Pricing in long product and square billet market of the MENA region. Competitiveness of the main suppliers

MENA Billet Import Conference 20 May, 2015, Dubai, UAE

Andrey Pupchenko, Deputy Managing Director, Metal Expert

The content

1) Regional trade flows and benchmarks

2) Influencing factors in MENA long product markets

3) Future pricing in MENA

MENA longs import in 2014

Rebar and billets are MENA's main trade flows

© Metal Expert

Turkey; 5

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CIS; 8

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rebar billets wire rod structurals others

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MENA ferrous scrap import in 2014 © Metal Expert

Turkey dominates in scrap import

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The key regional benchmarks:

o Turkey, rebar, FOB

o CIS, billets, FOB

o Turkey, scrap, CFR

© Metal Expert

Influencing factors in MENA long products markets

I. Tremendous changes in raw materials II. Competition stiffens in the region III. Billet market is changing

© Metal Expert

© Metal Expert

o Turkish mills lose their competiveness

o Turkey can no longer receive stable margin

I. Tremendous changes in raw materials

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UAE billets market/Cost of billets

Turkish mills lose their competiveness

The average difference in costs doubled

Turkish billet (EAF steel/scrap)

Chinese billet (BOF steel)

Source: World Steel Markets, Metal Expert estimates

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© Metal Expert

Turkey can no longer receive stable margin

export market

domestic market

Margin of Turkish rebar

Source: World Steel Markets, Metal Expert estimates

© Metal Expert

o MENA's import of Chinese longs & billets more than doubled

o New capacities will be nominally enough to replace MENA's longs import in 2016

o About 1.5 million t of rebar import lost due to warfare

II. Competition stiffens in the region

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High margins stimulated China to keep output in 2014

Margin of Chinese suppliers

for domestic market

for export

Source: World Steel Markets, Metal Expert estimates © Metal Expert

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© Metal Expert

MENA's import of Chinese longs & billets more than doubled

Plus 3 million t

Million t

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Consumption Current capacity utilization: 72%

Import

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© Metal Expert

Million t

New capacities will be nominally enough to replace MENA's longs import in 2016

Source: World Steel Markets, Metal Expert estimates

© Metal Expert

o Iraq's rebar import shrank by 800,000 t

o Yemen's rebar import of 700,000 t vanished

About 1.5 million t of rebar import lost due to warfare

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UAE rebar market/Cost of rebar

EAF-based mills using DRI have the lowest cost

© Metal Expert

Turkish EAF (steel/scrap)

EAF using steel/DRI

Re-rolled from imported billets

Source: World Steel Markets, Metal Expert estimates

© Metal Expert

o New local capacities may cover 5.2 million t of MENA's billets demand

o CIS billets suppliers undercut Turkish EAF-mills

o Iran may be able to export around 1.7 million t of billets

III. Billet market is changing

© Metal Expert

2014 2016

Total 8.6 3.4

Turkey 3 1.3

GCC 1.2 -1.8

North Africa 3.4 4.3

Iran 0 -1.7

Iraq 0 -0.4

Other 1 1.7

Billet demand estimated by Metal Expert (on the assumption of 100% rolling capacity utilization); Million t

New local capacities may cover 5.2 million t of MENA's billets demand

Source: World Steel Markets, Metal Expert estimates

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© Metal Expert

CIS billets suppliers undercut Turkish EAF-mills

CIS billet prices

Turkey billet costs

Comparison of import price and local cost of billets in Turkey

Source: World Steel Markets, Metal Expert estimates

© Metal Expert

New steelmaking capacity 1,650

New rollings capacity 500

Current steelmaking surplus 505

Billet surplus 1,655

Note: 000' t

Iran may be able to export around 1.7 million t of billets

© Metal Expert

Future pricing in MENA

o Iron ore/scrap imbalance will lead to sudden collapses in scrap prices (as at the end of January 2015)

o Low margins of Turkish rebar exports will open opportunities for newcomers in longs and billets segments

o Increase in billets export from Iran will expand its consumption in the region and will destroy strong correlation in prices between scrap and billets

Metal Expert provides exclusive data in monthly report World Steel Markets

- [NEW] Rebar output by producer in Turkey

- Ferrous scrap inventory at Turkish mills (actual for the time of

publishing – every mid-month)

- Margin assessment (market price minus estimated costs) for main export destinations and domestic deliveries

- Comparison of in-house billet production cost (using imported scrap) and prices for billet imports from CIS

- The forecasts of ferrous scrap consumption and prices for the next three months

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Thank you for your attention

Appendix. New steel melting and rolling capacities in

MENA

Company Country Launch of new EAF, 000' t per year

Launch of new long-rolling mills, 000' t per year

Status

Egyptian Steel LLC (Alexandria) Egypt new billet import 300 (wire rod) launched in H2 2014 Kuwaiti United Steel Industrial Company Kuwait self-sufficiency 450 launched in H2 2014 Abbas Steel Group Pakistan 284 100 launched in H2 2014 Yolbulan Bastug Metalurji Turkey self-sufficiency; to decrease billets sales 1200 (830+450) launched in H2 2014

Kardemir Turkey 1200 imported billet replacement launched in H2 2014 Beshay Steel Egypt 650 700 launched in H2 2014 Sharq Sohar Steel Rolling Mill Oman 600 500 launched in H2 2014 Jindal Shadeed Iron and Steel Oman 2000 1400 (since mid-2015) launched in H2 2014

Emirates Steel Industries UAE 700 imported billet replacement launched in H2 2014 Arab Steel Company(Al-Tuwairqi Group) Saudi Arabia 1900 imported billet replacement launched in H2 2014 Taybah Steel (Watani Steel I) Saudi Arabia 250 250 launched in H2 2014 Pan Kingdom Investment Ltd Co Saudi Arabia self-sufficiency 500 launched in H2 2014 Koc Group Turkey 200 launched in H2 2014

Tosyali Holding Algeria new billet import 400 (wire rod) to be launched in Q1 2015

Mass Iraq Iron and Steel Industry Co. Iraq 1000 650 to be launched in Q2 2015

Syria Metal Industries (SMI) Syria self-sufficiency 600 to be launched in Q2 2015 Arfa Iron & Steel Iran self-sufficiency 500 the launch rearranged to Q2 2015

Al Fozan Group (INTER STEEL) UAE new billet import 900 to be launched in Q3 2015

Libyan Iron and Steel Company (LISCO) Libya new billet import 800 to be launched in Q3 2015

Al-Raki for Trading & Industry (Phase I) Saudi Arabia 200 imported billet replacement to be launched in Q3 2015

Al-Raki for Trading & Industry (Phase II) Saudi Arabia 200 imported billet replacement unconfirmed

Egyptian Steel LLC (Beni Suef ) Egypt 850 530 (rebar) to be launched in Q3 2015

Al-Qaryan Steel Company Saudi Arabia 310 imported billet replacement to be launched in Q3 2015

Al-Yamamah Steel Industries Saudi Arabia 1000 imported billet replacement to be launched in Q3 2015

Kardemir Haddecilik Turkey around 720 imported billet replacement installation till August 2015 Kardemir Turkey self-sufficiency 700 (wire rod) to be launched in Q2 2016

Egyptian Steel LLC (Al Ain Al Sokhna) Egypt 850 530 (rebar) to be launched in Q3 2016

MIDHCO Iran 1000 for current capacities unconfirmed; to be launched in Q3 2015

Muscat Steel Oman partial billet import 200 enters market in 2016 Moon Iron & Steel Co. (MISCO) Oman 1200 700 in the second half of 2016 (approved)

Taybah Steel (Watani Steel II) Saudi Arabia 1500 1500 constuction begun at the end of 2014 Al-Yamamah Steel Industries Saudi Arabia self-sufficiency 750 (rebar) postponed

Khorasan Steel Complex Iran 650 imported billet replacement unconfirmed Yazd Rolling Mill Iran partial self-sufficiency 420 postponed

Kfoury Metals Lebanon new billet import 350 postponed

Mukalla Iron and Steel Yemen new billet import (300) 460 shutdown Jordan Steel Jordan sutdown (360) switch over imported billets shutdown South Steel Complex Iran self-sufficiency 300 postponed

Source: World Steel Markets, Metal Expert estimates © Metal Expert