K atrina Barkova Global steel market specialist

Katrina BarkovaGlobal steel market specialist

World Steel Semis MarketOctober 6-8 2008, Istanbul

Global Slab Market:current trends & future outlook

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Metal Expert in brief:

Content

• World slabs trade in 2007: major suppliers and consumers

• H1 2008: changes of global slab market picture

• Outlook for slab market balance in 2009-2012

In 2007 global slab market kept stable at the level of 31.2 mln tones

CIS is the major global slab supplier holding about 40% market share, with Russia being No1 having supplied over 8 mln tones

Japan shipped 3.5 mln tones

Brazil exported 2.7 mln tones

and China was still an ambitious market player with 2.5 mln tones of slab exports

Slab Exports in 2007

Germany4%

Others14%

Mexico7%

UK8%

China8% Brazil

9%

Japan11%

Ukraine13%

Russia26%

mln tonesUSA was still the biggest single slab importer (19% of world import), despite poor flat products market conditions

South-East Asia is the biggest importing region in the world holding 48% of all imported slabs Namely, South Korea - 4.4 mln tones, Taiwan – 3.7 mln tones, Indonesia – 1.5 mln tones and Thailand - 1.3 mln tones

Western European countries hold about 30% of global import

Major buyers are Italy and Germany with 3.08 and 1.94 mln tones

Slab Imports in 2007

11.8

9.0

4.7

1.2 0.9 0.8

0

2

4

6

8

10

12

14

SEA W. Europe U S A E.Europe MiddleEast

Others

Price changes 2007-2008

400

500

600

700

800

900

1000

1100

1200

Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08

Export price for CIS slabs, fob Black Sea

During 2007 prices were fluctuating in the range slightly more then 100 usd when in H1 of 2008 the average number of increase was app 100 usd per month

In the same time for the last two months prices have dropped with the average speed of app 200 usd

Top slab suppliers changes in H1 2008

CIS countries are still keeping the first roles in slab trade but Brazil is only one step behind with the increase of almost 55% in H1 2008 compared to H1 2007

mln

to

ne

s

China’s leaving the market led to 2% decrease of global slab trade in H1 2008 despite grown supplies from other countries

6,04

1,51,8

1,1

1,9

4,5

6,6

0,1

1,41,72,1

4,7

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

Russia Ukraine Brazil Japan China Other

H1 2007 H1 2008

Why CIS is increasing slab export?Good slab market fundamentals in general with rapid price growth in H1 08 supported by increased quotations for finished steel products, especially

plate in Europe, where CIS companies operate captive re-rolling assets

Italy: slab prices vs prices for flats SEA: slab prices vs prices for flats

Shortage of slabs in South East Asia after China had stopped exporting

453

1

231

40

552 601 173

13

65

442

0

150

300

450

600

750

900

1050

Indonesia South Korea Tailand Taiwan Philippines

H1 2007 H1 2008

Import from CIS, ‘000 tones

H1 07 H1 08

Russia

Tailand 12 533

South Korea 1 450

Ukraine

Tailand 0 101

South Korea 0 6

China

Tailand 216 0

South Korea 594 2

Export of slabs from Russia to SEA, `000 tons

Why CIS is increasing slab export?

Slab market changes in H1 2008

Importer H108 H1 07 Change 08/07

U S A 2,4 2,3 5,2%

SEA 6,2 6,1 0,3%

Western Europe 4,2 5,1 -18%

Eastern Europe 0,5 0,5 -12%

Rest 0,7 0,8 -14%

Iran 0,2 0,3 -41%

Total 14,1 14,4 -2%

Western Europe decreased imports both due to lowered HR flats output in H1 2008 (e.g. in Germany, France) and increased crude steel output (e.g. in Italy, Belgium)

Iranian market sharply cut slab purchases due to unfavorable flats market situation. Still, rolling capacities exceed slab-making ones by around 2 mln tones

Slab market outlook: CIS potential

By 2010 CIS producers could ramp up merchant slab output (i.e. export) to over 23 mln tonnes through higher capacity utilization

Currently with recent launches of new equipment slab-making capacities are used only by 50% in Ukraine and 70% in Russia

In 2011-2012 further increase is expected due to projects at NLMK, Zaporozhstal and Vorskla Steel

Country Producer 2007* 2008** 2010**

Russia NLMK 3.7 4.2 4.2

Zapsib 1.24 2.5 2.5

NTMK 1.57 2.6 2.6

Severstal 0.6 1.5 1.5

MMK 0.9 1.5 1.5

Mechel 0.16 0.2 0.7

Asha SW 0 0.25 0.25

Amurmetal 0 0.5 0.5

  Total 8.17 13.25 13.75

Ukraine Azovstal 2.8 5.5 5.5

Alchevsk 1 4 4

Illych 0.27 0.5 0.5

  Total 4.07 10 10

CIS Total 12.4 23.35 23.85 * - export volume** - nominal merchant slab capacities

Slab market outlook: CIS potentialCIS mills keep buying foreign assets

Shipments to captive assets account for about 50% of all CIS export now

The trend is obvious not only for CIS, but for ArcelorMittal group, several Brazilian projects etc.

The trend is expected to persist0

1

2

3

4

5

6

2004 2005 2006 2007 2008e

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%shipments to countries w ith captive assets

shipments to foreign assets (e)

Share of 'captive' shipments

shipments, mt share, %

Merchant slab capacity of approved projects, mln. tones - Scenario 1

2007 2008 2009 2010 2011 2012 2013 2014 2015

Arcelor Mittal Tubarao 2.7 4.7 4.7 3.5 3.5 3.5 3.5 3.5 3.5

Usiminas Cosipa 0.94 1 1.15 1.15 -1.15 -1.15 -1.15 -1.15 0.15

Usiminas Ipatinga 0.2 0.2 0.2 0.2 0.3 1.3 1.3 1.3 1.3

CSN Presidente Vargas 0.33 0.5 0.5 0.5 0.7 1.4 1.4 1.4 1.4

Usipar - - - - - 1 2 2 2

ThyssenKrupp CSA - - 2 5 5 5 5 5 5

Total 4.17 6.4 8.55 10.35 8.35 11.05 12.05 12.05 13.35

Merchant slab capacity of projects under approval, mln tones - Scenario 2

Gerdau Acominas na na 0.63 0.63 0.63 0.63 0.63 0.63

Ceara Steel - - - - 5 5 5 5

Сompanhia Siderurgica Vitoria (CSV) - - - - - 5 5 5

Vale Para - - - - 2.5* 2.5* 2.5* 2.5* 2.5*

CSN Itaguai - - - - - - 0.005 0.8 1.5

CSN Congonhas - - - - - 0.05 0.8 1.5 1.5

Total, 1+2 4.17 6.4 8.55 10.98 8.98 19.18 25.18 25.18 26.48

Slab market outlook: Brazil

Brazil could become the second largest slab supplier in the world by 2010*

* - Export from Brazil estimated according to Scenario1;Export from CIS estimated at the max level (see above)

Slab market outlook: Brazil

Scenario1

Scenario2

2

7

12

17

22

27

2007 2008 2009 2010 2011 2012 2013 2014 2015

Merchant slabs capacities, mln tones

13

10,3 10

Russia Brazil Ukraine

Slab market outlook: Turkey

Hot-rolling vs slab capacities*, mln tones Turkey formerly 1 mln tpy importer could easily become substantial slab exporter next year

Slab exports from Turkey in 2007 and 2008 is minor due to:• lack of steelmaking capacities (especially in case of Colakoglu) • good billet market fundamentals, as Colakoglu and Isdemir can both switch between slab and billet production

But already in 2011 shortage of slabs will arise, and even more substantially than in the past

2

4

6

8

10

12

14

16

18

20

22

2006 2007 2008 2009 2010 2011 2012

Slabs HR flats

* - not taking into account actual steelmaking capacity and ability to switch to billet production

World slab market outlook: consumersMerchant slabs requirements in MENA countries

By 2010 major changes are expected to happen in Middle East (incl North African) and South East Asia.

In particular, in Middle East substantial quantity of semis will be required by Saudi Arabia (2.15 mln tpy) and Morocco (1 mln tpy) due to installation of hot rolling mills by Al-Tuwairqi Group and Magreb Steel-3

-2

-1

0

1

2

3

Saudi Arabia

Morocco Iran The rest

-0,15 0 2,19 -0,65

-2,15

-1

0,69

-0,65

20102008

World slab market outlook: consumersSAE market in the coming years will still require substantial quantity of slabs due to continuous development of re-rolling facilities, but in the same time there a lot of ambitious integrated mills projects which can turn to real threat for traditional slab suppliers.

In South Korea Dongkuk Steel in 2009 will enlarge plate-making capacities (not supported by casting ones) by 1.5 mln tpy to 3.9 mln tpy

In Thailand Canadoil Group is planning to launch 1.2 mln tpy plate-making mill in 2009, which later possibly could be enlarged to 1.5 mln tpy. In the same time Sahaviriya Steel Industries in 2010 will start up 5 mln tpy conticaster to be self-sufficient

Vietnam is turning to switch from import of HR products to their production. Among the projects there are Cuu Long (0.3 mln tpy of plates in 2009), of Essar Vietnam Steel Corporation (2 mln tpy of HR strip in H2 2010). Also must be mentioned greenfield project of Formosa Plastics Group (1.5 mln of merchant slabs), though dates are not confirmed yet

In India all the major steel groups are investing heavily in crude steel production, including slab-oriented. As for re-rollers, Welspun Gujarat company has launched a 1.5mln tpy hot-rolling mill with intention to source slabs from domestic market as well as from Mexico and Europe

Summary• Slab market have been changing in 2007-2008, and even more significant changes are expected in the years to come

• Main slab exporters will be further increasing capacities on one hand, while trying to deminish spot sales on the other hand

• In South East Asia many re-rolling as well as steelmaking facilities will be coming on stream, affecting the market

• Expanding production of HR flats in Middle East will be supporting demand for imported slabs

• But still ambitious projects of the major existing semis suppliers could lead to oversupply on the global scope

- Raw materials (scrap, pig iron, DRI / HBI, iron ore, coal, coke, ferro-alloys)- Steel Semis (slab, billet, pipe billet)- Finished steel products (flats, longs, pipes)- Freight

- Turkey- CIS (Russia, Ukraine, Kazakhstan)- Europe: South Europe (Italy, Spain), Central Europe (Poland, Romania, Czech, Slovakia), Balkans (Bulgaria, Serbia, Albania, Bosnia)- Middle East (Iran, UAE, Syria, Saudi Arabia, Jordan) & North Africa (Egypt, Algeria)- India- US- China- Southeast Asia (Taiwan, Thailand, Vietnam, Philippines, Singapore)

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