Situation on the global market for ferrous metals gives ground to hope that Ukraine will be able to boost molten steel output by some 30 million tonnes in 2000.

IRON AND STEEL

Alexander SHEIKO, expert with DerzhZovnishInform

Situation on the global market for ferrous metals gives ground to hope that Ukraine will be able to boost molten steel output by some 30 million tonnes in 2000.

Global Production

According to the International Iron & Steel Institute (IISI), 66 countries worldwide reported the total output of 414.72 million tonnes of steel in the first half of 2000, 11.1% more than in 1999, when 373.408 million tonnes were manufactured.

15 countries of the European Union produced 83.734 million tonnes of steel during the period specified, 8% more against the 1999 output of 77.533 million tonnes. Regional steel production grew mainly on account of France increasing steel output by 4% to 10.596 million tonnes, Germany +13.5% to 23.28 million tonnes, Italy +11.5% to 13.779 million tonnes, Spain +8.2% to 8.07 million tonnes, and Sweden +5.9% to 2.836 million tonnes. Steel production in Great Britain stood virtually unchanged compared to 8.471 million tonnes manufactured in 1999.

Eastern European economies also reported an upturn in the steelmaking industry. Growth rates equaled 13.6% or 22.521 million tonnes. Concurrently, a significant production boost was experienced in Poland (+37.1% to 5.378 million tonnes), Romania (+16.7% up to 2.359 million tonnes), and Slovakia (+9.4% to 3.094 million tonnes).

Throughout the first half of 2000, the highest growth of global steel production was registered in the Commonwealth of Independent States, which manufactured some 47.388 million tonnes of steel, 21.4% better than the last year’s figure. Russia made 28.483 million tonnes of steel, 22.3% greater than in the respective period of 1999, and Kazakhstan produced 2.5 million tonnes of steel, 32.8% up. The statistics on Ukraine is presented below.

Recovery of steel production was registered in North American countries as well. Within the six months of the present year, steel output in this region equaled to about 70.387 million tonnes, 12.6% up against the 1999 figure. Along with this, the US steel output experienced a 14.4% growth reaching 53.121 million tonnes, whereas output of steel in China added 6.3% reaching 8.578 million tonnes, and that in Mexico gained 9.2% totaling 8.147 million tonnes.

Output of steel in South American countries yielded 19.038 million tonnes throughout the first half of 2000. This figure is 13.3% higher than the last year’s production of 16.804 million tonnes. Brazil and Argentine manufactured some 13.636 million tonnes and 2.084 million tonnes of steel respectively, 9.7% and 23% more than in 1999.

Asia, being the largest steel manufacturer in the world, produced some 156.596 million tonnes of steel in the first half of the present year, thus exceeding the 1999 output by 9.4%. China boosted steel outputs by 3% to 61.101 million tonnes, Japan +17.6% to 52.212 million tonnes, India +12.2% to 13.209 million tonnes, South Korea +17.6% to 21.578 million tonnes, and Taiwan +8.2% to 8.587 million tonnes.

Production of steel was also on the rise in the Middle East, gaining 7.7% and reaching 5.042 million tonnes. Simultaneously, the countries of Oceania reported a 1.3% recession in steel output producing 4.482 million tonnes.

Table 1 presents comparative data on global production of steel in the first halves of 1999 and 2000.

Growth rates of steel production in the six months of 2000 support the forecasts made at the beginning of the year. The year 2000 is expected to see production of some 830-840 million tonnes of steel.

Table 1. Global output of steel (‘000,000 tonnes)

METAL INDUSTRY IN UKRAINE

According to Metallurgprom Association, over the 7 months of 2000, Ukrainian metallurgical mills manufactured 14,144,000 tonnes of iron (+13% against the respective period of 1999), 17,769,000 tonnes of steel (+17%), and 11,962,000 tonnes of finished rolled metal (+4%).

Tables 2 and 3 contain data on production of iron, steel, and rolled metal in Ukraine.

Ukrainian metallurgical mills keep on building up production rates. This is caused mainly by favorable situation on foreign markets. Our forecast is that Ukrainian metalmaking companies will continue with recovery rates in steel production and will manufacture roughly 30.5 million tonnes of steel in the year 2000.

Exports

During the 6 months of 2000, Ukraine exported some 13,676,000 tonnes of iron and steel worth a total of US$2,187,960,000. Physical exports exceeded the last year’s figure by 11.3%, while export revenues gained 33.9%.

Growth of exports was fostered by an increase in export of semi-finished steel (+22.1% to 4,310,000 tonnes), hot-rolled flat steel (+10.6% to 2,337,000 tonnes), wire rod (+34.7% to 787,000 tonnes), cold-rolled flat metal (+10% to 644,000 tonnes), and sections (+42.8% to 315,000 tonnes).

Due to the slump in ferrous scrap prices, Ukrainian iron export reduced 22% against the first half of 1999; thus amounting to 866,000 tonnes. At the same time, exports of ferrous scrap and waste reported a minor gain of 2%, amounting to 2,262,000 tonnes.

Table 2. Production of iron, steel, and rolled steel in Ukraine

Table 3. Outputs of Ukrainian metallurgical mills in the 7 months of 2000 (‘000 tonnes)

During this period, the pattern of iron and steel exports remained as it had been. In particular, Ukraine exported semi-finished steel, including square billets and slabs, that accounted for 31.5% of the total iron & steel exports; HR flat metal with 17%; ferrous scrap and waste with 16.5%; rebars with 9.7%; iron with 6.33%; wire rod with 5.76%; and CR flat metal with the remaining 4.7%.

Data on iron and steel exports from Ukraine in the six months of 1999 and 2000 are displayed in table 4.

Regional distribution

Comparison to the 6 months of 1999 reveals certain changes in the geographical pattern of Ukraine’s metal exports in the year 2000.

Table 4. Export of metal products from Ukraine

Table 5. Destinations of Ukrainian metal exports

As usual, the major markets were the countries of the Middle East and Southeast Asia. Nevertheless, the share of these markets somewhat shrank, notably, the share of Middle Eastern economies diminished from 27% in the first half of 1999 to 25.5% in the present year, while the share of Southeast Asia reduced from 37% to 28% of the total Ukrainian metal exports. Concurrently, supplies to Middle Eastern countries added 4.4% up to 3,488,000 tonnes within the period under review, whereas exports to Southeast Asia lost 15% down to 3,840,000 tonnes.

Over the same period, Ukrainian metal exports to Central and East European countries grew 64% to 1,369,000 tonnes and those to the CIS gained +49% reaching 992,000 tonnes. The shares of these markets went upward and accounted for 10% and 7.2% respectively in the current year, against 6.8% and 5.4% in 1999.

About as important is the takeoff of Ukrainian metal exports to North American markets during the first half of 2000. Exports of Ukraine-made metal to this region almost doubled and came to 1,616,000 tonnes.

Similar situation was registered as regards export supplies to South (Latin) America. Exports to this region gained 68% amounting to 210,000 tonnes.

Geographical pattern of metal exports from Ukraine is illustrated in table 5.

Analyzing the data on exports of Ukrainian iron and steel throughout the 6 months of 2000, one can draw the following main conclusions:

ferrous metal exports from Ukraine added 11.3% in terms of physical supplies and 33% in terms of export revenues. This implies a markup in prices for exportable Ukrainian commodities;

Ukraine still leads the way in supplies of raw and semi-finished materials applied in steel rolling, e.g., iron, ferroalloys, scrap, and semis. These items make up 57.12% of the total physical metal exports from Ukraine;

within the period under review, major markets for Ukraine’s ferrous metals embraced the Middle East with 25.5% of the total and Southeast Asia with 28%. Nonetheless, shares of these regions somewhat reduced against the corresponding period of 1999. On the contrary, the share of Eastern Europe grew from 6.7% in 1999 to 10% of the present-day total.

CHINA

In the course of recent years, China has been one of the principal markets for Ukrainian iron and steel. However, during the first half of 2000, supplies to this market diminished by 67.5% coming to 1,665,000 tonnes against 2,789,000 tonnes last year.

Compared to the year 1999, China-bound exports of Ukrainian wire rod lost 36% coming to 79,000 tonnes, those of semi-finished steel lost 32.7% to 999,500 tonnes, and those of CR flat steel reduced 19.4% to 288,000 tonnes.

Iron export to this market virtually plummeted to a naught. Supplies of rebars dropped fivefold, whereas those of steel sections and HR flat steel decreased some 1.6 to 1.8 times.

Data on Ukrainian export of ferrous metals to China are shown in table 6.

Metal Bulletin mentions that China enhanced rolled steel consumption from 87 million tonnes back in 1995 to 130 million tonnes in 1999. Within the coming two years, growth rates will remain rather high. Consumption growth is estimated at some 10 to 12% in 2000, whereas consumption in 2001 may reach 150-155 million tonnes.

USA

During the first six months of 2000, some 1,444,000 tonnes of Ukrainian ferrous metals worth a total of US$245,325,000 were supplied to the American market. This outruns the 1999 figure by 94% in terms of physical exports and by 192% in terms of export revenues.

Table 6. Ukrainian export of ferrous metals to China

The pattern of physical exports to the USA included iron with 40.7% of the total or 588,000 tonnes, semis with 23.4% or 337,400 tonnes, wire rod with 13.5% or 194,500 tonnes, HR flat steel with 10.4% or150,000 tonnes, and rebars with 10% or 143,000 tonnes.

Exports of all the mentioned articles grew in the report period.

Table 7 shows the data on Ukrainian export of metals to the USA.

TURKEY

During the first half of 2000, the Turkish market obtained 1,931,000 tonnes of ferrous metal from Ukraine paying a total of US$251,663,000. Physical exports lost 3.5% against the 1999 figure, although export revenues reported a 57.8% increase.

Recession in physical exports to Turkey was mainly brought about by a 26.2% decrease in supplies of ferrous scrap and waste down to 1,081,000 tonnes. This, in turn, was caused by the price sag on global markets.

Along with this, supplies of Ukraine-made CR flat steel gained 63% coming to 116,000 tonnes, those of HR flat steel doubled reaching 405,000 tonnes, while those of semi-finished steel added 41% equaling to 247,000 tonnes.

Table 8 presents the data on exports of Ukrainian metal to Turkey.

Table 7. Ukrainian export of ferrous metals to the USA

Table 8. Ukrainian export of ferrous metals to Turkey

Metal Bulletin experts anticipate a rise in demand on this market in the near future, which will bring a sequential growth in metal consumption. This will indicate the beginning of reconstruction activities after the 1999 earthquake. The most significant growth will concern rolled steel products applied in aseismic structures, such as reinforcing bars, HR flat steel, and structural shapes.

MARKET SITUATION

Ferrous scrap and waste

Domestic market of Ukraine

In the 7 months of 2000, 3,388,500 tonnes of metal scrap were delivered to Ukrainian metallurgical mills. This is 16.6% more than the mills claimed earlier. Insufficient supplies were registered only at Donetsk Metallurgical Works (7,600 tonnes lacked), Dneprovsky Iron and Steel Works named after Dzerzhinsky (22,800 tonnes), Alchevsk Iron and Steel Works (88,300 tonnes), and Dneprospetsstal (91,400 tonnes).

Data on steel scrap supplies to Ukrainian metallurgical mills are shown in table 9.

As it can be seen from the table, scrap supplies to metallurgical mills were 16.6% greater than it had been declared as actual needs. Some metallurgical mills have already built up ferrous scrap stocks 1.5-2 times in excess of the required quantity.

Adverse situation on international markets, as well as sufficient supply on the domestic market, does not stimulate a rise in prices for steel scrap. Therefore, it is quite natural to make a conclusion that purchasing prices will continue to further go downhill.

World market

European market

In July, prices for steel scrap tended to decrease virtually on all European markets. According to experts, the reason for this was a certain market imbalance provoked by scrap suppliers from the CIS. They stuffed the world market with cheap ferrous scrap in quantities exceeding the actual demand. Naturally, this did not bring about price stabilization.

Italian scrap consumers were the first to declare a reduction in purchasing prices. The reason they gave for this action was the large quantity of ferrous scrap warehoused. Correspondingly, prices lost 5-10 Italian liras per kg, thus lowering to 215-230 liras per kg. However, traders believe that prices will recover in the near future, as Italian metallurgical mills utilize their full capacities, and scrap consumption is quite high in the country.

The same situation was traced on the German market as well, namely, consumers sat on the fence, as they did not want to overpay for ferrous scrap purchases. During July 2000, prices for shredded scrap in Germany amounted to DM/tonne 150-170.

Similar situation was also observed on the French and Spanish scrap markets, where prices decreased as well.

Increase in steel output in the EU, naturally, will boost scrap consumption by metallurgical mills, and this, in turn, will contribute to markup in local prices. Nonetheless, unstable situation on the Turkish and Far Eastern markets will further affect export prices.

Table 9. Metal scrap supplies to Ukrainian metallurgical mills in the 7 months of 2000

Turkey

Over the recent years, this country has topped the list of major importers of ferrous metal scrap from Ukraine and Russia.

Longing to receive orders for supplies on any terms, CIS scrap suppliers marked down the prices for Turkey-bound metal scrap to an "incongruously low" level. This brought some imbalance to the world scrap market. In July, Ukrainian and Russian scrap was supplied to the Turkish market at some US$/tonne 62-65 FOB.

However, according to Metal Bulletin, by the end of the month, exporters somewhat changed their export policy and avoided big scrap shipments to Turkey at the effective prices. The Turkish metal industry is on the rise at the moment, i.e. steel output is increasing, and, consequently, ferrous scrap consumption is growing.

Unfavorable trends are observed on this market, especially with regard to CIS suppliers. Turkish government has imposed new limitations on scrap imports, namely, imported scrap has to pass radiation control and be certified accordingly.

If this decision stays in force, Turkish ports will accumulate enormous stocks of steel scrap. It is understood that no rise in prices is possible in such a situation.

Asia

On the Asian market, prices for steel scrap also reduced significantly. According to traders, prices for scrap supplied to this region fell to the very minimum, having reduced by US$/tonne 15-20 to US$/t 100-105 CIF. Experts believe that this is connected with excessive market supply of scrap, principally that of Ukrainian and Russian origin.

This, in turn, had brought about high competition with European and American suppliers, who were forced to lower prices against their own will. Thus, American scrap traders lowered their prices to US$/t 82-84 FOB West Coast ports.

Dynamics of the world prices for ferrous scrap and waste is shown in table 10.

PRICES

Billets

After the market for square billets became more dynamic in May-June, 2000, July featured a rather diminished activity, which, first of all, affected the prices. On the one hand, this can be explained by summertime, and, on the other, by reduction in prices for raw materials, mostly for steel scrap and iron.

Table 10. Dynamics of steel scrap prices on the world market

Table 11. Prices for billets on the world market (US$ per tonne)

In connection with decreasing demand for billets in Southeast Asia, prices for this commodity made in Ukraine and Russia featured some reduction in July and settled at US$/tonne 180-185 CIF. From the Black Sea ports, Ukrainian billets were supplied at US$/t 150-155 CIF in July 2000.

Reduction in billet prices in Asia, as well as lower prices for steel scrap, became a reason for European producers to mark down the price for their billets. As of the end of July, the new prices were set at US$/t 180-190 FOB. However, even at those prices, European traders still refuse to export billets.

The same reasons stood behind a reduction in prices for billets on the Turkish market. In July, prices dropped by an average of US$/tonne 10-15 totaling US$/t 170-175 FOB.

Prices for billets on the world market are shown in table 11.

Billets are one of the most marketable products of the metal industry, and demand for them is quite stable. The July reduction in prices was caused by a seasonal factor and, to some extent, by oversupply on the Chinese market for billets, after which significant quantities of this commodity were redirected to the world market.

Long products (rebars and wire rod)

In July 2000, there were no essential changes on the world market for reinforcing bars and wire rod. Consequently, there were no fluctuations in prices. According to foreign market reviewers, this is, first of all, connected with the seasonal factor and low demand for this commodity on the market of Southeast Asia on the whole, and on the Chinese market in particular.

In the USA, after the prices had recovered during May-June, this July saw a reduction. Notwithstanding high demand on the market for long products, prices did not rise as it had been forecast earlier. According to experts, the reasons for that were the big imports combined with quite large outputs at local rolling mills and reduction in price for raw materials. As of the end of July 2000, US market prices for rebars amounted to US$/tonne 245-250 CIF, and for wire rod to US$/t 265-270 CIF.

The hopes of European long metal producers for higher prices did not come true. According to West European experts, prices stabilized because of greater output of rebars and wire rod caused by high demand in the first 6 months of 2000, and an increase in imports, which led to overstocking of consumers’ storehouses. Therefore, prices settled at US$/tonne 210-220 FOB for wire rod, and US$/t 220-240 for rebars.

Though the construction industry has become more dynamic, the Turkish market for long products is still rather indefinite. On the one hand, high demand connected with construction recovery is forecast, but, on the other hand, high competition, onrush of imports, and high outputs within the country do not facilitate a price increase. At the end of July, rebars were offered on the Turkish market at US$/t 210-220 FOB, and wire rod at US$/t 220-240 FOB.

The Brazilian market prices for long products have not changed. Rebars are offered at US$/tonne 220-245 FOB, and wire rod at US$/t 225-240 FOB.

World market prices for rebars are presented in table 12.

World market prices for wire rod are shown in table 13.

Table 12. World market prices for rebars (US$ per tonne)

Table 13. World prices for wire rod (US$ per tonne)

According to workpapers of Irepas conference of section producers, in the third quarter of 2000 – first quarter of 2001, demand is anticipated to recover all around the world, especially in the USA, Japan, and EU member-states. This forecast estimates global consumption of wire rod at 80 million tonnes, and that of rebars at 65 million tonnes.

Hot-rolled plates

In July 2000, situation on the world market for HR plates remained ambiguous. Over a few recent months, prices for this commodity have been stable almost on all international markets.

Plates made by West European producers were offered on the world market at some US$/tonne 350-370 FOB. However, these prices cannot even compete with Russian and Ukrainian prices of US$/t 170-200 FOB.

European metallurgical mills manage to keep up the present level of prices only due to high domestic demand.

Some reduction in prices for imported plates was observed on the US market in July 2000. The fall in purchasing prices does not attest worsening of the market situation. In fact, it has not changed for a few successive months. The July fall in prices can be explained mainly by the seasonal factor. Prices amounted to US$/tonne 375-385 CIF in July.

In the period under review, increase in demand, and, consequently, that in prices for imported HR plates was reported in Southeast Asia. This was caused by commencement of several construction projects, as well as by recovery of machine-building and shipbuilding industries in that region.

Table 14 contains world market prices for HR plates.

Hot-rolled and cold-rolled coils

At the end of the first half of 2000, prices for HR steel coils slumped all around the world markets.

Export prices for Turkey-made HR coils were the only lucky exception. They did not change significantly in July and amounted to US$/tonne 330 FOB. CR coils were offered at US$/t 430-440 FOB on that market.

The most significant reduction in world prices was registered as regards steel coils of CIS origin. In the period under review, export prices for HR coils reduced US$/tonne 10-15 to US$/t 200-260 FOB. Decreasing demand on the world market became the main reason for the drop in export prices for coils.

First of all, this concerns the Southeast Asian market. Traders from this region report that rolling mills have sufficient stocks at the moment and refrain from buying, preferring to wait for further price reduction.

At present, purchasing prices for CIS-made HR coils in this region are US$/tonne 245-255 CIF for HR coils of Ukrainian origin, while HR coils of Russian origin are US$/t 5-10 more expensive.

European exporters have also lowered their prices for HR coils in response to the fall in export prices for Russian and Ukrainian HR coils. As of the end of July, export prices for European HR coils amounted to US$/t 310-320 FOB, while prices for CR coils totaled US$/t 420-430 FOB.

Table 14. World market prices for HR plates (US$ per tonne)

Table 15. World market prices for HR coils (US$ per tonne)

Despite high demand on the US market, purchasing prices for imported HR coils had a downward tendency in the 7 months of 2000. The negative price dynamics was caused by high outputs of local US rolling mills, large stocks, and considerable imports. Besides to that, the seasonal factor also played its part. That is why the prices were at US$/tonne 285-295 CIF.

According to Brazilian traders, demand for coils went down in Brazil as well. The main reason is believed to be the worsening situation on the American market – the major importer of Brazilian coils – and greater coil supply on the world market. During July 2000, HR coils were offered at US$/tonne 270-290 FOB, while CR coils at US$/t 330-350 FOB on this market.

World prices for HR and CR coils are presented in tables 15 and 16.

At the moment, the situation on the world market for coils is indefinite, notably:

US prices are going down due to significant stocks and high outputs;

according to experts, high demand on the EU market will cause a rise in selling prices. Export supplies from the EU will shrink significantly;

recession in demand has been also observed on the Southeast Asian market because unreasonably high selling prices, along with large stocks of the commodity at warehouses, call for a price reduction;

besides, all markets are affected by the seasonal factor. The market is not active, and sales are insignificant.

Table 16. World market prices for CR coils (US$ per tonne)

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