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Russia Metals Report Q4 2010
Business Monitor International, Oct 2010, Pages: 62
Business Monitor International's Russia Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Russia's metals industry.
Over the short-term, Russian metals producers will be increasingly dependent on government support of the economy, particularly in the construction industry, in order to grow; however, BMI’s latest Russia Metals Report remains optimistic about Russia’s aluminium and steel industries’ long-term potential, as projects are revived, and modernisation and expansion get underway.
In the first seven months of 2010, Russian crude steel output was up 19.4% y-o-y, to 38.28mn tonnes, although monthly output peaked at 5.89mn tonnes in May. In the first eight months of 2010, Russia's consumption of steel products increased by 17% y-o-y, while its consumption of steel pipes went up by 44% y-o-y. During the same period, finished steel product output grew 17.2% y-o-y, to 33.2mn tonnes, including a 9.3% rise in flat steel products and a 30% increase in long steel products. The steel industry is running well ahead of overall industrial activity, which grew 9.2% in the January- August period. Aside from restocking, infrastructure construction, shipbuilding and automotive production are leading growth in steel output and consumption. However, consumption volumes are still 15-20% below pre-crisis levels, and Russian production is still down by 10% on 2007 levels.
In terms of the domestic market, performance has been heavily influenced by the domestic automotive and construction industries, which will take some time before they return to pre-recession levels. However, growth has returned to the industry in 2010, following a disastrous 2009, assisted by massive government financial injections. Indeed, to this effect, Russian car output was up 70.6% y-o-y in the first seven months, with output in July alone up 83.6% y-o-y. The construction sector has also not escaped the effects of recession, with a knock-on effect on long steel products such as rebar. We believe the construction industry will grow by 3.3% in real terms in 2010 following a contraction of 28.2% in 2009. This will prompt a gradual recovery in long products.
Minister of Industry and Trade Viktor Khristenko has forecast of crude steel output of 90mn tpa by 2020, with flat products reaching 38mn tpa, and longs 37mn tpa as a result of massive capacity expansion. BMI believes that, given the resumption of projects postponed during the crisis, this target may be reached before 2020. We maintain our forecast of crude steel output rising 8.8% to 63.97mn tonnes in 2010, and reaching 84.96mn tonnes by 2014, an increase of 17.3% over Russia’s post-Soviet peak of 72.41mn tonnes in 2007. Likewise, hot-rolled production should reach a new record of 69.35mn tonnes in 2014, up 16.8% over the 2007 peak of 59.38mn tonnes.
Rising production is being supported by strong growth in investment, with Russia's Ministry of Industry and Trade (MIT) estimating that investments in the modernisation and expansion of ferrous metallurgy reaching RUB200bn in 2015, up 25% over the level expected in 2010. During H110, industry investment was up 15% y-o-y to RUB60bn. In September 2010, NLMK commenced production at a second 4mn tpa ladle furnace at its Lipetsk site. A similar complex was opened at Lipetsk in March 2010. The total capacity of the two ladle furnaces amounts to approximately 8mn tpa, with total investment of over RUB3bn. As part of its production upgrade NLMK is planning to commission two more ladle furnaces with total capacity of 4mn tpa at the Lipetsk production site in 2011. In total these new facilities will be able to process about 12mn tpa of steel. Meanwhile, NLMK is building a new mini mill in the Kaluga region that will be capable of processing all scrap steel generated in the Moscow region. Capacity would be 1.5mn tpa, and the project would cost more than US$1.5bn.
Domestic aluminium production is set to follow the trend seen in the steel industry as industrial demand recovers and exports grow. In H110, UC RUSAL reported its total global aluminium output grew 1% y-o-y to just under 2mn tonnes, with Q210 output up 5% compared to Q110. Assisting its growth in output was the completion of the commissioning of potline 5 at the Irkutsk aluminium smelter and restarted production at RUSAL’s No.1 Novokuznetsk aluminium smelter (NkAZ), which was mothballed in March 2009, and brought back to full capacity in April 2010. Aluminium output is set to grow as capacity increases. RUSAL has finalised financing for the completion of the 600,000tpa smelter at the Boguchanskoye Energy and Metals Complex (BEMO) and the 750,000tpa Taishet Aluminium Smelter, which was due to come onstream in 2012.
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