Competition in the pipe industry. The case of Middle East & Africa February 2012 Viktor Bisovetskyi Head of Market Research Interpipe Competition in the pipe industry. The case of Middle East & Africa 22 February 2012 Стр. 1
Competition on ME&A market Competition in the pipe industry. The case of Middle East & Africa 22 February 2012 Стр. 2
World pipe consumption is backed by high oil prices Strong demand for OCTG 46 761 46 486 World pipe consumption w/o China, LatAm 37 893 39 794 41 406 21 669 21 222 15 772 15 293 31 078 15 234 16 893 11 437 17 190 17 980 12 199 12 398 wld smls OCTG 9 391 9 320 9 971 6 453 9 563 10 405 11 028 2007 2008 2009 2010 2011E 2012F 6.0% 4.0% 2.0% 0.0% -2.0% World GDP growth Source: Preston, ISSB, IMF, Interpipe analysis 4.0% 3.3% 4.5% 3.9% 2007 2008 2009 2010 2011E 2012F 2013F World GDP, real change yoy, % (Sept 2011) World GDP, real change yoy, % (Jan 2012) 10.0% 5.0% 0.0% -5.0% -10.0% World investments growth 6.7% 6.9% 2007 2008 2009 2010 2011E 2012F 2013F 110.0 100.0 90.0 80.0 70.0 60.0 Crude oil forecasts* 100.0 96.8 98.3 93.7 2007 2008 2009 2010 2011E2012F2013F Crude oil, dollars per barrel (Sept 2011) Crude oil, dollars per barrel (Jan 2012) * Simple average of three spot prices (APSP); Dated Brent, West Texas Intermediate, and the Dubai Fateh Competition in the pipe industry. The case of Middle East & Africa 22 February 2012 Стр. 3
Pipe consumption is expected to grow in all regions except Europe 7 002 6 637 ME&A 5 932 6 046 6 138 6 605 16 637 17 650 NAFTA 14 503 16 055 16 853 3 024 2 922 2 769 2 803 2 609 2 520 1 973 1 893 1 712 1 845 1 950 1 641 2 006 1 822 1 489 1 725 1 773 1 885 wld smls OCTG 8 266 3 389 4 983 8 288 3 504 5 858 10 250 5 295 1 807 3 148 6 732 7 047 6 433 3 024 3 036 2 435 5 635 6 298 6 770 wld smls OCTG 2007 2008 2009 2010 2011E 2012F 2007 2008 2009 2010 2011E 2012F 14 992 14 499 Europe 8 129 7 700 CIS 7 646 7 989 8 312 6 428 6 203 9 431 4 462 9 700 3 799 9 612 3 885 9 636 3 890 8 147 7 898 4 706 5 578 5 395 5 401 418 398 263 323 332 345 wld smls OCTG 3 952 5 465 3 809 4 052 4 273 4 052 2 674 2 264 1 998 1 712 1 935 2 011 1 237 1 913 1 893 1 553 1 881 2 002 2 028 wld smls OCTG 2007 2008 2009 2010 2011E 2012F 2007 2008 2009 2010 2011E 2012F Source: Preston, ISSB, Interpipe analysis Competition in the pipe industry. The case of Middle East & Africa 22 February 2012 Стр. 4
Political instability is a limitation for growth in MENA High global demand for oil will supports OCTG consumption 7 002 6 637 3 024 2 922 1 973 1 893 2 006 1 822 ME&A 6 605 5 932 6 046 6 138 2 769 2 609 2 520 2 803 1 712 1 845 1 950 1 641 1 489 1 725 1 773 1 885 wld smls OCTG Consumption of OCTG increased slightly in 2011 compared to 2009, from 1.5 mln tones to 1.8 mln tones. It is expected, that the market will grow by 6% in 2012, to 1.9 mln tones The demand for other pipes has been stable over 2009-2011: 2.6-2.8 mln tones for welded, 1.7-1.8 mln tones for seamless pipes. Political instability is an important growth limitation in the Middle East. The market could expand by 7-8% in 2012, although possible conflicts in the region (Syria, Iran) can question any increase in demand. 2007 2008 2009 2010 2011E 2012F 6.0% MENA GDP growth 20.0% MENA investments growth 300 MENA rig count 3.0% 3.6% 3.2% 4.3% 3.6% 15.0% 10.0% 5.0% 8.1% 6.7% 250 200 150 100 0.0% 2007 2008 2009 2010 2011E 2012F 2013F MENA GDP, real change yoy, % (Sept 2011) MENA GDP, real change yoy, % (Jan 2012) 0.0% -5.0% 2007 2008 2009 2010 2011E 2012F 2013F 50 J A J O J A J O J A J O J A J O J A J O 2007 2008 2009 2010 2011 Oil Gas Source: ISSB, IMF, Baker Hughes, Interpipe analysis Competition in the pipe industry. The case of Middle East & Africa 22 February 2012 Стр. 5
1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Strong demand for OCTG Key consumers are Saudi Arabia, UAE, Oman, Iran, Kuwait 4 389 1 958 4 068 1 720 1 279 1 287 1 152 1 061 Middle East 3 219 1 546 951 722 3 837 1 583 1 208 4 328 1 600 4 620 1 762 1 496 1 555 1 046 1 232 1 303 2007 2008 2009 2010 2011E 2012F wld smls OCTG 33% OCTG production and import structure, 2010 2% 2% 1% 1% 3% 4% 19% 35% Middle East production China TVS Singapore VoestAlpine Russia Indonesia Ukraine Other 30 000 ME oil production, thsd bbl/d 300 ME rig count 200 25 000 100 20 000 0 Source: ISSB, Baker Hughes, Interpipe analysis Oil Gas Competition in the pipe industry. The case of Middle East & Africa 22 February 2012 Стр. 6
1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Political turbulence is the main limiting factor Key consumers are Algeria, Egypt, Libya, Nigeria 2614 2569 1066 694 1202 2713 1257 606 689 Africa 2208 1026 504 853 761 767 679 1810 920 349 1984 1007 395 541 582 wld smls OCTG 40% OCTG production and import structure, 2010 3% 2% 1% 1% 2% 7% 43% Africa production TVS China Ukraine VoestAlpine Russia Singapore Other 2007 2008 2009 2010 2011E 2012F 12000 Africa oil production, thsd bbl/d 100 Africa rig count 10000 50 8000 0 Source: ISSB, Baker Hughes, Interpipe analysis Oil Gas Competition in the pipe industry. The case of Middle East & Africa 22 February 2012 Стр. 7
Volatile and increasing costs for nonintegrated pipe producers Billet price, USD/t 1400 1200 1000 800 600 400 200 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 2007 2008 2009 2010 2011 Source: Metal Bulletin Billet, import ME Billet, Russia FOB Competition in the pipe industry. The case of Middle East & Africa 22 February 2012 Стр. 8
Interpipe global steel pipe producer Competition in the pipe industry. The case of Middle East & Africa 22 February 2012 Стр. 9
Interpipe at a glance o o o o o o Major global producer of steel pipes expected production 2011 915,000 tons*. Third largest producer of forged railway wheels in the world expected production 2011-168,000 tons*. Expected revenues 2011 USD 1,6 billion* Vertically integrated company Four production assets in Ukraine and sales offices in the key markets CIS, NAFTA, Middle East/North Africa and Europe Comprehensive strategy of maintaining strong cost position, growth in attractive markets and upgrading product portfolio * Preliminary assessment Competition in the pipe industry. The case of Middle East & Africa 22 February 2012 Стр. 10
In 2011, pipes were sold in 64 countries, wheels in 25 NAFTA 11 % 100 ths. tons <1% Europe 8% 68 ths tons 10% 16 ths.tons Russia Ukraine 31% 282 ths. tons 5% 9 ths. tons 21% 191 ths tons. 78% 130 ths. Other CIS 20% 188 ths. tons 6% 11 ths. tons MENA 9% 86 ths. tons <1% Main Interpipe sales directions: pipes wheels Pipe sales, tons Region Wheel sales, tons Competition in the pipe industry. The case of Middle East & Africa 22 February 2012 Стр. 11
Vertically integrated business model Scrap processing Steel production Pipe & wheel production Selling to customers globally Dneprovtormet Scrap collection and processing Interpipe NTRP Interpipe NTRP, Dnipropetrovsk Ukraine Russia Open Hearth Furnace Interpipe Niko Tube, Nikopol Dniprosteel Kazakhstan Switzerland State of the art electric steel smelting complex (EAF) Interpipe NMPP Novomoskovsk UAE USA Competition in the pipe industry. The case of Middle East & Africa 22 February 2012 Стр. 12
Major investment: steel-making plant Dniprosteel o Interpipe is constructing an electric arc furnace steel plant in Dnipropetrovsk with total annual capacity of 1.32 million tons. o The new facility represents an investment in excess of $700 million. When completed, it will be the largest facility of its kind in Ukraine and one of the largest in Europe. o Dniprosteel employs state of the art technologies provided by Daniele, Italy, to provide consistent steel production with different steel grades, from carbon to lowalloyed. Competition in the pipe industry. The case of Middle East & Africa 22 February 2012 Стр. 13
Dniprosteel reinforces vertical integration and increases efficiency Reinforcement of vertical integration as a part of Interpipe strategy Increase of self sufficiency in steel billets for production of: 2011 2014 Seamless pipes 30% 90% Railway wheels 100% 100% High quality billets to feed Interpipe mills: Interpipe NTRP Interpipe Niko Tube 45% 55% Electric arc furnace advantages versus open hearth furnace production 4 times Increase in labor productivity 2,2 times Reduction of energy consumption per ton 8 times Reduction of natural gas consumption Environmentally friendly technology 2,5 times Reducing of atmosphere pollution Shutdown of existing open hearth production January 1, 2013 Competition in the pipe industry. The case of Middle East & Africa 22 February 2012 Стр. 14
Main Dniprosteel phases in 2012 January 17 th, 2012 The mill hot testing started. 1 st heat melted and casted April 2012 Completion of the industrial gases plant by Messer March 2012 Completion of performance tests. Start of operations June 2012 Completion of scrap collecting facilities expansion Target for 2012: to produce 750 000 800 000 thd. tons Competition in the pipe industry. The case of Middle East & Africa 22 February 2012 Стр. 15
Thank you! Competition in the pipe industry. The case of Middle East & Africa 22 February 2012 Стр. 16