SAMPLE. CIS Raw Materials Forecast. Metal Expert. Ferrous scrap, pig iron, iron ore, blast-furnace coke. November, metalexpert-group.

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1 Metal Expert CIS Raw Materials Forecast Ferrous scrap, pig iron, iron ore, blast-furnace coke Quarterly report November, 2015 SAMPLE metalexpert-group.com

2 SUMMARY The state of major world economies will keep governing the CIS steel markets dynamics. Prices will be influenced by a weak demand in almost all regions and tough competition among suppliers. Capacity utilization rate of China steelmaking companies is expected to reduce due to low sales profitability in both domestic and foreign market. However, due to state support for Chinese mills, the risk of dumping still remains, in CIS suppliers main sales outlets in particular. The steel output cuts will only push the raw materials quotations down. Prices for key raw materials in CIS to go down in price change forecast,% Coke, UA Coke, RU Scrap, UA Pellets, RU Scrap, RU Concentrate, RU Pellets, UA Concentrate, UA USD National Currency -50% -40% -30% -20% -10% 0% Just like in 2015 the changes in national currency rates will have the main influence on the raw materials pricing in CIS. In 2016 the average rouble rate is expected to be $1 = RUB (3% up), while Ukraine s hryvnia-to-us dollar rate is to be $1 = UAH ($1 = UAH 21.69). Weakened demand for steel products is to weigh on steel output in 2016 Steelmaking capacities utilization rates,% 80% Russia Ukraine 70% 60% There are no fundamental reasons for iron ore prices to grow in the forecasted period. Global iron ore market will still be seeing oversupply, which is the main reason for price fall. Increased supply of raw materials with lower production cost will set a new Metal Expert CIS Raw Materials Forecast November,

3 SUMMARY level of quotations. According to Metal Expert s estimates, the average annual price for Australian fines delivered to China may fall to $55 57/t in 2015 and to $43/t in Influenced by the global market conditions domestic quotations of Russia and Ukraine will drop by 20 30% depending on material. The drop in iron ore price, expected in 2016, leads the billet and pig iron quotations to the new level. Prices in these segments will still be influenced by the scrap market dynamics and by foreign markets demand. In 2016 the average yearly price for the exported billets will go down to $293/t (12% down) FOB Black Sea pushed by oversupply. Pig iron prices are expected to drop to $201/t FOB (19% down). The competition between the domestic consumers of scrap both in Russia and Ukraine will be tight despite the reduction of consumption. The existing balance will keep the scrap prices at the same level despite the decrease in prices for steel products and global scrap quotes. The average price in domestic markets of Russia and Ukraine is expected to be RUB 8,423/t and UAH 3,360/t respectively. Oversupply in the coke market of Russia will grow in 2016 due to decrease in domestic consumption and export demand. The excess will weigh on prices even in view of production cost increase. According to Metal Expert s estimates, domestic coke prices will go down by 8% to RUB 8,423/t in Coke market in Ukraine will still see a shortage. As the country s own coke plants resume their work, the consumers will cut purchases from the free market which will lead to decrease in market capacity. Average yearly coke price will go down to UAH 4,148/t (3% down year-on-year) in Ukraine. Metal Expert CIS Raw Materials Forecast November,

4 Content Macroeconomics 5 STEEL MARKET TRENDS 10 Billet market 19 Russian scrap market 27 Ukrainian scrap market 35 PIG IRON MARKET 41 global iron ore market 52 Russian Iron Ore Market 58 Ukrainian iron ore market 67 RUSSIAN COKE MARKET 73 Ukrainian coke market 80 Appendix 87 methodology 91 Detailed statistical information is provided in statistical excel-supplement Metal Expert CIS Raw Materials Forecast November,

5 SUMMARY Macroeconomics Trends in the Global Economy 6 Russian Federation and the Eurasian Economic Union 6 Ukraine 8 Metal Expert CIS Raw Materials Forecast November,

6 Macroeconomics Trends in the Global Economy and the Outlook for Thesigns of an upturn in the economies of China and the US evaporated in Q3 2015, following the relatively promising spring. The painful stock markets correction was witnessed around the globe, accelerated by the worries about China s dynamics, and oil prices went through another slump. The excess capacities in the world s mining, aimed at meeting the allegedly endless growth in Asia s demand, kept putting a sustained pressure on the markets, while steel output kept stagnating, as well as the international trade. We do not expect a significant improvement in the global economy in the quarters to come. A sluggish growth is to commence in mature economies, with paces to down in the US and to remain virtually unchanged in the Eurozone. Growth like that implies no upswing in steel consumption. The activity in America s oil and gas industry is to remain on a downward trend, though some more drilling may be seen by the end of the year should the optimistic scenario with oil prices reaching $XX a barrel in mid 2016 materialize. The overall state of the world s economy means that even if the Fed decides in favour of a rate rise in December, the scale of the move will be symbolic and the cycle of artificial strengthening the already excessively strong dollar is not to follow as the ECB s stimulus continues. In fact, the situation in the emerging market reflects the period of repatriation of capital to the US, resulting in dollar s strength, but thus also offering some new export prospects for the EMs and the Eurozone. We expect China s official GDP growth figure to be between XX% and XX% for 2015 and no higher than XX% in The latter figure could drop to as low as XX% in case of the hard landing, but the probability of such scenario is relatively low. Meanwhile steel consumption is to remain on the downward trend, which implies further pressure of China s excess capacities on the global steel market. Russian Federation and the Eurasian Economic Union The situation in Russia and the EAEU is defined by the two controversial processes: the contraction of domestic demand, both consumer and investment demand, and the aftermath of rouble s devaluation, which resulted in a slight upturn in the physical volumes of non-energy exports and in the greater share of local products in domestic markets. Metal Expert CIS Raw Materials Forecast November,

7 Macroeconomics Russia s economy is being rebalanced as imports drop dramatically Final sales of domestically produced goods and services to domestic purchasers, billions of 2008 roubles Domestic goods and services share of domestic demand (inventory investment excl.), 2008 prices, % (rhs) The unprecedented drop of inventories has dramatically influenced the overall business dynamics, and is a major reserve of economic growth as the inventories shall inevitably begin to recover. Thus as the domestic demand is to contract further, it is balanced by the abandonment of imports and some physical growth of exports, which stabilizes the GDP volumes. We expect the drop of Russia s GDP at XX% to XX% in 2015 and about XX% in 2016, the latter figure may improve in case inventory investments recover at a faster pace. The major worry for the real economy is the tight credit market. Inventories dynamics enhanced the drop of GDP in XXH 2015 and became a major reserve for the future recovery Inventory investment accumulated, billions of 2008 roubles A moderately strict monetary policy results from the uncertainty in export earnings. Once the Central Bank makes sure the oil price has hit bottom, thus lowering the risk of speculative attacks on the rouble, an eventual loosening of monetary policy may be expected, along with some livelier credit market. Metal Expert CIS Raw Materials Forecast November,

8 Macroeconomics Such certainty, should the moderately optimistic oil price scenario materialize, may appear by some mid Under these circumstances, the average RUB/USD exchange rate is forecast to be XX for Ukraine Ukraine s economy appears to have passed the bottom phase somewhere in mid 2015 and has begun a slow recovery, but the quarter-on-quarter dynamics in 2014 through HXX 2015 results in unattractive annual figures of our forecast. Even with every quarter (seasonally adjusted) positive beginning from Q3 2015, the drop of GDP may reach XX% or even more in Provided no new shocks add from the global markets and the political situation, the economy may grow as fast as XX% in 2016, but even in Q4 2016, the GDP will be below the deeply troubled Q figure. Hryvnia s exchange rate will be defined by the current account as previously, taking into account the energy imports in winter time and borrowing from abroad to balance the finance account. The forex reserves problem is no longer a major threat, while the situation with the debt owned by the Russian Federation, though may temporarily influence the market sentiment, is not likely to be assumed as a sovereign debt default by the investors and is likely to be resolved in some way. Foreign borrowing is already dependent on non-market mechanisms. The commercial banking system is a bigger threat, with dozens of banks subject to bankruptcies or nationalization. In the end, only foreign and state owned players are likely to remain in the nation s market. ME s UAH/USD exchange rate forecast forecast 12 8 Jan.14 Jun.14 Nov.14 Apr.15 Sep.15 Feb.16 Jul.16 Dec.16 Metal Expert CIS Raw Materials Forecast November,

9 Macroeconomics Forecast of key market indices in change, % forecast 2015/ /2014 Average annual price for crude oil (Brent), $/bbl. XX XX XX XX% XX% Price for crude oil (Brent) in December, $/bbl. XX XX XX XX% XX% Russia Capital investments, prices of 2014 year, RUB billion XX.XX XX.XX XX.XX XX% XX% Investments in residential construction, prices of 2014 year, RUB billion XX.XX XX.XX XX.XX XX% XX% Investments in mining, prices of 2014 year, RUB billion XX.XX XX.XX XX.XX XX% XX% Buildings commissioned, total area, million sq m * XX XX XX XX% XX% incl. residential, million sq m * XX XX XX XX% XX% incl. non-residential, million sq m * XX XX XX XX% XX% Crude oil production, million tonnes XX XX XX XX% XX% Gas production, billion cubic m XX XX XX XX% XX% Average annual USD/RUB exchange rate XX XX XX XX% XX% USD/RUB exchange rate in December XX XX XX XX% XX% Ukraine Residential buildings commissioned, total area, million sq m* XX XX XX XX% XX% Crude oil production, million tonnes** XX XX XX XX% XX% Gas production, billion cubic m** XX XX XX XX% XX% Average annual USD/UAH exchange rate XX XX XX XX% XX times Kazakhstan Residential buildings commissioned, total area, million sq m XX XX XX XX% XX% Crude oil production, million tonnes XX XX XX XX% XX% Gas production, billion cubic m XX XX XX XX% XX% * - without Crimea ** - without Chernomorneftegaz Beginning of section Content Metal Expert CIS Raw Materials Forecast November,

10 SUMMARY STEEL MARKET TRENDS This year crude steel output will stabilize at some XX million t in Russia. Despite shaky demand for steel products, producers have managed to prevent the decrease in aggregate output by raising the share of semis in production. However, due to the excess in supply expected in this segment, in 2016 Russia s steel production is likely to drop below the 2013 level to less than XX million t. Ukraine s steel production in is likely to be much below the highest levels seen in previous years (for instance, XX million in 2007) despite the resumption of operations at a number of idling mills. The country is expected to produce XX million t of steel in 2015 and XX million t in RUSSIA 11 UKRAINE 15 Metal Expert CIS Raw Materials Forecast November,

11 RUSSIA In Q1-Q3 Russia produced XX million t of steel, about the same as a year ago. A substantial rise In production was recorded in HXX amid a panic buying urged by devaluation and hiking prices. In Q3 steel production reduced y-o-y due to a drop in finished longs output. Steel production will remain at low levels at the end of the year due to traditional slowdown of domestic demand in winter and tough competition in export outlets. In general, this year steel production will be about the same as in Decrease in domestic demand is offset by rising exports Rise in export and domestic shipments of finished steel and semis, million t finished products domestic supply longs and billets export flats and slabs export 1,0 0,5 0,0-0,5-1,0-1,5 Q1 15/Q1 14 Q2 15/Q2 14 Q3 15/Q3 14 In 2016 Russian mills will reduce steel production by XX% (Metal Expert s estimate) amid excessive supply and tighter competition in the global market as well as steadily weak domestic and export demand. Forecast of steel production in Russia Steel production by types, million t 75 OHF BOF EAF forecast NLMK The holding will cut steel production due to drop in flats output at the Lipetsk asset and NSMMZ. Metal Expert CIS Raw Materials Forecast November,

12 STEEL MARKET TRENDS RUSSIA Volumes redistributed with launch of mill in Kaluga 2,0 1,5 1,0 0,5 Nizhnye Sergi S/W NLMK-Kaluga NLMK to cut steel production due to lower flats output slabs flats crude steel 12,4 12,8 13,0 12,7 0, MMK Production of all kinds of steel will reduce in 2016 due to expected decrease in both flats and longs output. Exports fail to offset drop in domestic sales 0,5 Steel production to move back to 2013 level BOF EAF OHF 0, ,9 13,0 12,4 11,9 8-0,5 domestic deliv. comp 4-1,0 export comparison 9 m 13 9 m 14 9 m Evraz Group Steel production will rise due to ousting of Ukrainian products from the segments of sections and rails as well as because of increase in semis exports. Metal Expert CIS Raw Materials Forecast November,

13 STEEL MARKET TRENDS RUSSIA ZSMK to stay growth driver, its share rising 2 p.p. NKMK 9% Holding to begin steel production ZSMK NTMK NKMK 12 0,7 0,9 0,8 1,1 8 4,4 4,2 4,2 3,9 4 6,7 6,7 6,3 6,9 NTMK 33% 2016 ZSMK 58% Severstal The holding s aggregate steel production will decrease as Balakovo will fail to offset the drop in output at CherMK. Flats production to drop, rise in longs production to slow down 1,5 Holding s aggregate steel production to decrease Cherepoves S/W LPM Balakovo 12 flats longs 10,7 10,9 11,1 10,2 1,0 8 0,5 4 0, ,0 0,4 0,6 0, Metalloinvest The holding s production of steel will drop. Meanwhile, the share of merchant semis will increase. Metal Expert CIS Raw Materials Forecast November,

14 STEEL MARKET TRENDS RUSSIA OEMK changes production structure finished products semis share of semis (rhs) ,7 1,9 2,0 1,9 0,7 0,7 0,6 0, % 74% 72% 70% 68% All holding's mills will reduce steel production ,2 Uralsteel 3,4 3,4 OEMK 3,3 1,5 1,1 1,0 0, Mechel The company will reduce steel output by a mere XX%. The decrease will be registered at EAF-based assets due to a drop in flats output. Production of BOF steel will remain stable along with the longs output. Only EAF steel production to decrease on drop of flats output 0,6 flats EAF 6 Holding s steel production to edge down Chelyabinsk S/W Izhstal 0,4 4 0,3 0,2 0,2 0,2 0,2 0,2 2 4,3 4,0 4,0 3,9 0,1 0, * million t if not specified otherwise Beginning of section Metal Expert CIS Raw Materials Forecast November,

15 UKRAINE Steel production is recovering gradually in Ukraine. In Q3 the country produced XX million t of steel, which is by XX million t higher than the lowest figures registered at the beginning of the year. However, production volumes are still low if compared to the pre-crisis levels of over XX million t per quarter. In Q1-Q3 Ukraine s aggregate steel production amounted to XX million t, down XX% y-o-y. Steel production is recovering gradually in Ukraine Steel production dynamics, million t Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 Q1 14 Q1 15 In 2016 steel production will continue to depend on export demand amid steadily weak domestic buying. Meanwhile, Ukrainian exporters will have to compete hard with Russian and Chinese suppliers even despite weak national currency. Besides, in the long run the output will strongly depend on the situation in the east of the country. According to Metal Expert s estimates, in 2015 Ukraine will produce XX million t of steel, down XX million t or XX% y-o-y. In 2016 steel production is likely to recover by XX% to XX million t. Forecast of steel production in Ukraine Steel production by types, million t 40 OHF BOF EAF forecast Metal Expert CIS Raw Materials Forecast November,

16 STEEL MARKET TRENDS UKRAINE Metinvest The holding will remain the largest national steel producer despite a drop in output. Holding s mills will account for over 50% of steel produced Zaporo zhstal 16% 15 Yenakiieve Steel will account for most of steel production increase Zaporozhstal Azovstal 2,9 Ilyich S/W Yenakieve M/P Others 49% Azovsta l 14% ,1 5,0 1,9 2,5 3,5 2,7 2,6 4,5 3,6 3,3 3, Yenakie ve M/P 10% Ilyich S/W 11% 0 3,8 4,0 4,0 3, ISD Alchevsk Iron and Steel Works is restoring steel production thanks to resumption of steel product manufacturing and in-house shipments of slabs. AMK resumed operations in midyear 1,0 0,8 0,5 flats slabs longs billets Steel melting unlikely to restore to former levels forecast Dneprovsky S/W 2,9 Alchevsk S/W 2,5 2,7 2,5 0,3 1 0,0 III кв. 13 I кв. 14 III кв. 14 I кв. 15 III кв ,2 2,5 0,5 1, Evraz Group Production is being restrained by weakness of domestic demand and tight competition in export outlets. Metal Expert CIS Raw Materials Forecast November,

17 STEEL MARKET TRENDS UKRAINE 1,0 0,8 Upstream production to gain importance longs production billets export 1,0 0,8 Steel production to stabilize at new levels forecast 1,0 1,0 0,9 0,9 0,5 0,5 0,3 0,3 0, , ArcelorMittal Kryvyi Rih Steel supply will rise on increase in merchant semis output Share of merchant feedstock in production continues to expand longs billets billets share (rhs) 40% 30% 20% Steel production to increase upon end of repairs in BOF shop BOF 5,2 5,1 OHF 4,6 forecast 4,8 1,3 1,2 1,2 1, % Interpipe Loss of key sales outlets Russia and USA is the main reason behind the drop in production. Metal Expert CIS Raw Materials Forecast November,

18 STEEL MARKET TRENDS UKRAINE Тысячи Export: company loses sales outlets 0,5 0,4 USA Russia Others 1,0 0,8 Steel production to stay restrained 1,0 0,9 forecast 0,3 0,2 0,5 0,5 0,6 0,1 0,3 0 9 m 13 9 m 14 9 m 15 0, * million t if not specified otherwise Beginning of section Content Metal Expert CIS Raw Materials Forecast November,

19 UKRAINE Billet market An anticipated further softening of raw materials prices will extend a period for setting new bottom prices for semis. According to Metal Expert s estimate, a yearly average price for square billet in 2015 will be $XX/t Russia FOB Black Sea. In 2016 quotes of Russian billet will decrease another XX% to $XX/t FOB under pressure from excessive supply and sluggish market sentiment. EXPORT BILLET MARKETS 20 Forecast of CIS market balance 22 Forecast of supply in Russia 23 Forecast of supply in Ukraine 24 PRICE FORECAST 25 Metal Expert CIS Raw Materials Forecast November,

20 EXPORT BILLET MARKETS CIS billet is still mainly marketed in MENA region Structure of CIS billet exports 5% 5% 9 m % MENA Far East 9 m % 5% 7% 15% West. EU 12% 67% East. EU 69% Others Global trading of merchant billet improved XX% in HXX 2015 to XX million t. In Q3 the world largest billet consumer Turkey imported some XX million t (XX million t up or XX% q-o-q), as Metal Expert estimates. The increase was fully covered by supplies from China, while imports from the CIS went down practically to the traditional level of some XX million t per quarter. Besides, Iranian companies have become quite active in billet market after lifting of sanctions. Khouzestan Steel Company boosted shipments to Bangladesh, Thailand, Pakistan, Egypt, Turkey and GCC countries. The company targets the 2015 exports at some XX million t of semis (XX million t a year ago). Competition with China strengthens in billet segment Structure of billet imports in Turkey, million t 1,2 from China from CIS Others 0,8 0,4 0,0 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Economic slowdown in China and negative trends in the key consuming industries drove domestic steel product consumption down further, so local mills switched to exports. At the same time, slack global markets for finished steel pushed up semis supply. With decreasing production costs on cheaper main raw materials (iron ore, coking coal), Chinese steelmakers kept sticking to aggressive pricing policy and boosted merchant billet exports. According to Metal Expert s estimate, China supplied to overseas markets up to XX million t of billet. Metal Expert CIS Raw Materials Forecast November,

21 Billet market EXPORT BILLET MARKETS In July-September square billet was a complete alternative to steel scrap, thus many steelmakers partially became re-rollers. An upturn in market capacity is related to more cost-effective re-rolling of purchased semis in finished longs, compared to steel melting using scrap at own EAFs. In certain periods of Q3 the share of rebar rolled from purchased billet was above XX% in Turkey. Higher billet supply leads to smaller gap between prices for billet and scrap Prices for scrap and billet in Turkey billet scrap Jan.14 May.14 Sep.14 Jan.15 May.15 Sep.15 Competition between suppliers of scrap and billet was mostly tough in Q3. With nonstop decline in prices for Chinese semis and longs quotes both in the domestic and foreign markets Turkish mini-mills got positive margins only while re-rolling import billet, which actually affected positions of scrap suppliers. However, scrap was mostly overpriced compared to billet in July-September. Besides, negative influence on merchant billet segment is still coming from excessive longs supply in the Middle East due to decreasing market capacity (mainly in oil-based GCC countries). Beginning of section Metal Expert CIS Raw Materials Forecast November,

22 Forecast of CIS market balance Domestic merchant billet market in Russia and Ukraine will be traditionally very tight demand will be almost fully covered by material of own production or in-house supplies. According to Metal Expert s estimate, the share of domestic supplies in merchant billet sales will be XX% and XX% respectively. At the same time, stocks will be minimal given ongoing final demand weakening. The material will be mainly exported as before. Total foreign supplies from Russia are estimated at XX million t in 2016 and from Ukraine XX million t. However, some pressure on suppliers will come from persisting competition in the global market. Foreign destinations will remain the key sales outlets for merchant feedstock 6 domestic export forecast Forecast of billet shipments in Russia, million t Forecast of billet shipments in Ukraine, million t 6 domestic export forecast Billet market will remain oversupplied on decreasing consumption. Despite the need for balancing global market, it will take up to six months to achieve a complete production decline given unjustified policy followed by some market participants, as Metal Expert believes. A downturn in steel melting will only strengthen the pressure on prices for raw materials and thereafter for HVA products. Beginning of section Metal Expert CIS Raw Materials Forecast November,

23 Forecast of supply in Russia Metalloinvest Evraz Group The holding raised billet exports by XX% in Q1-Q3 to XX million t, with almost all the material coming from OEMK and just minimal quantities from Ural Steel. OEMK raised production of merchant material (the share in production may add XX p.p. to XX% this year). Further upturn is restrained by existing capacities. In billet exports from the asset are estimated at XX XX million t. As before, shipments will be mainly done to Turkey, Egypt, Saudi Arabia and Italy. Novorosmetall In Q1-Q3 the group almost doubled exports of merchant billet to XX million t. In Q4 shipments will stay relatively high, but decrease year-on-year, since it is focusing on finished steel production. Total exports will reach XX million t in 2015 (XX% up) and may add XX% more in The growth will be restrained by the competition with China in SE Asia. Amurmetal With current market situation, the company managed to run at XX% capacity the Q3 supplies amounted to XX t (capacity of electric steelmaking complex XX million tpy). Overall foreign sales in Q1-Q3 rose XX% to XX t. Abinsk Electric Steel Works boosted foreign sales by XX% over Q1-Q3 to XX t (the material was mostly shipped to Egypt). An increase is related to growing returns on sales. In September the rouble devaluation made billet exports $XX/t more profitable (EXW basis, without re-rolling costs, $XX = RUB XX), against rebar sales in the domestic market (the main sales outlet). Metal Expert expects the holding to raise billet exports by XX% year-on-year in 2015 to XX million t. Considering weaker demand for billet and decreasing margins the volumes can be lowered to XX million t in Unlike the general trend, the producer reduced billet exports by XX% in January- September to XX t due to irregular raw materials supplies on railway transportation problems. After the situation backs to normal supplies may increase in Q4. The 2015 quantities will generally remain at the last-year levels XX XX t; the 2016 figures are expected at some XX t of billet. Beginning of section Metal Expert CIS Raw Materials Forecast November,

24 Forecast of supply in Ukraine ISD ArcelorMittal Kryvyi Rih The holding has been exporting only billet from DMKD since In Q1-Q3 foreign supplies decreased XX% to XX million t mostly due to short coke supplies from Alchevsk Coke. Raw materials problems will remain among the key factors influencing production. Coke supplies have secured by now thanks to both resumption of in-house supplies and imports. However, scrap stocks are very low deliveries to the sites are XX-fold below the target. Considering the above factors, billet exports in are estimated at XX million tpy. If Alchevsk Iron and Steel Works resumes operations, shipments will be minimal (it still suffers from short supplies of raw materials, electricity problems as well as complicated logistics). Metinvest Like the majority of other producers, AMKR raised the share of feedstock in 2015 due to sluggish finished steel market. Nevertheless, the 2015 billet exports may be slightly below XX million t, unchanged year-on-year. Steel output was affected by repairs of oxygen-converter shop. Metal Expert expects shipments of merchant billet to increase XX million t in Evraz Group In January-September the company reduced billet exports by XX% to XX million t due to downtimes and low capacity utilization at Yenakiieve Steel at the beginning of the year. The 2015 volumes will correspond to the last-year results XX million t, while in 2016 the figures may improve to XX million t The rise will be restrained by low sales performance due to decreasing export billet prices. EVRAZ DMZ Petrovskogo raised billet exports by XX% y-o-y in HXX 2015, but in Q3 reduced volumes due to lower steel output (with BF No.XX being under repairs, feedstock was primarily destined for longs mills). Merchant billet production will go up as soon as the repairs are completed. In 2015 billet exports can reach XX t (XX% down), while in 2016 supplies may move back to the 2014 level of XX tpy. To raise foreign sales of semis when sections demand slackens is the only alternative for the mill to maintain capacity utilization. Beginning of section Metal Expert CIS Raw Materials Forecast November,

25 PRICE FORECAST CIS billet was priced $XX/t in late Q3-early Q4, by XX XX% down year-on-year. The key factor determining the global billet market sentiment was boosted export supply of Chinese semis. Amid excessive supply observed in tandem with decreasing steel consumption in China, prices had been on the downward track almost within the whole period under review. Despite relatively long lead time, Chinese products enjoyed stable demand not only in SE Asia and Turkey, but also in the MENA region thanks to the most competitive prices. Unwilling to lose grounds in sales destinations, CIS suppliers revised prices, following the Chinese. Prices plunge in all segments in 2015 Dynamics of export prices for rebar, billet and scrap from Russia, FOB Black Sea, $/t billet scrap rebar In 2016 billet prices will be under pressure from sluggish situation in the global longs market. Although Chinese steelmakers keep trying to stabilize the market it is not easy to achieve a balance when domestic market is weak and iron ore prices decrease. Besides, steel product output in the Middle East that recently was one of the most fast-growing regions, fells intensifying pressure from falling oil prices The influence on the global merchant billet market will also come from the iron ore price dynamics. An anticipated non-stop decline in iron ore quotes in 2016 will extend the period for determining of new price minimums in the longs and semis segments. Besides, a risk of steadily excessive supply from China remains a live issue for today. With current market environment, Chinese steelmakers have been in the red for more than two months already, which may significantly reduce their presence abroad. However, they can start leaving foreign markets only in Q or later given strong state support, as Metal Expert believes. Nevertheless, some signs of decline in supply from China can be seen already now: traders do not rush to reduce prices, while billet orders in the Middle East region have plunged. According to Metal Expert s estimate, a price decline in 2016 will slow down from XX% (expected in 2015) to XX%. An average price for Russian billet may be some $XX/t FOB in 2016 Metal Expert CIS Raw Materials Forecast November,

26 Billet market PRICE FORECAST Forecast of billet prices Prices for Russian billet FOB Black Sea, $/t forecast Beginning of section Content Metal Expert CIS Raw Materials Forecast November,

27 PRICE FORECAST Russian scrap market Russian mills are expected to reduce scrap consumption in 2016 on decreasing steel melting, which will affect collection of purchased scrap. Total scrap collection will be also impacted by suspension of exports growth foreign supplies will be getting less attractive as global prices decrease and the rouble stabilizes. Amid the above factors a yearly average domestic prices for scrap will fall XX% in 2016 to RUB XX/t without VAT. FORECAST OF MARKET BALANCE 28 FORECAST OF MARKET BALANCE BY REGION 30 PRICE FORECAST 33 Metal Expert CIS Raw Materials Forecast November,

28 FORECAST OF MARKET BALANCE With steel melting being stable scrap consumption in Russia was slightly below XX million t in January-September (XX% down year-on-year). The decline is related to growing pig iron output (XX% up over the period under review). In Q1-Q3 scrap collection reached XX million t (some XX million t in total a year ago): some XX million t was marketed domestically. The Volga Federal District remains the major domestic supplier it supplied to other regions XX million t in January-September (more than a half of total interregional deliveries in Russia). As before, scrap remains in short supply in the Ural and Southern Federal Districts specifically, shortage slightly decreased in the Urals, while in the southern region the market became even somewhat oversupplied in Q2 on growing exports. Moreover, all export-oriented Federal Districts increased shipments given the rouble weakening, which, in turn, affected their market balance. Total foreign shipments rose XX% to XX million t. The North-Western Federal District is still the largest exporter in Russia with supplies reaching XX million t (XX% up year-on-year). At the same time, the second largest exporter (the Central Federal District) managed to boost sales by XX% almost to XX million t. Scrap shortage persists in Ural and Southern Federal District Scrap market balance, by federal district, million t Ural Southern Far Eastern Northwestern Siberian Central Volga According to Metal Expert s estimate, total scrap consumption in Russia may decrease XX% to XX million t. The decline will be more significant in 2016 following anticipated downturn in steel melting, scrap demand will drop XX% (XX million t down) to XX million t. Apart from falling domestic demand export sales will become less attractive on decreasing global prices. As a result, purchased scrap collection in Russian may weaken by XX million t from the level expected for Metal Expert CIS Raw Materials Forecast November,

29 Russian scrap market FORECAST OF MARKET BALANCE Scrap collection will decrease in Off-site scrap demand Scrap collection Collection and consumption of scrap, million t 27 forecast Beginning of section Metal Expert CIS Raw Materials Forecast November,

30 FORECAST OF MARKET BALANCE BY REGION Ural Federal District Central Federal District The regional market balance stays negative producers cannot fully cover raw materials requirements with scrap sourced in the region. However, demand for scrap from the other regions slackened. In January-September the share of scrap from other districts in purchase structure remain high at XX%. The 2015 apparent balance in the Ural Federal District is estimated at XX million t ( XX million t in 2013; XX million t in 2014). In 2016 buying of scrap from other regions will keep slowing down. Consumption will drop at least XX million t, though scrap collection in the region will decrease at much slower pace. According to Metal Expert s estimate, scrap collection may fall by XX million t from 2015 to XX million t under pressure from low prices. Southern Federal District The regional market balance remains positive, though increasing scrap consumption at NLMK (on higher capacity utilization at Kaluga mini-mill s electric steelmaking complex) will keep competition among buyers tight in the region. In 2015 an upturn in NLMK s demand will not only offset a decline in buying activity of other regional customers, but also improve total consumption of the district by XX million t. In 2016 total demand is expected to stabilize at XX XX million t. At the same time, scrap collection in will not exceed XX million t per year (XX million t in 2014). Supplies outside of the region (domestic and foreign marketы) will decrease from XX million t in 2014 to XX XX million tpy. The regional scrap market that has been tight for the past two years is approaching a balance this year. According to Metal Expert s estimate, supply will increase XX million in 2015 to XX million t. This will help to cover regional demand from Abinsk Electric Steel Works, Novorosmetall and Tagmet as well as promote stable foreign sales (XX XX million t). Scrap shortage in the district is unlikely to aggravate in 2016: total demand for the material sourced externally will not exceed XX t. A decline in consumption at regional plants will slow down following the general trend and will be reflected in scrap collection. Supplies outside of the region will decrease. Metal Expert CIS Raw Materials Forecast November,

31 Russian scrap market FORECAST OF MARKET BALANCE BY REGION North-Western Federal District Volga Federal District Demand from the key regional buyer (CherMK) will determine the market balance in the region. This year scrap consumption at Severstal is likely to remain at XX million t, but will decrease XX% in 2016 on cutbacks of steel product output, as Metal Expert believes. The scrap market balance in the district is unlikely to change much in 2016 following domestic demand downturn in the region (XX million t down in total), exports will also fall affecting scrap collection by XX% to XX million t. The share of foreign sales will decrease to XX%, compared to XX% in Siberian Federal District In supply will traditionally exceed demand in the region. The district will remain the key scrap supplier, though outside supplies will be falling. In 2015 an increase in consumption at Severstal s Long Product Mill Balakovo and OMK-Steel will be partially offset by reduced demand from Ural Steel and Vyksa Steel Works In Q1-Q3 regional scrap collection rose XX%, but the increase is gradually slowing down. Metal Expert expects an upturn will not exceed XX% in 2015, while in 2016 collection can even drop XX%. Supplies outside of the region will decrease to XX million t in 2015 and to XX million t in 2016 (XX million t in 2014). Far Eastern Federal District The regional scrap market balance stays positive. In January-September all producers reduced steel melting year-on-year. As a result, total scrap consumption in the region dropped XX% year-on-year over the period under review to XX million t, with the demand being fully covered with regional scrap. According to Metal Expert s forecasts, scrap oversupply in the district will decrease in given higher consumption at Evraz Group, while scrap collection in shows signs of possible decline by XX XX million t per year. Foreign supplies will remain minimal some XX% of total scrap collected in the region. The scrap market balance stays positive in the region. The key local consumer Amurmetal is unlikely to raise purchases: facing low returns on sales in June the producer suspended both longs facilities and the only operating EAF for a month (the second furnace has been idle since 2009). Later it carried out repairs, which impacted performance as well. According to Metal Expert s estimate, steel melting will decrease to XX million t in due to stable competition with Chinese suppliers. Metal Expert CIS Raw Materials Forecast November,

32 Russian scrap market FORECAST OF MARKET BALANCE BY REGION As a result, scrap exports from the region will be XX million in 2015 and up to XX million t in Shipments to other regions of the country will be minimal based on the geography. Beginning of section Metal Expert CIS Raw Materials Forecast November,

33 PRICE FORECAST In January-September domestic scrap prices in Russia dropped XX%, reaching RUB XX/t in September. The September figures decreased XX% year-on-year. Currency fluctuations slightly slowed down the decline US dollar equivalent plunged XX% in January-September and XX% year-on-year. According to Metal Expert s forecast, an average scrap price in 2015 will be RUB XX/t (XX% down year-on-year). The decline is expected to continue in The key influence on domestic scrap pricing will still come from the changes of the rouble against the US dollar. According to Metal Expert s forecast, the rouble will show moderate revaluation with a yearly average rate staying at $XX = RUB XX ($XX = RUB XX in 2015). Scrap prices will be under pressure from further softening of billet and pig iron quotes (driven by oversupply and cheaper production costs). In 2016 the gap with prices for substitute products will partly move back to the previous levels the gap between prices for substitute products will partly move back to the previous levels. Export prices for Russian pig iron and scrap, FOB $/t pig iron scrap forecast Besides, domestic prices for rebar may also go down in Russia, Metal Expert believes. With slack demand in the segment, quotes can lose XX% over a year. Steelmakers will press for lower raw materials costs amid decreasing returns on sales. Minimal competition with exporters will also promote a decline in domestic buying prices. Exporters will have to reduce buying prices at ports due to further global softening of scrap quotes. In 2016 import scrap prices in Turkey are likely to drop XX%, against a yearly average level expected in Considering all the above factors, a yearly average domestic price for scrap will be RUB XX/t, by XX% down from the 2015 expectations, Metal Expert thinks. The general trend will mainly depend on seasonal factors. Metal Expert CIS Raw Materials Forecast November,

34 Russian scrap market PRICE FORECAST Scrap prices will decrease in 2016 Domestic scrap prices, RUB/t forecast Beginning of section Content Metal Expert CIS Raw Materials Forecast November,

35 PRICE FORECAST Ukrainian scrap market Scrap will remain in short supply in Ukraine. Despite generally decreasing scrap consumption, local steelmakers keep facing problems with restocking. Current market balance will support prices when steel products quotes get softer. An average domestic price in 2016 is expected at UAH XX/t. FORECAST OF MARKET BALANCE 36 FORECAST OF CONSUMPTION BY COMPANY 37 PRICE FORECAST 39 Metal Expert CIS Raw Materials Forecast November,

36 FORECAST OF MARKET BALANCE Overall scrap demand has plunged on falling steel melting in the country, though shortage persists in the market due to both lower inflow from eastern region and Crimea as well as redirection of the volumes to foreign markets. In January-September total scrap collection dropped XX% year-on-year to XX million t, exports rose to XX million t (annual quotas XX million t). The share of exports increased from XX% to XX%. Scrap exports will go up this year Scrap market balance in Ukraine, million t 3 2 Scrap returns Off-ste scrap Import Export forecast Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q In 2016 scrap requirements will be low some XX million t (consumption was XXXX million tpy in 2010XX). Although Alchevsk Iron and Steel Works and Yenakiieve Steel resumed operations, production stoppages are still possible at the sites. Steelmaking capacity utilization at other plants will also be low due to slack steel product markets and shortage of coke and iron ore faced by some producers. DMZ is unlikely to commission an electric steelmaking complex and DEMZ to resume steel melting during the forecast period. Supply potential will be small at XX million tpy of obsolete scrap since collection is impossible in eastern regions. Besides, scrap collection will be affected by cheap prices too. According to Metal Expert s estimate, export quotas being at record level of XX million t this year will be fully used. However, exports may decrease in the future as foreign sales are getting less attractive after global prices plunged and national currency stabilized. Moreover, domestic producers are lobbying imposition of EUR XX/t export duty aimed at normalizing raw materials supply to local companies. Total exports in 2016 are estimated at XX million t, twice as much as the 2015 expectations. Imports will remain minimal. Although additional tariff on imports imposed for a year in February 2015 can be lifted from January 2016, purchases are unlikely to hike. Imports from Russia will be hampered by customs problems as well as increasing scrap shortage in some federal districts; scrap exports in Kazakhstan are still banned. Beginning of section Metal Expert CIS Raw Materials Forecast November,

37 FORECAST OF CONSUMPTION BY COMPANY In January-September consumption decline slowed down to XX% year-on-year. At the same time, production re-start at Alchevsk Iron and Steel Works did not make competition for scrap much tougher Q3 supplies were well below the traditional levels. Ukrainian mills will require XX million t of scrap (XX% down) in 2015 and XX million t in Scrap requirements will remain at the earlyxx level Steel production and scrap consumption, million t Steel production Scrap demand EAF-steel share, % (rhs) forecast 16% 12% 8% 2 4% 0 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Scrap collection will decrease Consumption and collection of scrap, million t 8 Need for off-site scrap Scrap collection forecast Metinvest In Q1-Q3 the holding s demand for scrap dropped XX% year-on-year to XX million t. The 2015 consumption is expected to decrease XX%. In 2016 scrap requirements will increase to XX million t on higher total steel melting, though the quantities will remain below the 2014 results. Demand will be covered by domestic supplies. Metal Expert CIS Raw Materials Forecast November,

38 Ukrainian scrap market FORECAST OF CONSUMPTION BY COMPANY Interpipe ISD In January-September scrap consumption amounted to XX million t (XX% down), including some XX million t of purchased material. Considering anticipated decline in steel melting on strong competition in foreign finished steel markets, scrap demand will generally decrease to XX million tpy in 2015XX which corresponds to a yearly requirements of purchased scrap at XX million t. ArcelorMittal Kryvyi Rih Alchevsk Iron and Steel Works has resumed operations at oxygen-converter shop No.XX since midxx In January-September total scrap consumption at Ukrainian assets of the holding plunged XX% to XX million t. In 2016 scrap consumption may increase to XX million t, including some XX million t of purchased material, if situation stabilizes in the region. According to Metal Expert s data, most of the tonnages will come from non government-controlled territories. In January-September AMKR reduced steel production by XX%, so scrap requirements went down to XX million t. Longs output has been expectedly decreasing in HXX 2015 due to slack demand, though feedstock production fails to fully offset the decline. In 2015 overall scrap requirements are likely to dip XX% (slightly below XX million t), third-party bookings will be some XX million t, as Metal Expert estimates. In 2016 scrap demand will move back to the 2014 level of XX million t on some upturn in steel melting. Beginning of section Metal Expert CIS Raw Materials Forecast November,

39 PRICE FORECAST In Q3 an average domestic price gained XX% year-on-year. At the same time, US dollar equivalent plunged XX%, reflecting the global scrap market trends. Influence from global trend on pricing in Ukraine has strengthened in 2015 Index of domestic prices for scrap in Ukraine and import prices in Turkey, $/t, Jan XX= XX 1,0 Ukraine Turkey 0,8 0,6 0,4 Jan.14 May.14 Sep.14 Jan.15 May.15 Sep.15 Domestic prices were based on global prices and demand in January-September, since devaluation of the national currency boosted the share of exports in sales structure. Local buyers who occasionally need to restock were competing for tonnages, thus mills bids prices were kept at the level of buying prices at ports. Metal Expert expects the influence from the global factor to soften over the forecast period cheaper scrap in global market as well as possible imposition of another EUR XX/t duty will make exports less attractive. In that case mills will get bigger chance for price actions. However, steadily short supply in tandem with weak hryvnia will keep promoting strong competition in the domestic market. According to Metal Expert s estimate, scrap collection can decrease XX million t in 2016 to XX million t: collection in eastern Ukraine will be impossible, while other regions cannot boost volumes due to limited quantities of easily available scrap and lack of scrap processing capacities. Scrap requirements are slightly rising (XX million t up) driven by gradually recovering steel production. As a result, an average price in 2015 will be UAH XX/t, by XX% up year-on-year. If average hryvnia rate remains at $XX = UAH XX, a yearly average price for scrap may be UAH XX/t (XX% down) in Domestic prices in the US dollars will decrease XX% and XX% in 2015XX respectively, Metal Expert believes. Metal Expert CIS Raw Materials Forecast November,

40 Ukrainian scrap market PRICE FORECAST Forecast of domestic scrap prices UAH USD forecast Beginning of section Content Metal Expert CIS Raw Materials Forecast November,

41 PRICE FORECAST PIG IRON MARKET The global market for merchant pig iron will face a subdued consumer activity amid excessive supply and decreasing prices. Meanwhile, weak rouble and low production costs will let Russian exporters cut prices and expand their share in the global market. Traditionally, demand for merchant pig iron in Russia and Ukraine will be met with the material of own production, with minor volumes being shipped largely to machine-building and pipemaking companies. Pig iron pricing will continue to depend on scrap market developments with regional and seasonal adjustments to supply-demand balance. Meanwhile, as both scrap and pig iron remain overpriced compared to iron ore, their quotes have some room for further decrease. The drop in iron ore prices anticipated in 2016 will bring pig iron quotes down to a new level. EXPORT MARKETS FOR PIG IRON 42 CIS MARKET BALANCE FORECAST 45 RUSSIA: SUPPLY FORECAST 47 UKRAINE: PIG IRON SUPPLY FORECAST 49 PRICE FORECAST 51 Metal Expert CIS Raw Materials Forecast November,

42 EXPORT MARKETS FOR PIG IRON In July-September, the global pig iron trade amounted to some XX million t, down XX% q-o-q and down XX% or XX million t y-o-y. Decrease in pig iron demand was urged by a lingering weakness of steel product markets and the related drop in global steel output (down XX million t or XX% y-o-y over the first XX months of 2015). USA remains the largest pig iron importer Pig iron imports structure 25% 9 m % USA Italy South Korea Turkey 28% 9 m % 1% 4% 4% 7% 8% 13% Taiwan Germany China others 1% 4% 6% 8% 4% 12% In Q3 all largest pig iron importers but the USA (up XX% or XX million t from Q2) cut purchases. A rise in shipments to the USA was a result of tighter competition among suppliers. Amid a collapse of scrap prices in the USA (by over $XX/t in Q3), pig iron suppliers had to follow a downtrend to urge buying while the substitute material continued to cheapen. Moreover, the decrease in pig iron quotes in Q3 (by some $XX XX/t) was slower than that in the scrap segment, so pig iron prices are likely to keep going down. Meanwhile, the devaluation of national currencies helped the Brazilian and Russian producers oust other suppliers (first of all, Ukrainian mills). The rise in shipments from Russia was secured by vertically-integrated holdings (NLMK, most of all), who boosted sales of upstream products amid a slowdown in global markets for finished steel. The decrease in US demand for imported pig iron over the XX months of 2015 was urged, contrary to expectations, not by improving self-sufficiency (as Nucor Steel was to keep raising DRI production at XX million tpy module in Louisiana), but by market deterioration. Metal Expert CIS Raw Materials Forecast November,

43 PIG IRON MARKET EXPORT MARKETS FOR PIG IRON Share of Russian and Brazilian supply increased to XX% US pig iron import structure, XX t Russia Brazil Ukraine others Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q In Q3 the European market for pig iron developed largely in line with worldwide trends, though sometimes the region was the most active part of the global market. Over July-September, all largest consumers cut pig iron imports (Italy by XX%, Spain by XX%, Germany by XX%). The key reason behind the cut was the decrease in steel production (by XX% q-o-q to XX million t in Q3) following a slowdown in finished steel demand. Among other reasons, decrease in Italy s demand in pig iron is explained by a rise in domestic production (up XX% q-o-q), first of all thanks to Ferriera di Servola, a part of Arvedi Group. Turkey cut pig iron imports over July-September dropped by XX% q-o-q to about XX t amid weak markets for steel products and scrap along with the traditionally aggressive pricing of Chinese billet suppliers. For most part of Q3 using billets instead of pig iron or scrap was more efficient. In August early September production cost of rebar made from Chinese billet was by $XX/t lower than in case of using scrap, or by $XX XX/t lower for rebar made of CIS billets. The Far Eastern market for pig iron was steadily inactive in Q3 amid decrease in demand and prices for finished steel and scrap. Shipments to Taiwan and South Korea dropped by XX% and XX% respectively. Imports to Thailand remained unchanged. Pig iron shipments decrease South Korean pig iron import structure, XX t India Russia China others Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Metal Expert CIS Raw Materials Forecast November,

44 PIG IRON MARKET EXPORT MARKETS FOR PIG IRON According to Metal Expert s estimate, global pig iron trade will amount to XX XX million t in 2015 (down XX XX% y-o-y) and remain at this level in This year, all largest consumers will cut imports with the biggest reduction to be seen in the USA and Italy (by XX XX% or XX XX million t in either country). The decrease in merchant pig iron trade is due to slowdown of steel production amid weak markets for steel products and oversupply. Besides, some largest importers (US Nucor, Italian Arvedi) keep cutting costs and raising self-sufficiency, therefore restraining demand as well. Beginning of section Metal Expert CIS Raw Materials Forecast November,

45 CIS MARKET BALANCE FORECAST Over the first XX months of 2015 Ukraine consumed XX million t of pig iron, down XX% or XX million t y-o-y. As always, domestic demand was met with own material, while Q1-Q3 shipments to the free market amounted to just XX t or XX% of total consumption. The decrease in production was registered at all mills but DMKD (+XX%) and Zaporizhstal (+XX%). Over XX months, Ukrainian exports of merchant pig iron amounted to about XX million t (down XX million t or XX% y-o-y). Share of CIS suppliers in global market is rising Global pig iron exports, million t Russia Ukraine others CIS share out of total, % (rhs) 50% 46% 12 42% 8 38% 4 34% 0 30% In Russia, mills requirements in pig iron are also met with the material of own production. In Q1-Q3 consumption amounted to XX million t, with a mere XX t bought in the free market. Production was driven by export sales, which increased by XX% y-o-y to over XX million t on weaker positions of Ukrainian mills. Ukraine s pig iron market continues to shrink Pig iron market balance, million t Facilities' self-demand Domestic shipments of merchant iron Export RUSSIA UKRAINE Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q According to Metal Expert s estimates, in the next year and a half the global pig market will continue to see the excessive supply amid decreasing consumption. The decrease in market capacity will be urged by lowering steel production. Besides, mills will be trying to raise self-sufficiency to minimize costs. Meanwhile, despite cuts in production Metal Expert CIS Raw Materials Forecast November,

46 PIG IRON MARKET CIS MARKET BALANCE FORECAST related to lower sales profitability, price competition among suppliers will tighten with quotes falling to the level of marginal market players. Share of Russian supply increases Pig iron exports, XX t Russia Ukraine forecast Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Beginning of section Metal Expert CIS Raw Materials Forecast November,

47 RUSSIA: SUPPLY FORECAST Forecast of merchant material volumes in 2016 Merchant pig iron deliveries, XX t Export Domestic shipments forecast Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Industrial Metallurgical Holding (Koks Group) Metalloinvest The holding s facilities will keep running at high capacity. The decrease to XX t seen in Q3 was due to the XX-day-long repairs at BF No.XX (XX million tpy). Industrial Metallurgical Holding s total merchant pig iron output is estimated at XX million t (XX% down). The share of Tulachermet in overall shipments will drop by XX pp on higher production at other plants, albeit remaining the largest at XX%. In 2016, Tulachermet will maintain merchant pig iron output high at XX million t in the falling market owing to the high quality of the material and relatively low production cost. The facility has pig iron production cost of RUB XX/t, against the national average of RUB XX/t. The bulk of the material will still go to the EU and the USA. Given that there is no necessity to ramp up capacity utilization on the back of lingering oversupply in the global pig iron market, the plant s BF No.XX (XX million tpy of pig iron, stopped in 2008) is unlikely to be relaunched over the forecast period. The commissioning will happen no earlier than in Q Ural Steel s nine-month merchant pig iron output rose by XX% y-o-y to XX million t, with almost the entire volume destined for Turkey (XX%). In total, the plant melted XX million t of pig iron, with less than a fourth being consumed internally. The switch to lower added value products is blamed on strong competition in the finished steel segment. The 2015 pig iron production is expected to gain XX%, reaching XX million t, which corresponds to almost full capacity utilization of the currently operational BFs. The capacity of the plant will be expanded in 2016; in the first half of the year, another conticaster will be launched and BF No.XX (XX million tpy) to replace the unit No.XX Metal Expert CIS Raw Materials Forecast November,

48 PIG IRON MARKET RUSSIA: SUPPLY FORECAST NLMK (XX tpy). Once the equipment goes on stream, the plant s casting capacity will rise to XX tpd. Given the situation in Turkey, the producer s main target outlet, where its sales revenue slipped on competition with scrap and square billet suppliers, the launch of new capacities may be postponed. Tensions will linger in the export segment in 2016, and the producer s internal consumption of pig iron decline (XX% down y-o-y); as a result, pig iron output will return to the XX million tpy seen in Kosaya Gora Iron Works (KMZ) Merchant pig iron production may exceed XX million t (up XX-fold y-o-y). Volumes rose on pig iron s relatively high margin in HXX as well as on Ukrainian suppliers losing ground in the global market. Deliveries from Ukraine will fall in 2016 too, albeit NLMK will be unable to ramp up shipments in view of insufficient BF capacity. Falling sales margin of pig iron and limited throughput of Novorossiysk Commercial Sea Port, through which pig iron is shipped bypassing Ukraine, will also take their toll. NLMK may ship no more than XX million t of merchant material in Stopped in May 2010 and relaunched in Q1, BF No.XX (XX million tpy) was used for ferroalloys production since November. Once the routine maintenance at BF No.XX making ferromanganese is over, the unit will switch back to pig iron. Delays are possible in view of the current market situation though. KMZ has higher pig iron production cost than other merchant pig iron suppliers, Metal Expert estimates the current figure exceeds that at other plants by $XX XX/t. As a result, the forecast of Kosaya Gora Iron Works 2015 pig iron production has been cut to XX million t (XX% down from 2014), and the 2016 figure to XX million t. The producer will almost halve its domestic deliveries on limited demand in Russia due to consumers being unable to substantially increase pig iron content in their EAF charge. Exports will account for XX XX% of total shipments in , up from XX% in Beginning of section Metal Expert CIS Raw Materials Forecast November,

49 UKRAINE: PIG IRON SUPPLY FORECAST Merchant pig iron volumes to shrink in 2015 Merchant pig iron deliveries, XX t 800 Export Domestic shipments forecast Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q DMZ Over the first ten months of the year, the plant s output shrank by XX% y-o-y to XX million t. DMZ has difficulties with raw material procurement this year in view of transport infrastructure disruption and, therefore, is forced to stop production periodically. Unfavourable conditions in the global market, the plant s priority destination, adds to the overall pressure. Under the most optimistic scenario, if hostilities in the east of Ukraine cease, DMZ will melt XX million t of pig iron in , against XX million t in 2014, Metal Expert estimates. Metinvest The holding s nine-month pig iron output shrank by XX million t or XX% to XX million t. The main decrease (about XX% of the aggregate figure) happened at Ilyich Steel, with Yenakiieve Steel s output also slumping on February-March stoppage. Like at all other plants in Eastern Ukraine, lower production is blamed on the problematic procurement of raw materials and pig iron shipments at facilities located within or in direct proximity of the ATO zone due to the destruction of transport infrastructure. Zaporozhstal was the group s only plant that showed positive dynamics in January-October pig iron output there rose by XX% y-o-y to XX million t. The growth was due to both higher internal consumption (steel production gained XX% over the same period) and rising exports (owing to redirection of some orders from Ilyich Steel). In general, Metinvest s merchant pig iron shipments exceeded XX million t in Q1-Q3 (XX% up y-o-y), accounting for XX% of aggregate production. Higher output of merchant material is attributed to relatively high marginality of pig iron over the three quarters of 2015, the rise was restrained by permanently weak demand in all key markets and tougher price competition both with suppliers of pig iron and substitute materials (the US and European scrap, Chinese square billet). In addition, shrinking capacity of tra- Metal Expert CIS Raw Materials Forecast November,

50 PIG IRON MARKET UKRAINE: PIG IRON SUPPLY FORECAST ditional target markets forced the producer to look for alternative destinations. After a long pause, sales to Mexico and Egypt were resumed, as well as deliveries of casting pig iron to the UAE and Europe. Should its assets maintain production at the current level for the rest of the year and raw material deliveries remain stable, Metinvest may make around XX million t (XX% down y-o-y) of pig iron in Internal consumption of basic pig iron will shrink to XX million t, losing XX million t or XX% as compared to Shipments of merchant pig iron may stay unchanged y-o-y at XX XX million t. In 2016, merchant pig iron output may decrease to XX million t on the back of rebounding internal consumption and falling sales margin. Beginning of section Metal Expert CIS Raw Materials Forecast November,

51 PRICE FORECAST For the entire Q3 2015, merchant pig iron quotes remained on downward track globally. On the back of weak finished steel market and tough price competition on the part of ever-cheapening substitute materials (scrap and billet), buyers declined to book the material without discounts. Brazilian suppliers bring prices to the level quoted from CIS Pig iron export prices, $/t 360 Russia, FOB Black, Baltic Sea Brazil, FOB North ports Metal Expert believes the same factors as in January-October will drive the pig iron market for the rest of Oversupply in the global merchant pig iron market will keep pressing on prices amid limited demand in key consuming regions and negative sentiments in the scrap and iron ore segments. Lingering bearish trend will press prices to new minimums (below $XX/t) towards the end of the year. As a result, operators with low efficiency and high production cost (primarily in Brazil) will cut or stop production. The balance will hardly be restored in the market over the mid-term. In 2016, the annual pig iron average will fall by XX% y-o-y to $XX/t FOB Black Sea. Pig iron price forecast Prices for Russian pig iron, FOB Black Sea, $/t 350 forecast Beginning of section Content Metal Expert CIS Raw Materials Forecast November,

52 PRICE FORECAST global iron ore market There are no strong reasons for an increase in iron ore prices over the forecast period. The global iron ore market will remain oversupplied, which will be the main factor driving prices down. New price level will be based on growing supply of lower-costs material. According to Metal Expert s estimate, a yearly average price for Australian fines with shipment to China will decrease to $XX XX/t in 2015 and to $XX/t in FORECAST OF MARKET BALANCE 53 Consumption FORECAST 55 Supply FORECAST 56 Price forecast 57 Metal Expert CIS Raw Materials Forecast November,

53 FORECAST OF MARKET BALANCE Iron ore prices will remain based mainly on the market balance in Excessive supply leads to a price softening quotes have plunged almost XX% over a year. The top XX companies posted strong performance in Q3, hitting new production records. The companies raised total iron ore output by XX% year-on-year in January- September. According to preliminary data, the share of Australia and Brazil was some XX% (XX p.p. up). The share of Australia and Brazil in global iron ore mining is rising Dynamics of global iron ore mining and share of Australia and Brazil Australia Brazil Others Share of Au and Br 60% 50% % 0 Q1 13 Q3 13 Q1 14 Q3 14 Q1 15 Q3 15* 30% Production is rising despite buying interest observed mainly in China, accounting for up to XX% of total demand. According to preliminary data, global iron ore consumption in January-September weakened, as Metal Expert estimates; demand for sintering ore and concentrate actually stopped growing in China. Moreover, apparent consumption of sintering ore and concentrate in China is slackening this year (preliminary decline XX% down year-on-year). Steel output is decreasing in China Dynamics of steel production in China, million t Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Following steel output, stocks at Chinese ports are falling at faster pace. In 2014 steelmakers and traders who faced a lack of funds used inventories as a pledge for credits, thus iron ore purchases were not backed by real demand. After Bejing took Metal Expert CIS Raw Materials Forecast November,

54 global iron ore market FORECAST OF MARKET BALANCE mesures to ban usage of iron ore in finaincial transactions in late Q2 2014, baseless stocks stopped rising. In late Q3 iron ore inventories amounted to some XX million t, by XX% down yearon-year. The ratio between stocks and steel output moves back to the level of end early ,8 1,5 1,2 0, The trend will persist in 2016 iron ore stocks at Chinese ports will be depressed by slow buying activity in the falling market as well as financial problems at Chinese plants (only XX% out of all producers recorded operating profit by October). Beginning of section Metal Expert CIS Raw Materials Forecast November,

55 Consumption FORECAST Iron ore consumption is unlikely to increase in According to Metal Expert s estimate, China will post the first decline in steel melting since XX this year. In 2016 the figures will drop XX% or XX XX million t more. Steel production can lose more XX million t over two years. The key reason behind negative results is domestic market weakening. HR product consumption has been decreasing in China since Unlike 2014, the decline will be seen even in the HVA products segment in , Metal Expert expects. Export trading cannot offset a domestic demand downturn in China since its share is much lower. Foreign sales will be hampered by trade restrictions effective in certain countries. Moreover, China is losing its competitive advantage in the global steel product market: non-stop fall of prices for steel products have almost fully absorbed margins, which used to help suppliers stay competitive. According to Metal Expert s estimate, the difference between export prices for steel and production costs have been negative at the majority of plants for two months already, while CIS HR flats suppliers work with some $XX XX/t gap depending on segment. Amid strong competition in the market Chinese producers will reduce steel output, which will result in lower iron ore bookings. This will be mainly seen at outdated plants with small capacities compared to the Chinese standards, which have no access to the state financing. Total iron ore requirements in China will decrease at least XX% in 2015 and XX% in 2016, which means at least XX million t down over two years, Metal Expert believes. Imports of sintering and concentrate in China will decrease at slower pace. With decreasing domestic mining as well as attractive import prices, the share of foreign material will rise further by XX p.p. in 2015 to XX% and XX p.p. more in As a result, imports can drop XX million t from the 2014 results over two years, considering the forecast consumption rates. Decline in iron ore imports in China will be slower than in consumption Apparent consumption of iron ore in China and imports, million t Apparent consumption Import Share of import, % (rsh) forecast 60% 58% 56% 54% % Beginning of section Metal Expert CIS Raw Materials Forecast November,

56 Supply FORECAST Total iron ore supply will be rising. Large producers have optimized expenses and downgraded a breakeven point (Australian companies to $XX XX/t and Brazilian ones to $XX/t), so currently they do not shelve capacity expansion projects, with only some of them making revisions. In particular, Australia s Rio Tinto (XX% of global production) is expanding its mining capacities to XX million t; B razil s Vale (XX% share in production) targets a XX million t upturn, instead of the previously planned XX million t expansion; Australia s BHP (XX% of global supply) put up output by XX% or XX million t in Q1-Q3 despite announcing plans to keep production at the last-year levels. The increase in output of the top XX suppliers will be partly offset by downward revisions of production plans of other suppliers who have higher mining costs. Besides, some high-cost Chinese producers are also expected to reduce mining given new prices, Metal Expert believes. Although China had reduced mineral extraction tax and kept granting subsidies to certain companies, iron ore output in the country (in terms of XX% concentrate) dropped XX% in January-September to XX million t (XX million t down). According to Metal Expert s estimate, total capacity upturn can be XX XX million t given the most probable plans for commissioning and shutdown of the facilities within the next two years. The projects mostly involve even lower production costs. Global capacities may increase XX XX million t only thanks to highly probable projects in Expansion of iron ore mining capacities, million tpy projects of high probability other projects reduction capacity Development of the projects will help to reduce average weighted production costs. Along with falling consumtpion high iron ore output will result in oversupply in the global market and downward trend. Nevertheless, this will allow large iron ore makers to restore the global market share staying now at XX% (XX p.p. up year-on-year) and improve their influence in the long run. Beginning of section Metal Expert CIS Raw Materials Forecast November,

57 Price forecast In Q3-early Q4 global iron ore prices have been stable at some $XX/t. The decline started in the second half of October, while by month s end quotes were already below $XX/t. The downward trend persists this year prices have lost some XX% since the start of According to Metal Expert s estimate, iron ore market will stay oversupplied for XX months. Consumption of iron ore will be falling, whereas supply in the global market will be high. However, decreasing expenses and state support will help mining companies to keep cutting offers. The technical data shows that iron ore prices are highly dependent on Chinese consumption. Considering Chinese steel market outlook and a XX% and XX% steel production decline expected in 2015 and 2016 respectively, a yearly average price for Australian concentrate can be $XX XX/t in 2015 ($XX/t a year ago) and $XX/t in Iron ore prices will keep decreasing in the next XX months Prices for Australian XX% Fe concentrate, CFR China, $/t forecast Spot prices for Australian ore (XX XX% Fe), CFR China, $/t I II III IV I II III IV Average prices per quarter XX XX XX XX XX XX XX XX Beginning of section Content Metal Expert CIS Raw Materials Forecast November,

58 Price forecast Russian Iron Ore Market In 2016 Russian iron ore market will remain relatively oversupplied both in the segment for sinter and pellets, and that for concentrate and sintering ore. Weak demand in traditional export markets, growing oversupply leading to stronger competition globally as well as lower capacity of domestic steel product market will drive production of steel products, crude steel and pig iron down, which means iron ore consumption will go down as well. Nevertheless, production capacity expansions remain possible over the period under review, and can affect the market balance. FORECAST OF MARKET BALANCE 59 FORECAST OF CONSUMPTION BY COMPANY 60 FORECAST OF SUPPLY BY COMPANY 63 PRICE FORECAST 66 Metal Expert CIS Raw Materials Forecast November,

59 FORECAST OF MARKET BALANCE Sinter and pellets Sintering ore and concentrate According to Metal Expert s estimate, domestic consumption of sinter and pellets will increase XX% in 2015 to some XX million t, but may lose XX% in 2016, following decreasing pig iron output. The capacity of domestic free pellets market will narrow mainly due to commissioning of XX million tpy pellet plant at Stoilensky GOK in It is possible that NLMK will reduce purchases by XX million t next year. Oversupply got even more acute after Mikhailovsky GOK put on stream new indurating furnace No.XX (XX million tpy of pellets) in HXX The unclaimed volumes from the domestic market will not be exported due to weak global markets. Russian companies will manage only to maintain foreign supplies at XX XX million tpy. Europe and Turkey (XX XX%) will remain the key sales outlets. Despite higher pellets output, supply of concentrate and sintering ore also exceeds demand in Russia. Total raw materials requirements of Russian plants may add XX% in 2015 being above XX million t, but are likely to drop XX% in Apart from decreasing domestic market needs, potential of concentrate exports will improve in light of commissioning of beneficiation plant at Kimkano-Sutarsky GOK (designed capacity XX million tpy of iron ore, XX million tpy of titanium magnetite concentrate; output is destined to China). Russian producers keep losing positions against the key rivals in the global market, especially in China due to higher mining costs and longer haul distance. Beginning of section Metal Expert CIS Raw Materials Forecast November,

60 FORECAST OF CONSUMPTION BY COMPANY MMK NLMK In January-September consumption of pellets from the free market (including import) dipped XX% to XX million t. Demand for sintering ore and concentrate has slightly improved XX% to XX million t. In 2015 the producer is likely to reduce total purchases of merchant pellets by XX% to XX million t. Consumption of merchant concentrate will be some XX million t. With anticipated decline in pig iron melting, pellets and concentrate consumption will decrease further in 2016 to XX million t and XX million t respectively. Supplies will keep coming from ENRC, Metalloinvest, Ural holding company. Considering growing domestic oversupply and weak rouble, it is highly probable that the plant will raise the share of domestic purchases and reduce imports. Evraz Group In 2015 pig iron output will increase XX%, so iron ore consumption will go up, but raw materials purchase structure is unlikely to change much (pellets will still be sourced from the free market; sintering ore/concentrate will be delivered under in-house supplies). However, the holding will lower iron ore bookings in the free market next year. Specifically, lower steel product output will result in XX% year-on-year decline in pig iron production, thus total raw materials requirements will go down. Besides, the holding will become more self-sufficient in iron ore: Stoilensky GOK is to launch a pellet plant (XX million tpy; XX% Fe on average). For that project, mining capacity will be expanded from XX million tpy of concentrate to XX million tpy. This will help the holding to reduce the share of pellets from the free market that are mainly sourced from Metalloinvest (some XX XX million t per quarter). The phase XX of the project will not fully cover pellets requirements, but new capacities will allow the plant to raise in-house supplies to XX%. After the facilities reach full capacity, the holding will become XX% self-sufficient in pellets. According to Metal Expert s estimate, the 2015 pig iron output will stay unmoved yearon-year, so iron ore demand will not change. In 2016 lower pig iron melting will lead to a XX XX% decline in iron ore needs to XX million t of sinter and pellets and XX million t of sintering ore and concentrate. Purchases of pellets from the free market will amount to some XX million t. Karelsky Okatysh will remain the supplier of pellets. Apart from in-house supplies, sintering ore and concentrate will also come from Metalloinvest and Ural holding company (Vysokogorsky GOK). Metal Expert CIS Raw Materials Forecast November,

61 Russian Iron Ore Market FORECAST OF CONSUMPTION BY COMPANY Mechel Koks Group The holding s demand for sinter and pellets increased XX% in January-September to XX million t. According to Metal Expert s forecasts, the 2015 pig iron output will rise to XX million t and, consequently, iron ore consumption will increase to XX million t. In 2016 sinter/pellets requirements will go down to XX million t in 2016 on lower consumption in BF shop. Purchases of pellets from the free market will be some XX million tpy. Demand for sintering ore and concentrate improved XX% over Q1-Q to XX million t. In total consumption of sintering ore and concentrate will be XX million t and XX million t respectively. As Korshunov Mining Plant switched from export to domestic market, merchant concentrate demand will decrease to XX million t in 2015 and XX million t in The holding cannot fully abandon imports due to insufficient production capacities and relatively low-quality of its own raw materials. Purchases from Sokolov-Sarbai Mining Production Association (SSGPO) may reach some XX XX million tpy. Kosaya Gora Iron Works Overall iron ore consumption slightly decreased over January-September 2015: down by XX% in consumption of pellets and sinter, and XX% in concentrate and sintering ore. In Q3 requirements decreased on a XX-day stoppage of BF No.XX (XX million t) for repairs in July. Metal Expert expects pig iron output to move back to the 2013 levels of XX XX million tpy in Considering pig iron melting forecast, total consumption of pellets and sinter will be XX XX million tpy and of concentrate XX XX million t (XX XX% down depending on segment). Koks Group will keep buying concentrate from the free market about XX XX million tpy Metalloinvest remaining the supplier. About XX% of needed amount of sintering ore/concentrate will be coming from KMAruda, controlled by the company Severstal With decreasing raw materials requirements in BF shop demand for pellets will drop XX t in 2015 and XX t more in 2016, falling to XX million t. The whole tonnage is expected to be purchased from GOKs of Metalloinvest, as it has traditionally been the case. In 2015 pig iron melting is expected to increase at CherMK (XX% up), which will lead to higher sinter/pellets requirements reaching XX million t. As it has traditionally been the case, the material will be bought exclusively from Severstal s affiliate Karelsky Okatysh. Consumption of sintering ore and concentrate will be XX million t in 2015, with almost half of the quantities being merchant. Metal Expert CIS Raw Materials Forecast November,

62 Russian Iron Ore Market FORECAST OF CONSUMPTION BY COMPANY Metalloinvest Metal Expert expects the group to reduce pig iron output by XX% in Demand for sinter/pellets and sintering ore/concentrate will drop to XX million t and XX million t respectively. Merchant concentrate bookings are estimated at XX million t, with the basic volume of the material to come from Lebedinsky GOK. The holding raises pig iron output in 2015 through increasing sales of merchant material on weak steel product segments. This year production will move up to XX million t, which corresponds almost to XX% capacity. As a result, consumption of sinter/pellets and sintering ore/concentrate will grow to XX million t and XX million t respectively. With falling sales margins and weaker demand in the markets for merchant pig iron, the output may move back to XX million t in Consumption of sinter and pellets will be XX million t and of sintering ore and concentrate XX XX million t. Almost all the quantities will be received under in-house supplies. Beginning of section Metal Expert CIS Raw Materials Forecast November,

63 FORECAST OF SUPPLY BY COMPANY Metalloinvest ENRC (import) Metalloinvest maintains production of sinter/pellets and sintering ore/concentrate each segment recorded a XX% year-on-year increase over Q1-Q3. The company managed to offset exports decline (XX% and XX% respectively) thanks to higher domestic sales. The share of domestic market rose XX XX p.p. to XX%. The shipment structure will be revised the largest raw materials supplier in the Russian free market will keep expanding production of HVA material. Mikhailovsky GOK launched indurating furnace No.XX (XX million tpy of pellets) in end-q3. Moreover, the third HBI production line (XX million tpy) is planned to come on stream at Lebedinsky GOK the start-up is slated for 2017 or later. The list of buyers will not change this year pellets will be sold to NLMK and Kosay Gora Iron Works; shipments to MMK will increase under long-term contracts based on price formula. Overall demand from these companies will be XX million tpy of pellets from the free market. Of this amount, Metalloinvest will supply around XX million t. Some changes are expected in 2016 after Stoilensky GOK launches its own beneficiation plant, NLMK will reduce pellets purchases by some XX million t. As a result, sales to the domestic free market may drop to XX million of pellets. Available tonnages of pellets will be exported. Considering capacity expansion on decreasing total domestic demand, potential export quantities from two GOKs will climb up from XX million t to XX million t. According to Metal Expert s estimate, exports may reach some XX million t in 2016 and will be limited by demand. In current situation the company will focus on holding existing clients. It has small chances to raise exports given remote location compared to almost all key Russian suppliers and weak rouble. In 2015 pellets shipments to MMK may plunge XX% to XX million t, and to XX million t in 2016 on stronger domestic oversupply. Concentrate sales will stay unchanged yearon-year some XX million t, with further decline to XX million t driven by anticipated downturn in demand from MMK. Pellets deliveries to Mechel will be maintained at XX million tpy, concentrate supplies will amount to XX million t in 2015 (XX million t down year-on-year), with further XX million t decrease being possible in Metal Expert CIS Raw Materials Forecast November,

64 Russian Iron Ore Market FORECAST OF SUPPLY BY COMPANY Severstal-Resource EuroChem In January-September supplies of pellets from Karelsky Okatysh to the free market remained at XX million t, but the supply structure changed the share of domestic sales almost doubled to XX%. The 2015 output of merchant pellets is estimated at XX million t, while the figures in 2016 can decrease to XX million t. Of this amount, exports will amount to XX XX million tpy (XX million t in 2014). Europe and Turkey will still be the key foreign destinations, holding XX% and XX% share of the company s total shipments respectively. Sales to China will be minimal. NLMK Concentrate output at Kovdorskiy GOK rose XX% year-on-year in Q1-Q3 to XX million t. A decline in exports was offset by higher domestic sales. Total concentrate production can reach XX million t in 2015 and XX million t in Of this amount, domestic deliveries will be some XX million t in 2015 and XX million t in The bulk of concentrate will be supplied to Severstal at formula-based prices. Exports will move down to XX million t in 2015 and XX million t in 2016 due to sluggish foreign market environment. All the material is supplied to the spot market in China, and amid a plunge in global iron ore prices, Kovdorskiy GOK will be behind Australian and Brazilian suppliers. The negative impact is coming from the quality of the material. Petropavlovsk Despite unfavorable market sentiment, construction of a XX million tpy pellet plant continues this year, though the star-up has been delayed till Under the capacity expansion project, the company intends to raise concentrate output by XX% to XX million tpy via boosting efficiency of existing production capacities. In January-September Stoilensky GOK produced XX million t of iron ore (XX% up year-on-year). The 2015 results will stay generally unchanged year-on-year. In 2016 total output of sintering ore and concentrate at the asset may rise XX% to XX million t given growing feedstock requirements at new pellet plant exports will account to less than XX% of this amount (some XX million t of concentrate). The company rescheduled start-up of merchant XX% Fe concentrate production at Kimkano-Sutarsky GOK till end 2015-early 2016 due to certain problems connected with adjustment works as well as being behind the construction schedule. According to Metal Expert s estimate, the start of production can be postponed again due to Metal Expert CIS Raw Materials Forecast November,

65 Russian Iron Ore Market FORECAST OF SUPPLY BY COMPANY Mechel unfavourable iron ore market environment. All the material will be shipped to China. The company benefits from short haul distance. Ore mining at Kimkanskiy deposit was commenced in HXX 2010, but in October 2014 the operations were suspended. Total proven reserves of Kimkanskiy and Sutarskiy deposits amount to some XX million t of XX% Fe iron ore. Export shipments from Korshunov Mining Plant were suspended in April due to low export prices in the foreign markets, so the asset switched to in-house supplies. One batch (XX t) was shipped to China in September. In 2015 concentrate supplies to the free market will amount to XX million t (XX million t a year ago). With anticipated further price decline in the global market, the plant is unlikely to resume foreign sales. Beginning of section Metal Expert CIS Raw Materials Forecast November,

66 PRICE FORECAST Stabilization of Chinese index and rouble devaluation drove iron ore prices up in Russia in late Q3-early Q4. In Q3 an average price for pellets rose XX% year-on-year, concentrate quotes remained unchanged year-on-year. In terms of the US dollars, the decline was XX% in the Russian concentrate market and XX% in the global one. The dynamics is related to revision of some contracts based on Chinese index: base Chinese index was downgraded and base exchange rate increased. In the pricing structure will change neither in the pellets segment nor in that for sintering ore and concentrate. Pellets from the free market (including import) will be mainly booked under contracts based on price formula; in the concentrate segment the share of formula-based agreements will stay at XX XX%. The key factors determining prices in the domestic market will be China s price dynamics and rouble exchange rate (indicators behind the price formula). At the same time, contract terms cover additional revision of the agreement if Chinese index crosses the range of $XX XX The share of ore in steel product input costs will not recover in 2016 Domestic prices for HR sheets and iron ore concentrate, RUB/t (without VAT) feedstock cost share, % (rhs) Domestic iron ore concentrate price Domestic HR sheet price forecast 0,20 0,15 0,10 0 0, In 2015 pellets will be quoted at some RUB XX/t (XX% up) on average and concetrate RUB XX/t (XX% down). For example, prices in the global ore market can lose more than XX% on average over the year. The Russian market can witness another downturn of XX XX% in 2016 given further softening of global iron ore prices. Prices will keep sliding following global levels Domestic prices for iron ore, RUB/t Concentrate Pellets forecast Content Metal Expert CIS Raw Materials Forecast November,

67 PRICE FORECAST Ukrainian iron ore market Ukrainian market will be relatively balanced in 2015XX given high level of integration of Ukrainian producers. With intensifying competition in the global market, Ukrainian companies may lose their positions in the markets, especially in China and Europe, since higher mining costs makes iron ore from Ukraine less competitive. FORECAST OF MARKET BALANCE IN UKRAINE 68 CONSUMPTION FORECAST BY COMPANY 69 Supply forecast by company 71 Price forecast 72 Metal Expert CIS Raw Materials Forecast November,

68 FORECAST OF MARKET BALANCE IN UKRAINE Sinter and pellets Sintering ore and concentrate In January-September sinter/pellets consumption decreased XX% in Ukraine to XX million t, with XX million t being merchant market capacity. In 2015 the figures will drop XX% year-on-year and rise XX% in 2016 to XX million t. The capacity of the free market for pellets will be some XX million tpy in 2015XX Stronger competition in the global market will affect exports from Ukraine. Only Ferrexpo Poltava Mining can maintain shipments on the back of effective contracts with European and Turkish clients. With the size of export downturn and domestic consumption rate, sinter/pellets production will decrease to XXXX million tpy in 2015XX In Q1-Q3 sintering ore/concentrate consumption at mills dropped XX% to XX million t, with XX million t being merchant material. In 2015 estimated consumption in the segment will decrease XX% year-on-year to XX million t, while demand in the free market will be some XX million t. As pig iron melting somewhat improves, consumption of sintering ore and concentrate will stabilize in Exports of sintering ore and concentrate will go down. Like in sinter/pellets segment, Metinvest has weaker positions in China against almost all large suppliers due to long haul distance. As a result, production of sintering ore and concentrate in Ukraine will be slightly below XXXX million tpy. Beginning of section Metal Expert CIS Raw Materials Forecast November,

69 CONSUMPTION FORECAST BY COMPANY ISD Donetskstal After Alchevsk Iron and Steel Works resumed operations in midxx the holding s demand for sinter and pellets rose to XX million t per quarter (XX million t in Q1). Aggregate sinter/pellets consumption halved to XX million t in January-September. Considering low pig iron output annual consumption of sinter and pellets at the holding s assets in Ukraine is estimated at XX million t (XX% down year-on-year). In 2016 demand will rise to XX million t, but it will still be almost half as much as in the previous years. Purchases of import sintering ore and concentrate will account for up to XX% of consumption rate. The material will be sourced from Stoilensky GOK. Metinvest The producer stopped BF No.XX (XX tpm) in October due to unfavourable situation in the merchant pig iron market. The facility had been in operation just for three months after its restart. According to Metal Expert s estimate, pig iron output will plunge XX% year-on-year in 2015 to XX million t, with no changes expected in With these volumes, sinter/pellets requirements should be some XXXX million t per year. Further BF capacity utilization will mostly depend on iron ore inflow to the site. Supplies from Russia s Karelsky Okatysh were suspended in late Q1 2015, so demand is covered by purchases from Metinvest s Northern GOK. Considering better quality of the material, the company remains in talks on resumption of shipments from Russia monthly consumption is estimated at some XX t of sinter and pellets. However, the agreement renewal is hampered by still complicated transportation and documentation process. Evraz Group According to Metal Expert s estimate pig iron production can lose up to XX% in 2015 due to negative forecast for finished steel and merchant pig iron markets as well as production downtimes and lower performance at some assets of the holding. As the situation stabilizes a XX% increase to XXXX million t is possible in In 2015 sinter/pellets consumption at steel mills will decrease XX% to XX million t, while in 2016 the volumes will move up to XXXX million t on some upturn in pig iron output. All the material will be supplied by other members of the holding. Sinter/pellet consumption at Evraz DMZ Petrovskogo rose XX% in January-September to XX million t. Total demand for sinter and pellets will remain at XX million t, unchanged year-on-year. Metal Expert CIS Raw Materials Forecast November,

70 Ukrainian iron ore market CONSUMPTION FORECAST BY COMPANY ArcelorMittal Kryvyi Rih With anticipated decline in pig iron output (XX% down on expected decrease in mill s own requirements) consumption of iron ore will also slow down to XX million t. All the volumes will be supplied from Yuzhny GOK. Demand for sinter and pellets decreased XX% year-on-year in Q3 to XX million t driven by lower pig iron output. Pig iron melting went down since the plant required less material during the repairs of the oxygen-converter shop. Besides, the start of merchant pig iron sales (XX t) did not help the plant to maintain production. Total demand for sinter and pellets weakened XX% in January-October. Metal Expert expects pig iron production to decrease XX% in 2015 on ongoing repairs, which will affect annual iron ore consumption. It is possible that the output will move back to the 2014 levels in 2016, so demand will improve to XX million t in sinter and pellets and XX million t sintering ore and concentrate. Beginning of section Metal Expert CIS Raw Materials Forecast November,

71 Supply forecast by company Metinvest Evraz Group In January-September the holding produced XX million t of sinter and pellets in total (XX% down year-on-year), including XX million t of pellets. The decline is related to lower in-house consumption, while shipments to the free market (in particular, export destinations) moved up. According to Metal Expert s forecasts, exports will become more complicated in 2015XX on tightening competition in the global market. This will mostly impact the segment for low value added products (sintering ore and concentrate). At the same time, domestic deliveries may rise after some suppliers switch to domestic purchases. As a result, shipments of merchant sinter and pellets will decrease to XX million t in 2016, against XX million t expected in 2015; those of sintering ore and concentrate will be some XX million t (XX million t down from the 2015 forecast). Ferrexpo Like a year ago, sintering ore supplies from EVRAZ Sukha Balka were stable at XX million t in Q1-Q3, while sales structure changed shipments to Ukraine lost XX% and exports added XX%. As a result, the share of domestic market decreased from XX% to XX%. The 2015XX sintering ore output is estimated at XX million t per year. The company will keep benefiting from its opportunities to sell large volumes of the ore domestically as well as well-established sales network and small haul distance to Europe. In Q3 pellets output was slightly below XX million (XX% down year-on-year). Supplies to the company s key foreign market decreased XX% year-on-year over the period under review. In Q1-Q3 pellets exports lost XX%. Amid high production rates in HXX 2015 pellets output is likely to go up XX% in 2015 to XX million t, as Metal Expert believes. In 2016 global market weakening may drive production down by XXXX% to the 2014 level. Ferrexpo Poltava Mining will manage to avoid a plunge thanks to high share of contracts with European and Turkish buyers. Beginning of section Metal Expert CIS Raw Materials Forecast November,

72 Price forecast Iron ore prices keep falling in Ukraine following the global trends: domestic prices for concentrate decreased to UAH XXXX/t in October and for pellets UAH XXXX/t (all prices are FCA with VAT). In this situation participants of Ukrainian merchant iron ore market have switched from traditional quarterly contracts to spot agreements. Metal Expert expects the trend to persist in 2016 concentrate quotes in the global market will drop another XX% to $XX/t with shipment to China, which will become a guideline for the Ukrainian market. At the same time, growing production costs will restrain a decline in domestic prices rental payments of mining companies have increased to XX% of production costs since Q A yearly average price for concentrate and pellets in the domestic market will be UAH XX/t and UAH XX/t (FCA with VAT) next year, as Metal Expert believes. Forecast of iron ore prices in Ukraine Domestic prices for iron ore, $/t without VAT Concentrate Pellets forecast Beginning of section Content Metal Expert CIS Raw Materials Forecast November,

73 Price forecast RUSSIAN COKE MARKET Coke oversupply in Russia will be growing in 2016 due to decreasing domestic consumption. Suppliers will have no chance to redirect excessive volumes to export markets. Demand from Ukraine will weaken since Ukrainian coke producers restore operations. As for other destinations, Russian sellers will face competition with China. Excessive supply in the country will put pressure on prices even despite growing production costs. According to Metal Expert s estimate, domestic coke prices are likely to drop XX% in 2016 to RUB XX/t or some $XX (XX% down). Forecast of market balance 74 Forecast of consumption by company 75 FORECAST OF SUPPLY BY COMPANY 76 PRICES FORECAST 78 Metal Expert CIS Raw Materials Forecast November,

74 Forecast of market balance Increasing export sales helped to offset consumption slowdown and keep production high in HXX 2015, while from Q3 plants were no longer able to maintain output. As a result, consumption and production of coke in Russia decreased XX% year-on-year in Q1-Q3. Exports plunged XX% in Q3 mostly due to lower sales to Ukrainian plants, which gradually restore own production. Blast furnace coke oversupply is expected to increase in Russia in 2016 due to weaker domestic demand. According to Metal Expert s estimate, coke consumption at Russian mills can drop XX% over the period under review to XX million t given a slight downturn in pig iron melting and lower coke input per tonne of the material. At the same time, production potential is much higher Russian coke plants are capable of producing XX million tpy. Russian coke market remains oversupplied Coke market balance, XX t Facilities' self-demand Domestic free-market purchases Import Export forecast Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q In 2016 supplies from Russian can drop to XX million t (XX million t expected in 2015) due to both weaker demand from Ukraine and stronger competition in other export destinations. Beginning of section Metal Expert CIS Raw Materials Forecast November,

75 Forecast of consumption by company Mills demand for coke from free market will remain unchanged year-on-year Free market capacity, XX t Kosaya Gora Iron Works Severstal UGMK MetallInvest forecast 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Kosaya Gora Iron Works UGMK In Q1-Q3 the producer purchased XX t of coke from the free market, by XX% down year-on-year. The 2015 results are expected to decrease to XX t (XX t a year ago). In 2016 coke purchases will go down to XX t as consumption decreases at the plant. In January-September Serov Plant purchased XX t of blast furnace coke from the free market (XX% up). In 2015 consumption will move up to XX t on growing pig iron production. The year of 2016 is unlikely to bring strong changes in merchant coke demand at the plant. Beginning of section Metal Expert CIS Raw Materials Forecast November,

76 FORECAST OF SUPPLY BY COMPANY Share of exports will rise XX p.p. Supplies to the free market, XX t Domestic shipments Export Free-market shipments' share out of total production, % (rhs) forecast 15% % 500 9% 250 6% 0 3% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Koks Group Mechel. Evraz Group In January-September supplies of merchant coke rose a quarter to XX million t the increase was recorded both in the domestic and export market. Total coke output amounted to XX million t (XX% up) in Q1-Q3. The 2015 volumes will gain XX% reaching to XX million t driven by high sales of merchant material reaching up to XX million t (XX% up). In-house supplies will decrease from XX million t to XX million t. In 2016 production of merchant coke can move back to the 2014 level of XX million t: exports will decrease (deliveries to Ukraine were stopped in August 2015; the share of this destination in total exports was XX% in April 2014-July 2015, with XX% recorded in some months), domestic trading will be under pressure from growing oversupply in Russia. The share of exports in sales structure will remain relatively high up to XX% of total free market sales. NLMK According to Metal Expert s estimate, Mechel may reduce merchant coke supplies by XX million tpy in 2015 to XX million tpy and by XX million t more in Evraz Group will reduce shipments to XX million tpy in 2015XX (XX million t in 2014). Coke supplies to the free market will be restrained by demand, while an increase in sales will become more possible since in-house consumption will decrease. This year Mechel s demand for coke will decrease XX% to XX million t with further stabilization in 2016, Metal Expert believes. Consumption at Evraz will fall XXXX% per year in 2015XX In Q1-Q3 the holding put up merchant coke output by XX% to XX t on the back of foreign demand: export shipments from Altai-Koks rose almost XX% over the period Metal Expert CIS Raw Materials Forecast November,

77 RUSSIAN COKE MARKET FORECAST OF SUPPLY BY COMPANY Stroyservis under review to XX t, while domestic free market sales dropped XX% to XX t. In-house supplies to NLMK improved XX% to XX million t. Considering an anticipated decline in pig iron melting at Lipetsk-based business, inhouse supplies from coke plant will decrease XX% in 2016 to XX million t (the 2015 results are expected at XX million t). Although available capacities will rise, the holding will be unable to redirect all the quantities to the free market due to slack demand. In 2016 merchant coke will amount to some XX million t (the 2015 estimate slightly above XX million t), with exports being in focus. The share of domestic deliveries will not exceed XX%. In January-September Gubakha Coke produced XX t of coke, by XX% down year-onyear. Total 2015 output is expected to decrease to XX t due to lower sales in Russia, while in 2016 the volumes will drop XX t more on slack demand. Exports will be minimal. Beginning of section Metal Expert CIS Raw Materials Forecast November,

78 PRICES FORECAST Coke prices were on the upward track in Russia almost till the middle of the year along with skyrocketing rouble prices driven by the currency devaluation (XX% yearon-year up in HXX), US dollar equivalent also went up adding XX%. Despite unstable steel product markets, the upturn was related to improved coke demand in Ukraine. However, the trend has reversed after Ukrainian companies lowered buying. In Q3 an average domestic price dropped XX% quarter-on-quarter under pressure from excessive supply. The October prices kept following the trend. Amid drawn-out talks on Q4 coal prices under quarter agreements, coke plants will try to reflect changes in raw materials costs (coal prices rose XXXX% depending on rank after the talks) in selling prices for November. According to Metal Expert s estimate, coke suppliers will manage to raise only US dollar prices; those in the rouble terms can even decrease to RUB XX/t given the forecast rouble exchange rate. There will be no alternative to a decline in domestic coke prices in The key factor determining the trend in Russia will be excessive volumes of coke in the domestic market. If coke oversupply persists, demand will weaken Russian plants are likely to reduce pig iron melting, so coke consumption may go down XXXX% too. At the same time, suppliers will have no chance to redirect all the excessive volumes to export markets. According to Metal Expert s estimate, demand from Ukraine being the most attractive destination in view of high prices this year will keep falling as local coke plants restore production, Ukrainian mills will not abandon but reduce purchases from Russia anyway (the scenario involves de-escalation of the conflict in eastern Ukraine). It will be hard to redirect large quantities to other markets apart from much lower bids in India and Turkey which used to receive up to a quarter of total export shipments, Russian suppliers cannot compete with China. Stronger competition among Russian suppliers will drive prices down further. According to Metal Expert s estimate, discounts will be possible if coal prices hike coke suppliers have managed to substantially increase a gap between coal and coke prices over the past year. In 2015 coke quotes were XX% on average above coal ones, with the difference exceeding XX% in some months. In 2013XX the gap was XXXX%. The gap between coal and coke prices has climbed this year Dynamics of domestic prices for coke and coal in Russia, RUB/t coke coal forecast Metal Expert CIS Raw Materials Forecast November,

79 RUSSIAN COKE MARKET PRICES FORECAST In this situation a yearly average price for coke can be RUB XX/t (XX% down) or some $XX/t (XX% down), Metal Expert believes. Forecast of coke prices in Russia Domestic coke prices, RUB/t forecast Beginning of section Content Metal Expert CIS Raw Materials Forecast November,

80 PRICES FORECAST Ukrainian coke market Coke shortage will persist in Ukraine in 2016, and the market capacity will decrease after buyers start reducing purchases from the free market as coke plants restore productions. Besides, the share of import coke in consumption at Ukrainian plants will also gradually go down, as Metal Expert expects. Forecast of Market Balance 81 CONSUMPTION FORECAST BY COMPANY 82 Supply Forecast by company 84 PRICE FORECAST 85 Metal Expert CIS Raw Materials Forecast November,

81 Forecast of Market Balance Coke demand exceeds supply in Ukraine. In Q1-Q3 coke consumption (including steelmakers, ferro alloy plants, cement plants, etc.) dipped XX% year-on-year to XX million t, while blast furnace coke production amounted to XX million t (XX% down year-on-year). The decline in coke output was caused by short deliveries of coal, mining of which halved over the period under review, as Metal Expert estimates. Imports of coke in Q1-Q3 more than doubled to XX million t. A lack of BF feedstock put the strongest pressure on ArcelorMittal Kryvyi Rih and ISD. The market balance is likely to improve somewhat in 2016 since coke plants gradually restore production. However, local producers will be unable to cover domestic demand at full, so some quantities will be imported anyway. Foreign purchases in 2016 are estimated at XX million t against XX million t expected in Exports will be minimal under current market environment. Imports will remain attractive Coke market balance, XX t Domestic shipments Import Export forecast Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Coke comsumption at steel plants will be XX million t (XX million t expected in 2015). Total coke demand from Ukrainain companies (including producers of ferroalloys, cement and non-ferrous metals) is estimated at XX million t, as Metal Expert thinks. Supply from Ukrainain coke plants will not exceed XX million t in case of stable situation in eastern Ukraine. At the same time, there are still risks of production interruptions or stoppages at the facilities located in the conflict zone as well as of coking coal shortage. Beginning of section Metal Expert CIS Raw Materials Forecast November,

82 CONSUMPTION FORECAST BY COMPANY Coke demand will gradually recover in 2016 Consumption of blast furnace coke, XX t Metinvest ISD ArcelorMittal Evraz Group Donetsksteel forecast 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Metinvest ArcelorMittal Kryvyi Rih In January-September the holding s requirements of blast furnace coke decreased XX% year-on-year to XX million t due to reduced pig iron production capacity. With downtimes at coke facilities of the holding and complicated logistics, import coke demand improved from XX t to XX t. Considering a slight upturn in pig iron output, estimated coke consumption in 2016 will be XX million t. Besides, import coke purchases are likely to decrease next year the company has secured shipments of non-cis coking coal, which will enable it to raise capacity utilization of its own facilities, in particular at Avdiivka Coke. Modernization of the production equipment may also reduce coke consumption with the new PCI technology applied at Ilyich Steel coke input per tonne of pig iron decreased XX kg (XX XX kg earlier). At present PCI coal is injected at three furnaces: BF No.XX (XX tpm), BF No.XX (XX t) and BF No.XX (XX t). Construction of PCI unit at Yenakiieve Steel is almost completed. The start-up is slated for early 2016 unless force-majeure occurs. The technology will be applied to BF No.XX (XX million t) initial amount of PCI injection will be XX kg per tonne of pig iron with an upturn to XX kg/t to be achieved by the year s end. The rest of BFs are planned to be upgraded in the future, so the producer will be able to abandon natural gas usage in BF production and reduce coke consumption by XX%. Following anticipated upturn in pig iron melting coke consumption will raise XX XX% in 2016 to XX million t. With unfavourable status of coke batteries, the plant s own production will not exceed XX million t of blast furnace coke, and thus demand for import feedstock will stay unmoved. According to Metal Expert s estimate, imports will amount to some XX million t and domestic supplies about XX million t. The share of imports in 2016 will decrease to XX% in 2016 (XX% in 2015). Metal Expert CIS Raw Materials Forecast November,

83 Ukrainian coke market CONSUMPTION FORECAST BY COMPANY ISD AMKR may get a chance to raise production in 2017 or later the company plans to complete reconstruction of coke batteries No.XX and No.XX by that time, so its production capacities will increase by XX XX tpy. Evraz Group In January-September coke consumption almost halved to XX million t only DMKD was online most of that period, while Alchevsk Iron and Steel Works resumed operations in mid 2015 (XX million tpy BF No.XX was restarted in end-q2). One more BF is planned for commissioning at Alchevsk Iron and Steel Works, though downtimes of the facilities are quite possible given unstable raw materials supplies and still low steel production. According to Metal Expert s estimate, the plant may produce just XX million t of pig iron this year (XX million t in 2014), which corresponds to coke intake at XX million t. Consumption can double in In Q1-Q3 coke consumption at DMKD decreased XX% due to complicated logistics. Earlier the plant s demand was covered by in-house supplies from Avdiivka Coke. Facing lack of supplies from own facilities, the company raised purchases in the free market (in particular from Evraz and Donetskstal) as well as imports this year. From June domestic purchases have been minimized after Alchevsk Coke started restoring coke supplies as transportation problems were solved. Consumption of blast furnace at DMKD can reach XX million t (XX% down) in 2015 and XX million t in Donetskstal In January-September coke consumption at Evraz DMZ Petrovskogo remained relatively unchanged year-on-year at XX t. However, pig iron output is likely to decrease in 2015, so coke demand will lose XX% in 2015 and another XX% in 2016 falling to XX t, as Metal Expert believes. All the volumes of blast furnace coke will be supplied intercompany. In coke demand from Donetsk Metallurgical Plant will be minimal some XX million tpy. Only one of two existing furnaces (XX t) is on stream now; BF No.XX (XX t) was decommissioned on October XX and its re-start is doubtful given slack pig iron market. Coke demand is almost fully covered by in-house supplies given quite low BF capacity utilization. Beginning of section Metal Expert CIS Raw Materials Forecast November,

84 Supply Forecast by company Exports from Ukraine will be minimal over the period under review Coke supplies, XX t Domestic shipments Export Export share out of total production, % (rhs) forecast 15% 10% % Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 0% Donetskstal The holding produced XX million t of coke in January-September (XX% down yearon-year). Yasinovsky Coke Plant and Makeevkoks have problems with feedstock supplies, which affects operations at the assets. A lack of raw materials was caused by stoppages of some mines in eastern Ukraine as well as complicated transportation of import material since the infrastructure was damaged during armed conflicts in the region. Almost all the material was shipped domestically (the key consumers another member of the group DMZ as well as Metinvest), while exports plunged XX% hitting the lowest levels. This trend will persist next year: the output will be some XX XX million t, which is a quarter below the 2014 results and a half of the 2013 volumes. Evraz Group Coke output improved in HXX though since Q3 production rates have dropped a quarter year-on-year. The decline is driven by weaker demand from ISD on production resumption at Alchevsk Coking Plant and suspension of cooperation with AMKR due to the scheduled BF shop repairs. The 2016 production is estimated at XX million t (XX XX million in ). The decline is related to lower consumption at the group s assets (XX% down at Evraz DMZ Petrovskogo in 2016) as well as decreasing free market capacity. Beginning of section Metal Expert CIS Raw Materials Forecast November,

85 PRICE FORECAST Prices for coke were on the rise in Ukraine exceeding the previous peaks an average price reached UAH XX/t in Q3, by XX% up year-on-year. At the same time, the figures have decreased XX% since the start of the year. Steel product quotes plunged, but coke remained expensive due to its shortage in the country. The largest coke plants are located in eastern Ukraine, so a lack of coal (supplies halved) and destroyed infrastructure resulted in lower coke output and shipments. Despite reduced steel and pig iron melting in the country leading to lower coke consumption, imports more than doubled over the period under review. High share of imports keeps prices unmoved Coke purchases, XX t Domestic shipments Import Import share out of total production, % (rhs) forecast 30% 20% % % Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Under current market environment some Ukrainian mills successfully changed the charge structure, secured coking coal supplies and switched from coke imports to buying feedstock for own coke facilities. Global prices are expected to stay steadily low in 2016, thus coal purchases make more economic sense, which will be another reason to reduce coke imports. According to Metal Expert s forecasts, Ukrainian coke plants will raise production in 2016, which will lead to weaker demand for import coke. However, the majority of producers will fail to fully restore operations, which means some quantities should be imported anyway. Stable coke shortage will lead to high offer prices. However, domestic prices will be under pressure from sluggish sentiment in the HVA product segments. As a result, quotes will be based on import levels. In 2016 a yearly average price for coke in Ukraine will decrease to UAH XX/t (XX% down y-o-y), with the US dollar equivalent losing XX%. From January 2016 expenses for coke imports will slightly soften after lifting of additional import tax imposed in February Metal Expert CIS Raw Materials Forecast November,

86 Ukrainian coke market PRICE FORECAST Forecast of coke prices in Ukraine Domestic prices for coke, UAH/t UAH USD forecast Beginning of section Content Metal Expert CIS Raw Materials Forecast November,

87 PRICE FORECAST Appendix Metal Expert CIS Raw Materials Forecast November,

88 Appendix Supplement to the report CIS Raw Materials Forecast : Statistical service on website metalexpert-group.com Country Table name Period Starting date Final date 1 Russia, Ukraine Sinter feed domestic producers prices week Jan.07 current week 2 Russia, Ukraine Concentrate domestic producers prices week Jan.07 current week 3 Russia, Ukraine Pellets domestic producers prices week Jan.07 current week 4 Russia, Ukraine, China, USA Scrap domestic producers prices week Jan.07 current week 5 Russia, China Pig iron domestic producers prices week Jan.07 current week 6 Ukraine Coking coal domestic producers prices week Jan.07 current week 7 Russia, Ukraine Coke nut domestic producers prices week Jan.07 current week 8 Russia, Ukraine, China BF coke domestic producers prices week Jan.07 current week 9 Italy HBI import prices week Jan.07 current week 10 Turkey, South Korea Scrap import prices week Jan.07 current week 11 Italy, USA Pig iron import prices week Jan.07 current week Russia, Ukraine, USA, Netherlands, 12 Scrap export prices Japan week Jan.07 current week 13 Russia, Ukraine, Brazil Pig iron export prices week Jan.07 current week 14 Russia Coking coal export prices week Jan.07 current week Monthly statistical supplement to the report «CIS Raw Materials Forecast» Country Table name Period Starting date Starting date xls-supplement on website Final date 2 Russia Russian steel scrap market structure month Jan.04 Jan.04 last month 4 Ukraine Ukrainian steel scrap market structure month Jan.04 Jan.04 last month 5 Russia Russian pig iron market structure month Jan.04 Jan.04 last month 7 Ukraine Ukrainian pig iron market structure month Jan.04 Jan.04 last month 9 Russia Structure of HBI market in Russia month Jan.04 Jan.04 last month 11 Russia Agglomerated iron ore market structure in Russia month Jan.04 Jan.04 last month 12 Russia Non-agglomerated iron ore market structure in Russia month Jan.04 Jan.04 last month 13 CIS Structure of CIS iron ore export month Jan.04 Jan.04 last month 14 Ukraine Agglomerated iron ore market structure in Ukraine month Jan.04 Jan.04 last month 15 Ukraine Non-agglomerated iron ore market structure in Ukraine month Jan.04 Jan.04 last month 19 Russia Russian coke market structure month Jan.04 Jan.04 last month 20 Russia Russian coking coal market structure month Jan.04 Jan.04 last month 23 Ukraine Ukrainian coke market structure month Jan.04 Jan.04 last month 24 Ukraine Ukrainian coking coal market structure month Jan.04 Jan.04 last month Metal Expert CIS Raw Materials Forecast November,

89 Appendix Quarterly statistical supplement to the report «CIS Raw Materials Forecast» Country Table name Period Starting date Final date 1 CIS Forecast of key market indices year ,5 year forecast 2 Russia Projects of steelmaking capacity changes in Russia current projects 3 Russia Estimate of steelmaking capacity changes in Russia quarter Q quarter forecast 4 Russia Forecast of steel production in Russia quarter Q quarter forecast 5 Ukraine Projects of steelmaking capacity changes in Ukraine current projects 6 Ukraine Estimate of steelmaking capacity changes in Ukraine quarter Q quarter forecast 7 Ukraine Forecast of steel production in Ukraine quarter Q quarter forecast 8 CIS Forecast of billets export from CIS quarter Q quarter forecast 9 CIS Forecast of billets export prices in Russia month Jan month forecast 10 Global Forecast of import scrap prices in Turkey month Jan month forecast 11 Russia Forecast of scrap demand in Russia quarter Q quarter forecast 12 Russia Forecast of scrap collection by Federal Districts quarter Q quarter forecast 13 Russia Forecast of scrap market balance in Russia quarter Q quarter forecast 14 Russia Forecast of domestic ferrous scrap prices in Russia month Jan month forecast 15 Ukraine Forecast of scrap demand by companies in Ukraine quarter Q quarter forecast 16 Ukraine Forecast of scrap market balance in Ukraine quarter Q quarter forecast 17 Ukraine Forecast of domestic ferrous scrap prices in Ukraine month Jan month forecast 18 Russia Projects of pig iron making capacity changes in Russia current projects 19 Russia Estimate of pig iron making capacity changes in Russia quarter Q quarter forecast 20 Russia Forecast of pig iron market balance in Russia quarter Q quarter forecast 21 Russia Forecast of pig iron export prices in Russia month Jan month forecast 22 Ukraine Projects of pig iron making capacity changes in Ukraine current projects 23 Ukraine Estimate of pig iron making capacity changes in Ukraine quarter Q quarter forecast 24 Ukraine Forecast of pig iron market balance in Ukraine quarter Q quarter forecast 25 CIS Forecast of merchant pig iron deliveries in CIS quarter Q quarter forecast 26 Russia Forecast of HBI production in Russia quarter Q quarter forecast 27 Global Forecast of import iron ore prices in China month Jan month forecast 28 Russia Projects of iron ore capacity changes in Russia current projects 29 Russia Estimate of iron ore capacity changes in Russia quarter Q quarter forecast 30 Russia Forecast of iron ore market balance in Russia quarter Q quarter forecast 31 Russia Forecast of iron ore market balance by companies in Russia quarter Q quarter forecast 32 Russia Forecast of domestic iron ore prices in Russia month Jan month forecast 33 Ukraine Projects of iron ore capacity changes in Ukraine current projects 34 Ukraine Estimation of iron ore capacity changes in Ukraine quarter Q quarter forecast 35 Ukraine Forecast of iron ore market balance in Ukraine quarter Q quarter forecast 36 Ukraine Forecast of iron ore market balance by companies in Ukraine quarter Q quarter forecast 37 Ukraine Forecast of domestic iron ore prices in Ukraine month Jan month forecast 38 Russia Projects of coke making capacity changes in Russia current projects 39 Russia Estimate of coke making capacity changes in Russia quarter Q quarter forecast Metal Expert CIS Raw Materials Forecast November,

90 Appendix Country Table name Period Starting date Final date 40 Russia Forecast of coke market balance in Russia quarter Q quarter forecast 41 Russia Forecast of coke consumption in Russia quarter Q quarter forecast 42 Russia Forecast of domestic metallurgical coke prices in Russia month Jan month forecast 43 Ukraine Projects of coke making capacity changes in Ukraine current projects 44 Ukraine Estimate of coke making capacity changes in Ukraine quarter Q quarter forecast 45 Ukraine Forecast of coke market balance in Ukraine quarter Q quarter forecast 46 Ukraine Forecast of coke consumption in Ukraine quarter Q quarter forecast 47 Ukraine Forecast of domestic metallurgical coke prices in Ukraine month Jan month forecast 48 CIS CIS producers' plans to adopt PCI technology current projects *provided as xls-supplement only Metal Expert CIS Raw Materials Forecast November,

91 PRICE FORECAST methodology Metal Expert CIS Raw Materials Forecast November,

92 methodology Sources Data evaluation methods information obtained directly from market participants, including daily monitoring of prices official reports and forecasts of related ministries and other authorities, market-makers national statistic bodies customs and railway statistics steel product manufacturers and traders Forecasting methods information on prices coming from market participants is verified through several sources; actual wholesale prices are provided as a result statistic data on production and goods flows is provided by manufacturers; the data is complemented and verified through third-party databases as well as by means of official sources statistic data on regional shipments (for Russia only) is based on analysis of deliveries by rail through Russian Railways database information on existing capacities and expansion plans is obtained directly from producers 1. Market balance The raw materials consumption forecasting is based on evaluation of downstream production volumes (steel, pig iron, etc.) for each of consumers. supply forecast is based on estimate of future requirements of supplying companies, capacity changes (including scheduled repairs) as well as external markets environment supply forecast considers production targets, competitive advantages of companies and regional structure of shipments. Metal Expert CIS Raw Materials Forecast November,

93 methodology 2. Capacity changes Sources deemed as official (company news, direct contacts with company representatives or market players) are complemented with our estimate. First of all, it refers to long-term capacity expansion programmes, not available in open sources. 3. Price forecast Each project is awarded with the estimate of implementation probability: high there is no objective evidence that may undermine or delay the project implementation; the project should be implemented not later than in a year from the current date (included in evaluation models without changes); medium there is objective evidence that the project may be delayed for up to three quarters (included in evaluation models with the implementation date postponed for up to three quarters); low there is objective evidence that the project may be delayed for more than a year or suspended (such project is not included in evaluation models). Price forecasts are based on the following forecasts of our own: forecast of finished steel market environment; forecast of domestic raw material markets balances; forecast of global spot prices for iron ore and coking coal; forecast of a share of price formula-based contracts made in the domestic markets; forecast of changes in currency rates. Content Metal Expert CIS Raw Materials Forecast November,

94 CIS Raw Materials Forecast on-line access to statistics pdf-version and excel-version of statistics consultations of leading experts Subscription / Trials: tel , , subscriptions@metalexpert-group.com Offices Metal Expert Ukraine: 48-b Naberezhnaya Pobedy, Dnepropetrovsk 49094, Ukraine tel , subscriptions@metalexpert-group.com Metal Expert Russia: Moscow , Russia, P/O box 60 tel / fax , info@metalcourier.ru Metal Expert LLC: 2470 Hodges Bend Cir., Sugar Land, TX 77479, USA tel s.sadikhov@metalexpert-group.com k.hashimova@metalexpert-group.com Metal Expert News Analytics Forecasts Consulting Advertising Advertising This document is for information only. Global markets forecasts have been compiled from sources believed to be reliable. Whilst every effort has been made to ensure that the information is correct and the views sound, Metal Courier Publication LTD cannot be made liable for any loss no matter how it may rise. Copyright notice: Metal Expert All rights reserved. No part of this publication (text, data or graphic) may be reproduced, stored in a data retrieval system, or transmitted, in any form whatsoever or by any means (electronic, recording or otherwise) without obtaining Metal Courier Publication LTD s prior written consent. Unauthorized and/or unlicensed copying or any part of this publication is in violation of copyright law.