Ukraine takes advantage of the favorable conjuncture on the world markets for ferrous metals.

FERROUS METALS

Alexander SHEIKO, expert with DerzhZovnishInform

Ukraine takes advantage of the favorable conjuncture on the world markets for ferrous metals.

Global output

According to the latest data with the International Iron & Steel Institute (IISI), over the 10 months of 1999 some 636.753 mln. tons of steel were manufactured in the world, which almost corresponds to the last year’s figure of 640.923 mln. tons (just some 0.7% down). Previous forecasts for a 3-5% increase in steel output in 1999 has proved wrong.

Meanwhile, the data on steel output in various regions worldwide are as follows.

During the 10 months of 1999, the 15 EU member-countries produced 129.223 mln. tons of steel, i.e. 5.8% down from the production figure in the respective period of 1998. The decrease in output mainly took place due to lowered steel smelting volumes in Germany (down by 7.9% to 34.95 mln. tons), in Italy (down by 6.4% to 20.591 mln. tons), Great Britain (down by 6.7% to 14 mln. tons) and in Spain (down by 3% to 21.345 mln. tons).

Over the same period, Eastern European countries decreased steel output by 13.7% to 34.461 mln. tons.

Owing to unfavorable conjuncture of the world market for rolled metal in the first half-year, steel smelting figures lowered in North and South American countries as well. North American countries manufactured 106.147 mln. tons of steel or 3% down from the last year’s figure; South American countries – 28.533 mln. tons or 7.5% down respectively.

Steel output decreased in North America due to reduction in steel output in the USA (down by 4.9% to 78.952 mln. tons). The regional drop in steel production in South America was called forth by reduced steel output in Brazil (20.721 mln. tons or 5.2% down against the respective 1998 figure) and Argentina (down by 13.2% to 3.098 mln. tons).

Despite the downward tendency observed in Asia during the first half-year of 1999, steel output exceeded the corresponding figures of the last year by 2.7% and at the beginning of November 1999 reached the level of 245.652 mln. tons. Just like before, China ranks the first in steel output not only in this region, but also in the world. This country smelted 101.364 mln. tons, which is 7.8% greater than in 1998.

In the 10 months of 1999, Middle Eastern countries boosted their steel output by 10.8%. African countries lowered production of steel by 9.1% (down to 9.015 mln. tons) and Oceanian countries – by 6.8% (to 7.57 mln. tons).

It is noteworthy that, despite all the export hardships, CIS metal manufacturers keep on increasing production output. Russia augmented steel output to 40.847 mln. tons (up by 17.4%); Kazakstan – to 3.392 mln. tons (up by 30.3%); Belarus – to 1.149 mln. tons (up by 5.1%); Moldova – to 0.631 mln. tons (up by 4%) and Ukraine – up by 11% (see table 1).

Table 1 displays the data on output of iron, steel and rolled metal in Ukraine for the 11 months of 1998 and 1999.

Table 1. Production of iron, steel and rolled metal in Ukraine in the 11 months of 1998 and 1999Table 2 below presents the data on steel output in the world for the 10 months of 1998 and 1999.

 

Table 2. World steel output in the 10 months of 1998 and 1999Exports

 

According to the State Statistics Committee, Ukraine exported 23,528 ths. tons of metals and metal products worth USD 3,232,230 ths. during the 11 months of 1999. Compared to the respective period of 1998, physical exports increased by 22.3%, whereas export revenues lowered by 15.2%. This illustrates a decrease in prices for the exported metal products.

Increase in physical supplies resulted from greater production and exports of the following types of rolled metal: semis – increase to 6.901 ths. tons (up by 53.3%); ferrous waste and scrap – to 4,234 ths. tons (up by 41%); wire rod – to 1,264 ths. tons (up by 46.3%); CR flat metal – to 1,068 ths. tons (up by 25.27% ) and HR flat metal –to 4,006 ths. tons (up by 3.4%).

However, this period saw a decrease in exports of bars (structural shapes), which are among the main types of rolled metal manufactured in Ukraine. Exports of bars dropped by 17.3% to 445 ths. tons and export revenues – down by 43.04% to USD 81,173 ths. (see table 3).Table 3. Ukrainian exports of metal products in the 11 months of 1998 and 1999

 

As in the preceding months, Ukrainian-made rolled metal was mainly bound to Southeast Asian countries (which consumed 8,159 ths. tons or 34.9% of the total Ukrainian metal exports in the 11 months of 1999) and Middle Eastern countries (6,241 ths. tons or 26.7% respectively). In the period under review, regional distribution of Ukrainian metal exports was as follows: Eastern and Central European states – 2,135 ths. tons (9.14% of the total); North American countries – 1,636 ths. tons (7%); EU member-states – 1,792 ths. tons (7.67%), CIS member-states – 1,498 ths. tons (6.41%) and African countries – 1,211 ths. tons (5.18%). For more details, see table 4.Table 4. Distribution of Ukrainian metal exports by regions of the world in the 11 months of 1998 and 1999

 

European Union

The distinguishing feature of the EU market has always been the stability of supply and demand. Steps taken to protect this market allowed retaining a rather favorable conjuncture, which attracts exporters from various regions of the world. According to the statistics, during the 11 months of 1999 the EU imported 1,792 ths. tons of Ukrainian-made metal products worth USD 238,814 ths. This is 3.3% down from the 1998′ figures in terms of physical quantity and 9.82% down in terms of value.

The main export articles to this region were semis (626 ths. tons or 34.9% of the total), ferrous waste and scrap (567 ths. tons or 31.6%), iron (270 ths. tons or 15%) and HR flat metal (132 ths. tons or 7.4%). Supplies of HR flat metal and ferrous scrap remained the same as in 1998, whereas supplies semis indicated a 60% increase and iron exports decreased by 47%.

It should be mentioned that supplies of bars to the EU market went up (almost as high as 2.1 times). Besides, supplies of wire rod (to 22 ths. tons or up by 60%) and other steel products (up by 32.7% to 90.7 ths. tons) followed this increase.

However, exports of rebars and CR flat metal fell by 34% and 1.6% respectively against the 11 months of 1998.

China

China is the largest importer of CIS-made metal products. Under the results of the 11 months of 1999, the Chinese market consumed approximately 4,364 ths. tons of Ukrainian metal worth USD 596,152 ths. (up by 29.2% in terms of physical exports).

Due to difficulties with acquiring import licenses, supplies of rebars to the Chinese market reduced by 37% (to 189 ths. tons) and of wire rods – by 13.5% (to 176 ths. tons).

At the same time, stable demand for flat-rolled metal and bars on the Chinese market gave rise to exports of semis by 34% (to 2,185 ths. tons), HR flat metal – up by 29.14% (to 1,081 ths. tons) and CR flat metal – almost as high as 2.5 times (to 528 ths. tons).

The main articles of Ukrainian exports to China were semis (50% of the total Ukrainian exports to China), HR flat metal (24.7%) and CR flat metal (12%).

USA

North American countries have always been considered the most “expensive” and, therefore, the most attractive metal markets for exporters all over the world. Ukraine is no exception despite the established limitations on Ukrainian metal exports. The USA consumes the main portion of Ukrainian exports bound to this region.

During the 11 months of 1999, Ukraine exported 1,518 ths. tons of metal worth USD 166,608 ths. to this market. These figures are 11% up in terms of physical volume and 32% down in terms of export revenues compared to 1998.

The main articles of USA-bound exports were iron (64.5% of the total Ukrainian exports to this market or 980 ths. tons), wire rod (9.4% or 143 ths. tons) and semis (15.5% or 236 ths. tons).

It should be mentioned that USA-bound exports of rebars (almost a tenfold increase against the 1998 level, to 61 ths. tons) and wire rod (2.5 times up to 143 ths. tons) went up. The fixed lowest prices for HR flat metal brought about a cutback in supplies of these commodities by 60% (to 62 ths. tons) compared to the 1998 figure.

Russia

In the 11 months of 1999, the Russian Federation received 932 ths. tons of Ukrainian-made rolled metal for the total of USD 271,145 ths. As compared to the respective period of 1998, these figures are 27% down in terms of physical volume and 39% down in terms of export earnings.

The main articles of exports to Russia were HR flat metal (176 ths. tons), rebars (170 ths. tons) and bars (167 ths. tons). Exports of HR and CR flat metal, as well as of other flat-rolled metal, boosted by 12.1%, 223%, and 64% respectively. Yet, all the other export articles (including the traditional export items) encountered a reduction in supplies.

Turkey

During the 10 months of 1999 this country imported 3,711 ths. tons of Ukrainian rolled metal worth USD 317,232 ths. These figures are 16% up in terms of physical volume and 29% down in monetary terms.

Supplies of semis increased as high as 3.5 times (from 89 ths. tons to 328 ths. tons) with ferrous scrap and waste following the increase – up by 37% (from 1,891 ths. tons to 2,594 ths. tons). Exports of more expensive rolled metal with high added value went down, namely exports of HR flat metal reduced by 26% (to 394 ths. tons), CR flat metal – by 51% (to 95 ths. tons) and rebars – by 76% (to 24.38 ths. tons). Wire rod supplies almost completely discontinued.

Africa

With misfortunes continuing to victimize CIS exporters and manufacturers on the international metal markets during the past two years, Ukrainian and Russian exporters were forced to search for new markets. African market was one of the new places.

In the 11 months of 1999 Ukraine exported 1,211 ths. tons of metal products worth USD 197,293 ths. to this market, which is 19% up in terms of physical volume and 8.3% down in terms of value against the respective 1998 figures.

Africa-bound supplies grew owing to strong demand for semis (116 ths. tons supplied, which is a twofold increase against 1998), for wire rods (167 ths. tons or 2.5 times greater) and rebars (720 ths. tons or 59% up).

Meanwhile, exports of other types of rolled metal reduced. Supplies of HR flat metal dropped by 31% (to 93 ths. tons), CR flat metal – by 32% (to 94 ths. tons) and bars – by 64% (to 20 ths. tons). This can be explained by commissioning of new production lines in this region and by fierce competition among suppliers. The latter have to search for new markets due to unfavorable global market conjuncture.

The African market is a worthwhile market for CIS-made rolled metal. Market conjuncture

 

Iron

During the first half-year of 1999 the iron market retained a somewhat slackened activity. Yet, starting September the situation has changed due to price drop for scrap metal and increase in demand for this commodity on Southeast Asian markets.

Growth in shipping rates pushed American traders to increase purchase prices for iron by USD 10-20 per metric ton in the second half of 1999. As of the end of November, prices settled at USD 129-131 per metric ton, CIF Mexican Gulf ports.

Brazilian manufacturers, which are the main suppliers of iron to the US market, were confronted with an intricate situation during this period. On the one hand, growth in shipping rates enabled a CIF price mark-up. On the other, prices for ironmaking feedstock increased in Brazil. This all forces iron exporters to put up FOB prices for this product. In this situation Brazilian exporters had to reconsider their sale prices. As of the end of November, prices established within the range of USD 118-122 per metric ton FOB.

Decrease in iron prices with shipping rate going up pared the volume of CIS exports to Southeast Asia. However, for the last few months Asia saw the recovering demand for feedstock used in steel smelting (for iron as well). As a result, South Korean metallurgic mills increased purchase prices for iron to USD 122-125 per metric ton CIF. Sale price increase in China, which is the biggest supplier of iron, facilitated the growth in prices in this region.

Iron market will possibly undergo further price mark-ups considering the growing demand for alternative substitute feedstock and increasing prices for end products (especially for flat-rolled metal).

The dynamics of the world prices for iron is presented in table 5.

Table 5. World prices for iron, USD per metric ton (USD/MT)

Semis

During 1999 the global market for billets was extremely unstable.

Business activity on this market remained rather inert, thus billet prices on all the regional markets basically did not change in the past two months, save for Southeast Asian countries (in some of these countries prices for billets went up and in others went down due to numerous factors).

Insignificant increase in billet prices was observed in China during the second half-year of 1999 despite the absence of evident positive changes on the Chinese market for long rolled metal. As of the end of November, Chinese traders set the lowest purchase prices at USD 165 per metric ton CIF. The current growth in billet prices was called forth by the increase in shipping rates in the past few months.

Since Ukraine remains the main supplier of billets on the Chinese market, it is obvious that export prices (FOB) in average did not change.

In spite of traders’ expectations for price increase in billet supplies bound to Taiwan, November saw a minor cutback. Since all the rolling mills of the country are functioning, growing demand for imported billets seems logical with prices for semis going up likewise. The Taiwanese government considered the issue of setting up new requirements for imported billets. With this issue remaining unresolved, import volumes were still rather low. Yet, it is obvious that when requirements for imported semis are set the prices will go up.

Favorable, yet cautious activity on the South Korean, Japanese and other Southeast Asian markets should also be mentioned. The price for billets will move up slowly. Significant changes on these markets are unlikely in the near future.

The dynamics of the world prices for billets is presented in table 6.

Table 6. World prices for steel billets, USD per metric ton (USD/MT)

Slabs

Prices for slabs were on the rise for the past several months owing to recovered demand for flat-rolled metal on the world markets. Growing demand for flat semis resulted in increasing prices for sheets, plates and coils.

Export prices for Western European and CIS-made slabs gained quite a lot during the last month. As of November-end, Ukrainian-made slabs cost USD 140-145 per metric ton FOB and Russian slabs – USD 150-160 per metric ton FOB. The Europeans retained higher prices for semis – USD 190-200 per metric ton FOB.

However, it should be mentioned that European exports to the Third World countries were somewhat limited due to intensive competition with Ukrainian and Russian manufacturers, who offer much cheaper products, as well as due to large consumption on the European market itself. Slab prices on the EU market fluctuated within USD 220-230 per metric ton.

The European traders signed only a few contracts for semis supplies to the USA, where the prices settled at USD 200 per metric ton FOB. This tendency will uphold in the future and the prices will go up by the year-end.The dynamics of the world prices for slabs is presented in table 7.

 

Table 7. World prices for steel slabs, USD/MT

Rebars

In 1999 the global market for rebars was one of the most turbulent metal markets.

Strong demand for rebars on the European market is satisfied by local manufacturers; thus the increase in sale prices by metallurgic plants did not affect export transactions of traders.

Prices for rebars in Southeast Asia remained invariably low. Excessive supply on this market originated from depression in the construction sector in Asian countries and from lack of rebar purchases by China, where construction activities keep on booming.

Hopes for increase in long rolled metal prices, related to expanding construction works after the earthquake in Taiwan, proved wrong. Uncertain position of the government as to standards for imported rebars pared down the imports. However, it should be mentioned that as soon as the issue of standards is resolved purchase prices of Taiwanese traders will soar.

Despite growing demand for rebars on the internal Turkish market, export prices remained unaltered. The main reason is shrinkage of the market for Turkish manufacturers (due to antidumping inquiry against supplies to Europe and Egypt).

The dynamics of the world prices for rebars is presented in table 8.

Table 8. World prices for rebars, USD/MT

Wire rod

The global market for wire rod stabilized somewhat in the third quarter of 1999, when various countries announced the increase in sale prices for wire rod. Export-import contracts during this period saw no price alterations.

Significant growth in imports on the US market disallowed American manufacturers raising prices for their products (while the Europeans easily put up their prices). The US government refuses to hold itself liable for the decision on imposing import duty on wire rod.

Meanwhile, imports keep on moving up in the USA. Anticipating hot demand for small-diameter wire rod (5.5-6 mm), CIS exporters are boosting output of this commodity. The lowest price for this type of wire rod was USD 170 per metric ton FOB and export price for wire rod, 6.5 mm in diameter, was USD 160 per metric ton FOB.

Southeast Asian markets retained the low business activity, yet situation might change for the better. Japanese manufacturers raised sale prices following the gradual recovery of construction in South Korea and China.

South Korean company Posco informed its clients that starting December 1 shipping discounts for wire rod would be considerably lowered. This illustrates positive outlooks for the long-rolled metal market.

Increase in sale prices in Europe and Asia allows marking up export prices in the forthcoming months.

The dynamics of the world prices for wire rod is presented in table 9.

Table 9. World prices for wire rod, USD/MT

Sheets and plates

In 1999, the world market for HR rolled sheets & plates remained in depression. In spite of the overall recovery on the market for flat-rolled metal, demands for steel plates remained at the previous low level. The level of steel plate prices proves low demand for this type of rolled metal on the world market.

Throughout the last months prices for sheets and plates remained unaltered at a relatively low level.

In Asia the prices settled at the lowest level. Stagnation in shipbuilding and mechanical engineering, as well as reduced number of orders for plates from tube manufacturers, were the main reasons for low demands.

Nevertheless, like in the previous month, CIS exporters tended to put up the prices. In November Ukrainian manufacturers increased export prices for plates by USD 5, thus the prices settled at USD 175-185 per metric ton FOB. The latter can be explained by the following:

despite growing prices, Ukrainian and Russian plates are considerably cheaper than similar foreign commodities;

China reduced output and stocks of sheets and plates.

It is unlikely that the situation on the market for sheets and plates will alter considerably in the near future. The prices will most definitely settle at the current level.

The dynamics of the world prices for HR plates is presented in table 10.

Table 10. World prices for HR plates, USD/MT

Hot-rolled coils

Recently, experts and traders have been tracing the enhancement of business activity on the whole global market for coils and especially in Latin America, Southeast Asia and Middle East.

Prices for HR coils are gradually increasing after the record low level registered at the beginning of 1999. Growing demand for coils at the beginning of the fourth quarter backed the increase in export prices for HR coils in CIS and EU member-countries.

Presently, Zaporozhstal and Ilyich Iron & Steel Works offer the lowest export prices for HR coils at USD 180 per metric ton FOB. Prices for Ukrainian HR coils on the Turkish market went up to USD 195 per metric ton FOB. The tragic events in Turkey after the earthquake caused shortage of flat-rolled metal, thus prices on the internal market skyrocketed. This is also true for Turkish export prices.

Mark-up in export prices for European-made HR coils was not as significant as that for similar Ukrainian commodities. When making supplies to the Third World countries, the key factor is the price and not the quality. Hence, high-quality and expensive European commodities are less competitive compared to similar products made in Ukraine and Russia.

In the second half of the fourth quarter the situation on this market will not change considerably. Yet, from the beginning of 2000 European analysts foresee the USD 40-50 increase in prices.

The dynamics of the world prices for HR coils is presented in table 11.

Table 11. World prices for HR coils, USD/MT

Cold-rolled coils

CR sheets met high demand on the Southeast Asian and Middle Eastern markets, thus allowing the CIS and EU putting up the prices for this commodity by USD 10-15. However, on the other regional markets prices were steady.

Until mid-October, export prices of Zaporozhstal and Ilyich ISW remained at USD 240 per metric ton FOB; however further on the prices increased to USD 250 per metric ton FOB. Export prices for Ukrainian-made CR coils exported to Turkey increased to USD 280-290 per metric ton.

Prices for Turkish CR coils manufactured by Erdemir company were boosted to USD 380 per metric ton FOB, following the shortage of flat-rolled metal on the internal market. The official representative of Erdemir announced a further price increase for CR and HR rolled metal to take place in the first quarter of 2000.

Prices for European CR coils supplied to the Third World countries went up. Most export contracts signed in October featured prices of USD 340-360 per metric ton FOB.

Shortage in Turkey and high demand on the European markets brought about the growth in prices. November witnessed a small increase in export prices for Ukrainian commodities on the Turkish market. In supplies to the other regions prices remained unaltered.

The dynamics of the world prices for CR coils is presented in table 12.

Table 12. World prices for CR coils, USD/MT

Editor of the Markets column — Vladimir PIKOVSKY, Head of Metal Markets Research
and Information Department with the National Research and Information Center for
Monitoring of International Commodity Markets