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Ukraine Metals Report Q1 2010
Business Monitor International, Jan 2010, Pages: 53
Business Monitor International's Ukraine Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Ukraine's metals industry.
The survival of the Ukrainian metals industry will depend on trade and investment with Russia, according to BMI’s latest Ukraine Metals Report.
Despite the signs that the steel industry had bottomed out by end-2009, macroeconomic data indicate that it will take until 2014 for the Ukrainian steel industry to recover to pre-recession levels of output. The stabilisation of the Russian market will be crucial to Ukrainian steel production. However, Ukraine will take longer than Russia to recover, given significant foreign currency debt, constrained liquidity at some issuers and the higher risk of default. BMI forecasts that real domestic steel demand in the Commonwealth of Independent States (CIS) will grow by 4-7%, dominated by Russia.
Infrastructure projects, the maintenance of existing oil and gas pipelines and the construction of new ones will be the major drivers of steel demand growth in Russia, boosting demand for Ukrainian tubes and longs, although this will be offset by slow rates of growth in housing construction and general manufacturing. Ukrainian manufacturers will also be increasingly reliant on Asian and Middle Eastern markets for sales. In 2010, BMI forecasts apparent crude and finished steel consumption will be up 3.4% and 2.3%, respectively, to 8.79mn and 7.66mn tonnes. Crude output will rise by 8.0% to 31.97mn tonnes in 2010 and by 2014 should reach 41.82mn tonnes, though this is still 2.4% down on 2007 levels. Meanwhile, hot-rolled production will rise 9.1% to 28.34mn tonnes in 2010, reaching 35.34mn tonnes by the end of the forecast period, yet still down on the 36.17mn tonnes achieved in 2007. Growth in output will be led by exports, primarily to the CIS, as domestic industries struggle to gain momentum. Semi-finished and finished steel exports will exceed previous levels, surging 12.5% to 25.94mn tonnes in 2010 and rising to 33.42mn tonnes in 2014, a 10% increase over 2007.
Ukrainian steelmaking is set to come under increased Russian control. In January 2010, it was reported that Russian state-owned bank Vnesheconombank was financing a Russian take-over of Ukrainian steel maker ISD for US$1bn. The new owners were not disclosed at the time, but potential buyers cited in the media include mining magnate Alisher Usmanov and Roman Abramovich’s Evraz. Vnesheconombank financed a purchase of 50% plus one share of ISD, according to media reports. It is unclear whether Ukrainian businessmen Sergei Taruta and Oleg Mkrtchan would retain their 25% stakes or sell them to the new majority owner. The purchase price is enough to cover ISD’s debts to Russian banks. However, the deal is politically controversial ahead of the 2010 presidential election, with fears that it represents Russian attempts to expand its economic influence over the former Soviet state.
Although the publisher expects a full recovery in aluminium by 2014, this is dependent on RusAl maintaining operations in Ukraine. RusAl indicated even before the financial crisis that it may close the 130,000 tonnes per annum (tpa) Zalk smelter as it was unprofitable to keep it running. With output set to nosedive and the debt-ridden company already facing severe financial problems, it may consider permanent closure and sale. If RusAl can find a way to improve efficiency, BMI believes the smelter can be returned to full capacity after the recession, assisted by a recovery in supplies to the automotive industry. However, until RusAl announces that it will close Zalk, BMI forecasts a return to full capacity within five years.
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