Russian Steel Markets Developments OECD Steel Committee Dmit Dmitriy iy Kolomyt lomytsyn, syn, CF CFA Russi ssian St Steel l March 201 2019
Steel demand Steel demand reco ecover ery continues y continues 0 13% 0 5% 1% 0 3% 1% 1% -1% 0 -3% 0 -8% 0 2011 2012 2013 2014 2015 2016 2017 2018 2019E Bett tter r dyn ynami mics i s in Recove very ry of f inve vestme stment t Dema mand growth rowth (r (real construc structi tion (i (infr frastruc structure ture) ) acti tivit vity y and cost st of f fun funding disp sposa sable income me and automo tomoti tive ve rema remains s aff fforda rdable sta stabiliza zati tion, su susta stained drop rop in infl flati tion, cred redit t expansion sion) ) 2 Source: Russian steel, companies data
Rus ussia sian n mar market et balan balance ce 0 0 0 24% 24% Demand 8% 0 6% 6% 5% 5% 5% 3% 0 2% 1% 1% -1% -1% 0 -2% -2% -5% 0 -1% 1% -1% 1% -1% 1% 0 -5% 5% -5% 5% -4% -6% 6% -6% 6% 0 -8% 8% Exports 0 -15% 15% 0 Jan-18 Apr-18 Jul-18 Oct-18 Demand recovered in 4Q’18 resulting in lower finished and • semi-finished exports One the largest producers has maintenance works in 2019- • 2020 resulting in lower steel output by c. 1 m t pa Source: Russian steel, Metal Expert
Rus ussia sian n expor xports br ts breakd eakdown wn HVA 10% Pipes (incl. LDP) 7% Longs 11% Semi-finished steel 54% HRC 18% HVA flat products constitute only 10% of total exports from • Russia More than 70% is represented by semi-finished products and • HRC that is used mainly as a feedstock for re-rolling Source: Russian steel, Metal Expert
Planned Planne d Inf Infrastr astructur ucture e In Investments estments PLAN SECTOR IMPLEMENTATION To increase volumes of completed housing Real Estate Renovation program in Moscow and its construction to 120m sq pa vs 80m sq pa possible spreading to other regions; Ministry currently of Construction to propose instruments to reduce regulation burden. To modernize roads and double expenditure on Transportation 296 projects including bridges (river Lena road construction bridge, Volga bridge in Nizhny Novgorod, etc.) To lower mortgage rates below 8% by 2024 Real Estate Currently c.9.4% To grow capacity of BAM, Trans-Siberian 1.5x Transportation Estimated capex of RUB 550 bn ($8 bn) to 180mt in six years Rail road projects Transportation 104 projects including high-speed railroad Moscow-Kazan and Ekaterinburg – Chelyabinsk To expand capacity of the Northern Sea Route Transportation Estimated capex of RUB 580 bn ($8.5 bn) traffic Expand network of regional airports Transportation 155 sites identified incl. Chelyabinsk. Stavropol, Voronezh, Orenburg, etc, RUB 270 bn ($4 bn) Current capex proposal to the government related to • infrastructure spending is c. RUB 6.8 trn (~$100bn)
Wha hat t is is ne next? xt? Investme Inv stments ts in Russ Russian ste steel industr stry, y, $ bn bn 8.2 8.2 6.4 6.4 5.9 5.9 5.5 5.5 5.2 5.2 5.0 5.0 4.5 4.5 4.4 4.4 3.6 3.6 3.5 3.5 2.9 2.9 2.8 2.8 2.5 2.5 2.4 2.4 2.2 2.2 1.2 1.2 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018E 2018E Capex fo Ca focus s shift shifted to mo moderniza ization ion and do downst stream m develop velopme ment • Do Downst stream m projec jects s to me meet dome mest stic de ic dema mand 4 biggest st Russ ssian prod roducers rs are pu re public • Digit comp Digitali mpanies lization s wi with ion th GDRs s tr traded on LSE Ori riented ted on posit sitive ve and tr transp sparen rent t retu return rn • Sales Sales channels ls (e (e. . g. . onli line sales sales plat latfo forms ms and warehouses) ses) • for inve for vesto stors rs • Envi Environme mental l and energy y efficien fficiency y invest investme ments Domest Domestic c de demand mand to o pick pick up up on on ne new infras nfrastruc uctur ure e pr project ojects s with h lar arge ge invest nvestment ments 6 Source: Russian steel, companies data
Conc Concluding luding r remar emarks ks • Russian economy continues to recover • Steel consumption is expected to grow over the next several years on better fundamentals and pent-up demand • Further infrastructure investments expected • Shift in investment focus on maintenance, eco-friendly & energy effective decisions, improved operational efficiency (incl. digitalization), product quality 7
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