.0; 24%
Iran; 8.7;12%
Egypt;9.5;13%
others; 15.7; 21%
GCC and Turkey were MENA's major long products consumers in 2015
Total: 74.5 million t © Metal Expert
-1
0
1
2
GCC Turkey Iran Egypt others
mill
ion
t
MENA consumption grows at a lower rate than expected before oil prices collapse
+3.1 million t
+4% 77.6 million t of total consumption
Changes in long products consumption (2016/2015) © Metal Expert
© Metal Expert
Markets of consumption increase in 2015-2016
+1.8 million t +8%
GCC
Turkey +0.8 million t +4%
Iran +0.4 million t +5%
Egypt +0.3 million t +3%
Billet spot market expansion surpasses longs consumption growth rates
long; 6%
billet; 27%
Growth rates of long and billet consumption in MENA for 15/14
© Metal Expert
21%
25%
29%
2014 2015 2016
Billet purchases' share in longs production in MENA is growing
© Metal Expert
0
5
10
15
20
25
30
35
Turkey GCC Iran Egypt others
re-rollers
low competitive long producers, using scrap
import duty protected supplies into domestic market
highly competitive long producers, using DRI
Overvalued scrap provides huge potential for billet consumption
Others: Algeria - 24%, Syrian Arab Republic - 21%, Morocco - 14%
Long products capacity structure in MENA in 2015
© Metal Expert Note: in million t
13.2
16.7
19.7
2014 2015 2016
Billet consumption in spot market will increase by 3 million t in 2016
Note: in million t © Metal Expert
III. CIS suppliers to restore market positions
© Metal Expert
CIS50%
domestic suppliers
26%
China21%
others3%
CIS suppliers hold a half of MENA's spot billet deliveries
© Metal Expert Total: 16.7 million t in 2015
0
1
2
3
4
5
6
Turkey GCC Egypt others
import domestic supply
Billet supply to spot market by consuming countries in 2015
Total: 16.7 million t © Metal Expert
7.5
8.6
7.8 8.0
9.0
10.9
0
2
4
6
8
10
12
2011 2012 2013 2014 2015 2016
© Metal Expert
CIS will be the largest contributor into billet supply growth in MENA in 2016
Note: in million t
6.1
1.3
1.3
2.1
0
1
2
3
4
5
6
7
8
Exporters using iron ore Exporters using steel scrap
export in 2015
growth potential
CIS suppliers still have huge potential in billet export
Note: in million t © Metal Expert
1.0
3.6 4.0
0
1
2
3
4
5
6
7
8
2009 2010 2011 2012 2013 2014 2015 2016
longs billets
© Metal Expert
China's billet export to MENA will increase, long product export will stay stable
Note: in million t
0.8
1.6
2.3
2014 2015 2016
Iran billet export will keep growing
Note: in million t © Metal Expert
How do market players usually estimate profitability or competitiveness of mills' offers?
They use a method of conversion cost by adding COST OF RAW MATERIALS to ROLLING COST
(which is usually a fixed number)
Such estimates may give an error of up to 10%, which might exceed real producers' margins in
current market reality © Metal Expert
1) Changes of capacity utilization, which affect fixed expenses in unit cost 2) Changes of local currencies against US dollar 3) Changes of energy policies, e.g. subsidies for local producers 4) Changes of delivery cost (both for raw materials and finished products)
© Metal Expert
We use cost models which include the following estimations:
221228
301
365
150
200
250
300
350
Iranian from local ironore/DRI (at $58/t)
CIS from local ironore/DRI (at $31/t)
Chinese from ironore/BOF (at $60/t)
Turkish from USAscrap (at $283/t)
$/t
Turkey's case: square billet production costs of main suppliers
© Metal Expert
Conclusions
© Metal Expert
• Competition in spot billet market will remain high, as the CIS and Iran will increase deliveries in the second part of 2016
• Turkey and GCC will remain the main contributors in billet consumption in the Middle East
• MENA's consumption will expand by 3 million t in 2016.
• Billet remains highly attractive feedstock in the Middle East as ferrous scrap remains overpriced
• Chinese mills cannot follow cheap-export strategy any more
Metal Expert provides exclusive data in monthly report Turkey & Middle East Steel
(formerly known as World Steel Markets) - 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 [email protected]
Thank you for your attention
Andrey Pupchenko Deputy Managing Director
Metal Expert +38-056 370-12-07 (ext. 160)