The forecast estimates 1999 consumption to move down by some 20 mln. tons.

FERROUS METALS

Alexander SHEIKO, expert with "DerzhZovnishInform"

The forecast estimates 1999 consumption to move down by some 20 mln.
tons.

Output, supply, and demand

According to data by the International Iron & Steel Institute, 63
countries worldwide manufactured some 309.725 mln. tons of steel during the five months of
1999. This output is 5.3% down compared to the last year’s respective __figure, which
accounted for 326.901 mln. tons of steel.

From January till May 1999, 15 countries of the European Union produced
64.269 mln. tons of steel, which is 9.7% down against the last year’s production volume.
First of all, this downward trend was caused by unfavorable conjuncture on the
international market for rolled metal, as well as by intense competition on sale markets
for Western European-made rolled metal.

In Eastern European countries steel output also plummeted. As of May 1999,
steel mills of this region manufactured 16.224 mln. tons of steel, which is 22.2% lower as
against the last year’s corresponding figure of 20.853 mln. tons. Steel manufacturing in
Yugoslavia suffered the most dramatic decrease by 83.8% all the way down to 79 ths. tons.

North American countries slashed steel output by 8.6% downo 51.731 mln.
tons. Moreover, in the USA, steel manufacturing reduced by 10.2% down to 38.629 mln. tons;
in Canada – by 4.8% down to 6.558 mln. tons; and in Mexico – by 0.5% down to 6.122
mln. tons.

Owing to adverse situation on both domestic and external markets, South
American manufacturers were forced to shrink output volumes as well. In Argentina, steel
production fell by 20.6% down to 1.385 mln. tons and in Brazil – by 3.1% to 10.375 mln.
tons. Overall, the region suffered a 9.7% reduction in steel smelting, as compared to the
five months of 1998, all the way down to 13.87 mln. tons.

Asia indicated almost the same steel output as in the year of 1998. Japan,
South Korea, and India reduced steel manufacturing by 7.5%, 3.8%, and 1.4% respectively.
At the same time, output in China boosted by 7.4% up to 49.245 mln. tons and in Taiwan –
by 6.1% up to 7.097 mln. tons. The aggregate output of this region totaled to 119.498 mln.
tons of steel.

Unlike in the other regions worldwide, increase in steel production has
been registered in the CIS countries. During the 5 months of 1999, steel-making indicated
a 32.172 mln. ton output, which is 4.7% up from the last year’s figure. Though production
sunk by 31.4% in Uzbekistan and by 17.8% in Moldova, steel output rose by 5.6%, 3.7%, and
6.4% in Russia, Ukraine, and Belarus respectively.

Over the same period, African countries reduced steel production by 11.8%
to 4.433 mln. tons, while Oceanian countries lowered steel production by 9.7% down to
3.709 mln. tons.

Table 1 presents figures on steel manufacturing in January-May 1999.

Table 1. Steel output in the world in January-May 1999, mln. tons

According to data by "MetallurgProm", over the six months of
1999, Ukrainian metallurgic mills manufactured 10,659 ths. tons of pig iron, 12,960 ths.
tons of steel, and 9,888 ths. tons of rolled metal. Compared to the respective period of
1998, these figures indicated an increase in output of steel by 2.16% and in output of
rolled metal by 7.91%, while the volume of manufactured pig iron reduced by 2% (see table
2).

Table 2. Manufacturing of pig iron, steel, and rolled metal over the
first half-years of 1998 and 1999, ths. tons

Table 3 shows data on output volumes for pig iron, steel, and rolled metal
at Ukrainian metallurgic works in the first half-year of 1999.

Table 3. Manufacturing by Ukrainian metallurgic mills during the
first six months of 1999, ths. tons

Due to worsened economic situation in a number of countries, the
International Iron & Steel Institute revised the previously compiled forecast for
world consumption of steel products, reducing it by more than 20 mln. tons.

According to predictions, consumption of metal products will drop down to
673.2 mln. tons during the year of 1999. This shall take place due to high surplus of
stockpiled rolled metal and due to negative after-effects of the Asian and Russian
economic crises (nowadays, steel products, previsouly bound to Asia, are supplied to other
countries of the world). Experts with the Institute believe that, in the present year,
consumers will use rolled metal from the stocks accumulated. Hence, consumption will move
downward in the second half-year.

It is expected that, in 1999, consumption of steel products will suffer a
4.3% decrease down to 130.2 mln. tons in the EU member-states. At the same time,
consumption in the other European countries is expected to rise by approximately 4.1%,
predominantly, due to consequences of the Yugoslavian conflict.

It is forecast that consumption of rolled metal in North American countries
will total 136.9 mln. tons, which is 5.5% down compared to the last year’s level. Due to a
slowdown in economic growth tempos in 1999, visible consumption in the USA is expected on
the level of 112 mln. tons (7% lower the respective figure in 1998). A slight increase in
demand is anticipated in Canada.

At present, Brazil’s economy is suffering a recession; thus, in 1999,
consumption of steel products will reduce by some 3% down to 14 mln. tons in this country.
At the same time, export opportunities for Brazilian manufacturers are changing for the
better. It is expected that consumption will drop by 4.8% in Argentina. According to the
Institute’s estimates, the sum total domestic consumption in this region will amount to
27.9 mln. tons, which is 2.2% down compared to the year expired.

The consequences of the currency and financial crises will still affect on
the Asian region. It is forecast that consumption of steel products in this region will
reduce by 1.7% down to 281 mln. tons. In China, excessive supply of rolled metal causes
its negative influence upon consumption of this product. Following the slump in 1998,
consumption in South Korea is expected to slightly increase by 12% up to 28 mln. tons in
1999. Taiwan will indicate the same consumption as in the year of 1998 (20.2 mln. tons).
As for the other countries of this region, there are expected no tendencies for increase
in domestic consumption.

Experts with the Institute believe that demand for steel products will
remain rather low in the CIS member-countries. According to the estimates, utilization of
rolled metal will equal to only 29.4 mln. tons in the CIS.

In African countries, consumption of rolled metal will move down by 9.1% to
13.8 mln. tons in 1999.

Table 4 presents figures on consumption of rolled steel in the world.

Table 4. Consumption of rolled steel in the world, mln. tons

Export

According to data by the State Statistics Committee of Ukraine, during the
first half-year of 1999, Ukraine exported about 11,073.62 ths. tons of metal products
worth USD 1,474,971 ths. The physical quantity of metal exported surpassed the respective
figure of the year before by 11.3%, though the amount of export in monetary terms plunged
by 30.7%.

As against the respective 1998 figure, in the first half-year of 1999,
export supplies of semi-finished products rose by 41.05% up to 3,151.52 ths. tons; of
ferrous waste and scrap – by 35.88% to 1,988.54 ths. tons; of pig iron – by 13.17% to
917.61 ths. tons; of CR flat metal – by 11.24% to 533.54 ths. tons; and of wire rod –
by 8.03% up to 513.55 ths. tons.

At the same time, there were registered reductions in export of HR flat
metal (by 10.22% down to 1,877.3 ths. tons); of rebars (by 7.9% down to 1,266.46 ths.
tons); and of merchant bars (by 33.01% down to 203.26 ths. tons).

Owing to inauspicious market conjuncture, all the commodity articles
inclusively indicated a reduction in monetary earnings from sales as compared to the year
of 1998.

As in the previous periods, the main items of Ukrainian metal export were
semi-finished products (28.46% and 25.92% of the total in quantitative terms and in
monetary terms respectively); ferrous waste and scrap (17.96% and 8.89%); HR flat metal
(16.95% and 18.29%); rebars (11.44% and 15.11%); as well as pig iron (8.29% and 4.8%).

Data on export of Ukrainian-made metal products in January-June 1999 are
presented in table 5.

Table 5. Export of metal products from Ukraine during the first six
months of 1998 and 1999

Compared to the respective period of 1998, the by-region distribution of
domestic export underwent certain changes.

Traditionally, Southeast Asian countries, consuming 36.69% (4,055.86 ths.
tons) of the total Ukrainian export of metals products, and Middle East countries,
consuming 27.33% (3,021.24 ths. tons), were the principal markets for domestic exporters
in the first half-year of 1999. These regions made up 35.8% and 20.92% respectively in the
by-region distribution of monetary earnings from export. It is also worth mentioning that,
in terms of quantity, supplies to Southeast Asian economies augmented by 49.41% vis-a-vis
the 1998 figure and to Middle East countries – increased by 8.14%.

Tendencies for increase are also registered in export supplies to South and
Southwest Asian countries (a 27.36% increase up to 116.74 ths. tons); to North American
countries (a 11.61% increase to 717.29 ths. tons); and to Eastern European countries (a
6.18% increase to 734.93 ths. tons).

Noteworthy as it is, but, searching for new sale markets, Ukrainian
exporters entered and strengthened their positions on the African market. Over the first
half-year of 1999, Ukraine shipped 658.97 ths. tons of metal products to this region,
which exceeds the respective 1998 figure by 12.3%.

Because of the unstable situation on the CIS markets, Ukraine curtailed
supplies of metal products to these states by 46.8% down to 599.35 ths. tons. To compare
this figure, one should keep in mind that some 1,127.83 ths. tons of metal products were
shipped to these countries during the first half-year of the year before. Being threatened
by imposition of antidumping sanctions in the vast majority of South American economies,
Ukraine plunged supplies of metal products to this region by 53% all the way down to 94.44
ths. tons.

Table 6 shows regional distribution of domestic export.

Table 6. Distribution of Ukrainian export by regions over 6 months
of 1998 and 1999

China

During the first half-year of 1999, China retained its position as the main
sale market for Ukrainian-made metal products, consuming 23% of the total Ukrainian metal
exports in terms of quantity.

Over the above-mentioned period, some 2,548.42 ths. tons of metal products
for a total of USD 335,781.09 ths. were supplied to the Chinese market. In quantitative
terms, this number exceeds the last year’s figure by 34.69%, while it falls behind by
8.85% in monetary terms.

The main contributors to quantitative increase in exports were
semi-finished products (billets), export of which grew by 48.52%; HR flat metal – up by
44.39%, and, what’s most notable, CR flat metal – by 113%, and merchant bars – up by
294.19%.

At the same time, supplies of rebars and pig iron fell by 36.2% (down to
156.2 ths. tons) and 19.1% (down to 119.56 ths. tons) respectively as compared to the last
year’s results. Export of wire rod roughly remained unaltered at 99.72 ths. tons, which is
only a 0.25% up from the 1998 level.

The chief items of export to China included: semi-finished products, making
up 47.42% of the total exports to China or 1,208.57 ths. tons; HR flat metal with 24.71%
or 629.8 ths. tons; CR flat metal with 12.1% or 308.45 ths. tons; as well as rebars with
6.12% or 156.2 ths. tons, and pig iron with 4.69% or 119.56 ths. tons.

All the export items inclusively (especially hot-rolled flat metal and pig
iron) indicated a decrease in currency incomes.

Table 7 shows data on export of domestic metal products to China.

Turkey

For metal exports from Ukraine, the Turkish market ranked the second,
consuming 16.2% of the total export of metal products in terms of quantity.

Over the first six months of 1999, 1,802.02 ths. tons of metal products
worth USD 143,236.81 ths. were shipped to this market. This is a 8.49% increase in
quantitative terms compared to the 1998 level and a 44.7% reduction in monetary terms as
against the same period.

Table 7. Ukrainian metal exports to China during 6 months of 1998
and 1999

Export supplies mainly increased due to shipments of semi-finished products
(a 254.9% increase up to 125.7 ths. tons) and ferrous scrap (a 57.82% increase up to
1,328.52 ths. tons). Although hot-rolled and cold-rolled flat metal dominated among
Ukrainian export articles in 1998, this year supplies of scrap occupy the leading
positions making up 73.72% of the total export in terms of quantity.

Turkey-bound supplies of HR flat metal suffered a 54% reduction to 175.38
ths. tons, while supplies of CR flat metal decreased by 69.1% down to 39.17 ths. tons.
Even supplies of pig iron, which was previously among the principal products for Ukrainian
export, plunged by 33.99% down to 69.5 ths. tons.

Table 8 shows information on export of domestic metal to Turkey.

Table 8. Ukrainian export of metal products to Turkey over 6 months
of 1998 and 1999

 

Russia

According to information by the State Statistics Committee of Ukraine,
during January-June 1999, the Russian market consumed some 3.1% of the total export of
Ukrainian metal products in terms of quantity. This portion equaled to some 6.5% during
the respective period of 1998.

Overall, the first half-year of 1999 witnessed supplies of approximately
350.84 ths. tons of metal products worth USD 112,040 ths. to Russia. This is 49.39% down
in quantitative terms compared to the last year’s figure and 54.8% down in terms of
monetary earnings. Most export articles indicated decrease in supplies, except for
semi-finished products and scrap. Yet, the latter two positions are exported in rather
small volumes.

Mainly, Ukraine exported to Russia the following commodities: ferroalloys
(making up 20.28% or 71.15 ths. tons); merchant bars, such as angles, channels, beams etc.
(a 19.47% or 68.31 ths. tons); rebars (a 17.52% or 61.48 ths. tons), HR flat metal (a
15.3% or 53.69 ths. tons); and rolled alloy steel (a 10.63% or 37.3 ths. tons).

Data on export of domestic metal products to Russia are presented in table
9.

Table 9. Ukrainian export of metal products to Russia over 6 months
of 1998 and 1999

 

Market conjuncture for metal products

Pig iron

Recently, the world market for pig iron has shown tendencies for soaring
prices. Yet, this does not serve as evidence to stabilization on the pig iron market,
because the prices rose due to limited supply of this commodity on the market. The latter
event was caused by various factors.

Considering low prices, which were formed on the market during the first
half-year of 1999, export of pig iron became just not too profitable. Moreover, since
prices for billets increased and prices for scrap remained rather low, manufacturers
switched to production of semi-finished products. Thus, there is a definite pronounced
shortage of pig iron on the world market.

This is especially true for the US market. Pig iron has traditionally been
one of the key items of American metal imports. Predominantly, Russian and Brazilian-made
pig iron was entering this market. However, due to a spate of cheap pig iron made in Asian
countries, Brazilian exporters lost a portion of the market since they refused to supply
pig iron at low prices.

There was also a reduction in supplies of Russian and Ukrainian-made pig
iron. While supplies of Russian commodity were limited on "voluntary" basis (on
the grounds of treaty between the governments of the two countries), American traders are
simply reluctant to work with Ukrainian exporters due to uncertainty with execution of
delivery terms.

In average, price level increased by USD/MT 10-12 on the US market and
USD/MT 5-9 on the market of Latin American countries, whereas the CIS manufacturers
increased their prices by some USD/MT 3-5.

The outlooks of the world market are fairly good. Majority of experts
believes that there should be further increase in prices for scrap metal and semi-finished
products. Besides, certain Southeast Asian countries (for instance, South Korea and
Malaysia) revived demand for this type of metal products.

Table 10 presents the dynamics of prices for pig iron on the world market.

Table 10. World prices for pig iron, USD/MT

Semis (billets and slabs)

Semi-finished products have always been the most liquid commodity on the
world market for metal products. This was traced most clearly in the first half-year of
1999, when prices for semis soared.

Starting late May, export prices for Ukrainian-made billets have been
rising and settled at USD/MT 140-145, FOB. According to foreign experts, this took place
due to recommencement of activities by metallurgic mills in Southeast Asia and
particularly in China, as well as due to decrease in export supplies of billets from
Turkey.

At the same time, it is mentioned that the current situation on the market
is rather ridiculous, since prices for rebars and wire rod are lower than those for
billets. Naturally, such a situation can not remain for long. Soon enough, either the
prices for long-length rolled metal will increase, or the prices for billets will plunge.

Supplies of billets, made in Western Europe, suffered a slight reduction.
Unwilling to export billets at low prices, enterprises of the region switched to
production of finished rolled metal. Moreover, the domestic market of the EU states has
rather good demand for billets. Reorientation of manufacturers in the region has led to an
increase in export prices by some USD/MT 10.

Latin American billet manufacturers also managed to boost prices. As of the
end of May, the prices amounted to USD/MT 160-185, FOB. The experts believe that the
prices will keep on rising since Brazilian-made billets practically seized the share of
European-made billets on the market.

The dynamics of world prices for billets is shown in table 11.

Table 11. World prices for steel billets, USD/MT

Over the first half-year of 1999, there was an increase in supplies of
EU-made slabs. Previously, slabs from this region were poorly presented on the market,
mainly, owing to the market being flooded with cheap slabs made in Asia and the CIS. At
the moment, rather large volumes of slabs, made in Western Europe, are shipped to the USA
and Southeast Asian countries at USD/MT 180-190, FOB.

Slabs enjoy a good demand on the US market as well. As usual, mainly slabs
from Brazil are entering this market. According to information by Brazilian traders, they
have orders for slabs all the way till the end of the third quarter of 1999. Presently,
slabs from Brazil are supplied at USD/MT 160-180, FOB. Yet, exporters forecast an increase
in prices all the way up to USD/MT 190-200, FOB.

Largely due to high prices, the US market is attractive for Russian and
Ukrainian exporters. On this market, Russian slabs are bidden for approximately USD/MT
150-160, FOB. Ukrainian-made metal products of somewhat poorer quality are supplied at
prices of approximately USD/MT 125-140, FOB.

Long metal (rebars and wire rod)

The situation on the world market for long-length rolled metal is still
indefinite. The situation with rebars is especially intricate.

The US and EU markets are indicating some demand; thus, the prices on these
markets have a tendency for increase, which is especially true for the USA. At the same
time, due to excess of products on the markets and cutback in construction works, prices
keep moving down in the other regions, particularly in Asia.

There has been registered a certain growth in prices for rebars and wire
rod on the Turkish market. The experts mention that it is caused by the seasonal factor,
since this is the traditional period for commencement of construction and repair works in
Turkey. Hence, the prices for rebars and wire rod moved up to USD/MT 190-200, FOB.

The situation on the market of Southeast Asian economies is evolving in a
completely reverse order. China, which is the largest world importer of long-length rolled
metal, reduced imports of this product stating that there is surplus of rebars and wire
rod on the market. Yet, prices for rebars settled at USD/MT 155-160, CIF and for wire rod
– at USD/MT 155-170, CIF. According to traders, it is unlikely that the prices will
increase in the near future.

Cessation of supplies to the Chinese market means a substantial plunge in
sales for CIS and Turkish exporters. Thus, they will probably be unable to rise export
prices in the near future. Long-length rolled metal of the CIS origin is offered at USD/MT
160-165, FOB, and one should not count on increase in prices in the forthcoming future.
Besides, China-bound commodities will most definitely enter other markets, thus
undermining the prices on regional markets.

Tables 12 and 13 present the dynamics of prices for rebars and wire rod on
the world market.

Table 12. World prices for rebars, USD/MT

Table 13. World prices for wire rod, USD/MT

Rolled flats

Recently, the world market for flat rolled metal has witnessed a recovery
of business activities, consequently, leading to soaring prices for this type of metal
products. Price for HR coils already rose on almost all the world markets back in May
1999.

Russian and Ukrainian exporters managed to increase export prices by some
USD/MT 5-7. They were able to do this owing to an increased demand for rolled flat metal
on the markets of Southeast Asian countries, including China, Middle East, and African
countries, all of which are the traditional sale markets for this product.

While Russian-made rolled metal was sold at approximately USD/MT 160-170,
FOB, the price for Ukrainian metal products did not exceed USD/MT 140-145, FOB due to low
quality of domestic products, irregularity of deliveries, and other reasons.

The US market, which is one of the most expensive and prestigious in the
world, increased prices for HR steel coils. This took place mainly because of a decrease
in USA-bound supplies of steel from Russia, Japan, Korea and other countries.

"Metal Bulletin" mentioned that the American market for rolled
flat metal has rather auspicious outlooks. CR plates and coils are in especially hot
demand. American manufacturers even plan to raise prices for these products in the end of
the third quarter of 1999.

Most probably, there will be no increase in prices for HR flat metal, since
excessive stocks of this product (including imported one) have been accumulated.

Western European manufacturers raised both export and domestic prices. High
level of domestic consumption, recovered export markets, protective measures, and, of
course, high quality of products manufactured led to growth in prices for HR coil and
plate.

Traditional clients have increased demands on the internal EU market.
According to the market information, purchase orders for rolled metal have already been
submitted until the third quarter of 1999, mainly by automobile manufacturers. There is
even an opinion on possible shortage of rolled flat metal during the summer vacation
period. In general, the EU market has a certain stability of demand. Perhaps this was the
reason for a number of Western European companies to announce a planned increase in sale
prices.

It is worth mentioning that this is the second price increase since the
beginning of the year, which serves as a sign of market stability.

Export of HR and CR steel coils from the EU is rather small, since
high-quality commodities are mainly sold on the domestic market. The reason is intense
competition on the market of the third countries with similar, yet cheaper metal products,
manufactured in the CIS, Brazil, and Eastern Europe.

Tables 14 and 15 show the dynamics of world prices for hot-rolled and
cold-rolled coils.

Table 14. World prices for HR coil, USD/MT

Table 15. World prices for CR coil, USD/MT

• "DerzhZovnishInform"