September saw recovered activity of the regional markets

FERROUS METALS

Alexander SHEIKO, expert with DerzhZovnishInform

Global Production

In the 7 months of 1999, global production of steel
accounted for some 437.511 mln. tons, 3.7% down from the last year’s 454.097 mln. tons.

There was a decrease in steel production (by 8.5% down to
89.913 mln. tons) in the 15 EU member-countries. The largest reduction was registered in
Germany (by 12.2% down to 23.938 mln. tons of steel), Italy (by 11.2% to 14.458 mln.
tons), UK (by 8.6% to 9.8 mln. tons), and Belgium (by 10.8% to 6.349 mln. tons).

As well, steel production has eased in Eastern European
countries (by 20.1% to 23.159 mln. tons). Besides, production was substantially curtailed
in Romania (by 42.6% to 2.293 mln. tons), Poland (by 29.2%), Bulgaria (by 26.3%), and the
Czech Republic (by 19.4%). Yugoslavia practically stopped steel smelting – there was a
86.9% decrease against the last year all the way down to 89 ths. tons.

In January-July 1999, steel production by North American
countries dropped by 6.4% to 73.014 mln. tons. The decrease occurred due to reduced
production in Canada (by 2.5% to 9.387 mln. tons) and the USA (by 8.2% to 54.212 mln.
tons). Along with this, Mexico saw a slight increase in production by 2.5% to 8.813 mln.
tons.

Owing to inauspicious situation on the external markets,
South American manufacturers also had to curb production. As against the respective period
of 1998, steel production in Argentina moved down by 18.5% to 2.015 mln. tons and in
Brazil – by 5.2% to 14.463 mln. tons. On the whole, the region has cut steel production
by 9.7% to 19.643 mln. tons vis-a-vis the 21.760 mln. tons in the previous year.

Compared to 1998, steel production in Africa fell by 8.9%
(to 6.343 mln. tons) and in Oceania – by 7.5% (to 0.437 mln. tons).

Steel production figures in the Asian countries remained
practically in line with the last year’s level (there was just an insignificant increase
by 1.1% to 168.719 mln. tons). While Chinese steel production increased by 7.7% (to 69.749
mln. tons), Japan and Taiwan saw a decrease in output by 5.1% (to 52.417 mln. tons) and
1.4% (to 9.321 mln. tons) respectively.

The countries of Middle East saw an increase in steel
production by 14.8% to 5.493 mln. tons. This occurred due to commissioning of new
metallurgic mills in Saudi Arabia and Iran. Respectively, steel production in these
countries boosted by 34.4% (to 1.589 mln. tons) and by 9.8% (to 3.541 mln. tons).

In the 7 months of 1999, steel production in the CIS
countries reached 45.955 mln. tons, which exceeds the last year’s level of 42.66 mln.
tons by 7.7%. Steel production in Kazakhstan surged by 17% (to 2.253 mln. tons), in Russia
– by 11.1% (to 27.636 mln. tons), Belarus – by 6.6% (to 0.799 mln. tons). There was a
decrease in production in Uzbekistan (by 23.8%) and Moldova (by 9.3%).

The data on the global production of steel in the period of
January-July 1999 are presented in table 1.

According to MetallurgProm, in the 8 months of 1999,
Ukraine manufactured 14,420 ths. tons of pig iron, 17,692 ths. tons of steel, and 13,375
ths. tons of rolled metal. Besides, there was an increase in production of pig iron (up by
3%), steel (by 4.8%), and rolled metal (by 9%).

The data on production of pig iron, steel, and rolled metal
are presented in table 2.

According to the data with MetallurgProm

The data on output of pig iron, steel, and rolled metal by
the Ukrainian metallurgic mills are shown in table 3.

Exports

In the 8 months of the present year, Ukraine exported some
16,051 ths. tons of metal products worth USD 2,158,432 ths. This exceeds the corresponding
figures of the last year by 26.76% in terms of physical volume and falls behind by 18.83%
in terms of currency earnings.

During the period under review, the main articles of
physical exports were semis (27.8% of the total or 4,462 ths. tons), ferrous scrap metals
(18.43% or 2,957 ths. tons), HR flat metal (17.5% or 2,809 ths. tons), as well as rebars
(11.03% or 1,771 ths. tons) and pig iron (7.93% or 1,274 ths. tons).

Against the 8 months of 1998, there was an increase in
exports of semis (by 58.75%), ferrous scrap metals (by 53.23%), CR flat metal (by 25.47%),
and wire rod (by 23.0%). Along with this, exports of bars decreased by 18.68% and of
ferroalloys – by 19.37%. Currency earnings from export of all the commodities moved
down.

The data on export of metal products from Ukraine in the 8
months of 1999 are presented in table 4.

The regional distribution of Ukrainian exports of metal
products did not suffer significant changes in the 8 months of 1999.

Traditionally, the main markets for the Ukrainian exporters
were the Middle Eastern countries (27.59% of the total metal products exported or 4,428
ths. tons) and Southeast Asian countries (35.52% or 5,700 ths. tons). Besides, as against
the previous year, supplies to these regions boosted by 20.88% and 70.43% respectively.
Currency earnings have reduced.

The other regions (in decreasing order by physical volumes
of supplies) were as follows: the EU countries (8.09% of the total or 1,299 ths. tons),
Eastern European countries (6.72% or 1,079 ths. tons), North American countries (6.64% or
1,066 ths. tons), and African countries (6.5% or 1,044 ths. tons).

Supplies to the Eastern European countries increased by
56.25% to 1,079 ths. tons, to North American countries – by 10.67% to 1,066 ths. tons,
and to African countries – by 20.96% to 1,044 ths. tons. Due to unfavorable economic
situation, there was a decrease in supplies to the CIS countries by 33.51% to 978 ths.
tons and the Baltic States – by 7.77% to 96 ths. tons.

The regional distribution of Ukrainian exports is shown in
table 5.

According to the data with MetallurgProm

According to the data with MetallurgProm

Let’s view some specific features of metal exports to
certain countries.

China

During a few previous years, this country has been one of
the most important markets for the Ukrainian metal products – according to the data for
the 8 months of 1999, this country consumed 21.04% of the total physical exports of
Ukrainian metal and contributed 20.9% to the total currency earnings.

The main articles of export to China were semis (48.2% or
1,628 ths. tons), HR flat metal (24.97% or 843 ths. tons), CR flat metal (12.1% or 408.88
ths. tons), as well as rebars (5.31% or 179.38 ths. tons), and pig iron (5.12% or 172.82
ths. tons). It is worth mentioning that compared to the 8 months of 1998, supplies of
nearly all the types of rolled metal soared except for rebars (a 41.55% decrease) and wire
rod (a 11.75% decrease). On the whole, physical export supplies to China surged by 45.09%,
while the currency earnings increased by only 1.37%.

Turkey

Turkey is one of the largest importers of Ukrainian metal
products. In the 8 months of 1999, this country accounted for 16.6% of the total physical
exports and for 10.13% of the total currency earnings.

It is worth mentioning that the main articles of export to
this country are ferrous scrap metals (71.43% or 1,905 ths. tons), HR flat metal (10.32%
or 275 ths. tons), and semis (8.66% or 231 ths. tons).

Besides, while export supplies of HR flat metal decreased
somewhat (by 39.4%), supplies of ferrous scrap metal and semis increased (by 63.7% and
390% respectively). Other metal products, which had not been supplied to this market or
had been supplied in low amounts (such as galvanized flat rolled metal, rolled alloy
steel, and bars), indicated an increase in exports. On the whole, against the 8 months of
1998, physical export supplies to Turkey increased by 22.96% to 2,667 ths. tons, while
currency earnings from exports plunged by 33.6% to USD 218,800 ths.

USA

The USA is one of the most attractive markets for the
Ukrainian exporters mainly owing to auspicious prices. However, the strict US system of
protectionism does not allow our exporters getting a firm foothold in the USA, although
export supplies to this country increase somewhat.

According to the available data covering the 8 months of
1999, Ukraine exported 1,014 ths. tons of metal products worth USD 104,411.7 ths. to the
USA. This exceeds the respective last year’s figures by 12.74% in terms of physical
volume and is 35.39% lower in terms of currency earnings. This market consumed 6.3% of the
total physical export and contributed 4.83% to the total currency inflows.

The major commodity articles in export supplies to this
market were pig iron (69.6% or 706 ths. tons), semis (11% or 111.6 ths. tons), as well as
wire rod (8.01% or 81.2 ths. tons) and rebars (54.59% or 56.7 ths. tons).

Russia

This market used to be one of the most important for the
Ukrainian export of metal products in terms of both physical volume and currency earnings.
However, after the financial crisis, the situation changed radically. Compared to the 8
months of 1998, physical export supplies to this country plunged by 37.15% in terms of
physical volume (to 586.9 ths. tons) and by 46.6% in terms of currency earnings (to USD
175,398 ths.). According to the available data for the 8 months of the present year, the
following commodities were mainly supplied to this market: bars (20.01% or 117 ths. tons),
ferroalloys (17.36% or 102 ths. tons), HR flat metal (19.67% or 115 ths. tons), rebars
(15.98% or 94 ths. tons), as well as HR flat metal (4.26% or 25 ths. tons) and various
rolled flat metal (6.38% or 37 ths. tons).

There are four positions, which saw an increase in export
turnover against the last year (in terms of physical volume), namely semis (by 64%), CR
flat metal (by 12.11%), HR flat metal (by 5.94%), and other rolled flat metal (by 3.35%).
Other positions featured a decrease in export supplies. Currency earnings from export of
all the positions moved down, which witnesses a decrease in price level for the supplied
metal products.

Market conjuncture

Pig iron

By the estimates of a number of foreign information
agencies, in August, the world market for pig iron saw a recovery – there was a tendency
for increase in prices caused by shortage of pig iron on the world markets.

In this regard, a good example is the American market for
pig iron, which has been indicating a steady increase in prices. There are several reasons
for this – the narrow spread in prices for ferrous scrap metals and pig iron (it is more
advantageous for a lot of US metallurgic mills to buy high-quality pig iron as feedstock)
and the limited supplies of pig iron from Russia (although it will further facilitate
exporters from other countries entering the market, so far there is some shortage of this
metal product). As an outcome, the prices on the American market increased to USD/MT
123-128 CIF the Gulf of Mexico.

In August, Brazilian manufacturers of pig iron supplied pig
iron to the US market at USD/MT 115-118 FOB. However, many Brazilian companies have
already declared their intentions to increase prices by USD/MT 5-7 in September of the
present year. By the estimates of experts, their intention will be successful.

Ukrainian pig iron exporters see good prospects.
Previously, domestic pig iron was offered at USD/MT 85-90 FOB. Elbowing of Russian
commodity from the US market will probably allow entering this market with slightly
increased rate – USD/MT 100-105 FOB. One can also suppose that this was the reason for
increase in Ukrainian production of pig iron up by 3%.

According to the data with Metal Bulletin, there was also
an increase in prices for pig iron on the Far East market. It was reported that Posco
purchased pig iron at USD/MT 120-125 CIF. Russian products were shipped to this region at
USD/MT 110-115 CIF.

Semi-finished products

After some recovery of the world market for semis observed
in the previous months, in August, the situation changed radically, especially, for
exports of metal products from the CIS to the Southeast Asian countries.

The reason for the downward trend lied in oversupply on
this market – after some increase in prices, most consumers purchased large consignments
of these commodities with hope for further recovery of prices. However, the starved
increase didn’t come true, although volumes of supplies kept on soaring. According to
the market information, consumers are provided with billets for 2-3 months in advance.
Therefore, one cannot pin hopes to the upward tendency or to retaining of prices at the
previous level. Billets of the Ukrainian origin were offered at USD/MT 165-170 CIF.
Similar Russian products were offered at USD/MT 2-3 higher. The prices in supplies to
China were USD/MT 158-160 CIF.

Turkish producers of billets are in a more advantageous
position. High consumption of long-length rolled metal, which did intensify after the
earthquake, became the reason for shortage of this commodity on the market. As of the
August-end, Turkish billets were offered at USD/MT 160-180 FOB. Moreover, metallurgic
mills of this country are loaded with orders for 2-3 months in advance. This market is
also rather promising for Ukrainian exporters.

According to the information with Metal Bulletin, in
August, European producers of this metal practically stopped exports. This aroused from
fierce competition on the external markets, as well as from the unwillingness to sell
high-quality products at low rates. Besides, manufacturers believe that it is more
profitable to sell finished end products. In August, there were low supplies of billets,
mainly, to non-traditional sale markets at USD/MT 160-190 FOB.

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

Long-length rolled metals

The most distressing situation is observed on the global
market for long rolled metal (rebars and wire rod). This occurs due to weakening of demand
on the Far Eastern market, which is the largest consumer of rebars and wire rod in the
world. According to the information of operators functioning in the region, in August, the
market was practically flooded with long-length rolled metal. The lion’s share of metal
products was imported from Ukraine and Russia. One of the reasons for such a situation is
the limitation of import supplies of these metal products by the Chinese government. As a
result, large consignments of rolled metal have slopped over to the markets of the
neighboring countries, thus, cultivating tough competition. Naturally, this had its
influence on the level of prices. Ukrainian-made rebars and wire rod were offered at
USD/MT 155-180 FOB. However, even with such prices, sales were extremely humble. As to the
Chinese consumers, they offered the price of just USD/MT 150-155 CIF.

Due to introduction of protective measures against the
influx of long-length rolled metal imported to the USA, the situation on this market
somewhat stabilized – the prices for rebars settled at USD/MT 265-275 CIF and the prices
for wire rod – at USD/MT 265-285 CIF. Besides, further increase in prices is
anticipated: American companies will be able to increase their sale prices only in case if
import supplies remain limited in the future. Consequently, they will do their best to
retain the present situation. It is estimated that, if retaining such conditions, the
price will keep at USD/MT 280-320.

Tragic events in Turkey, caused by the recent earthquake,
became the reason for intensification of demand for construction rolled metal. As of the
August-end, internal prices were USD/MT 220-250 EXW. Export prices for rebars and wire rod
of the Turkish origin have remained at USD/MT 190-200 for a few months running. The
dynamics of global prices for rebars and wire rod is presented in tables 7 and 8.

Rolled flat metal

There is some recovery on all the world markets for flat
coils, which in turn initiated an upsurge on the regional markets. Thus, the prices for
coils have increased on some regional markets.

Starting from September, Western European metallurgic mills
were the first to declare the increase in prices. This is connected with strong demand by
the mechanical engineering, as well as with reduction in import supplies. According to
Western European experts, the prices for rolled metal will further advance. As of the
August-end, the prices for HR coils were USD/MT 250-270 FOB, while CR coils were offered
at USD/MT 320-340 FOB.

The signs of recovery were also traced on the US market.
According to the information with Metal Bulletin, Ispat Inland, which is one of the
leading American companies engaged in the production of flat rolled metal, announced an
increase in sale prices for HR steel coils and CR steel coils by USD/MT 15-20 and USD/MT
5-10 respectively starting from September 1999. There is certain information that a number
of other American companies followed this example. As of the August-end, the prices for HR
and CR coils on the US market were USD/MT 285-305 CIF and USD/MT 385-405 respectively.

Favorable situation on the US and Far Eastern markets
allowed Latin American producers increasing prices in August. Thus, HR coils were offered
at USD/MT 195-215 FOB, while CR coils – at USD/MT 290-310 FOB.

There is an extremely strong demand for steel coils in
Korea. Decrease in production by Korean metallurgic mills caused some shortage of this
commodity on the Korean domestic market and turned this country into one of the leading
importers of this type of rolled metal in the region.

On the whole, the situation on the Southeast Asian market
for rolled flat metal was stable, even despite the difficulties with receiving import
licenses for supplies to China. Ukrainian metal products were supplied to this region at
USD/MT 150-165 CIF for HR coils and USD/MT 220-245 CIF for CR coils. Due to higher
quality, Russian rolled metal was offered USD/MT 10-20 higher.

The dynamics of the world prices for HR and CR coils is
presented in tables 9 and 10.

According to the international experts, there are good
outlooks for the world market of HR plates. This is connected with slightly recovered
consumption of this type of rolled metal by some branches of the heavy machinery building
– shipbuilding, oil recovery, machine-tool industry etc. Along with the increase in
demand, the prices have changed respectively.

In August, high-quality HR plates of the Western European
origin were offered at USD/MT 320-350 FOB. Besides, further increase in prices is expected
in the nearest time.

The similar situation was traced on the US market.
Thus, Bethlehem Steel reported its intention to rise prices starting from October 1999.
Though other companies didn’t report similar plans, a lot of traders believe that the
increase in prices will take place anyhow. In August, the prices for HR plates on the US
market were USD/MT 350-370 CIF. Brazilian and Mexican producers of this type of rolled
metal offer HR plates at USD/MT 300-320 FOB.

Ukrainian-made HR plates were shipped abroad at USD/MT
170-180 FOB. However, export turnover of this product was very low, as far as price
restrictions by the USA and threat of antidumping measures on behalf of some other
countries, low quality of the products, and various problems with supplies scare away the
customers.

• DerzhZovnishInform