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Ukraine Metals Report Q3 2009Published by: Business Monitor International Published: Jul. 20, 2009 - 44 Pages Table of Contents
AbstractUkraine is among the economies worst affected by the international financial crisis, with the countryreliant on US$3bn of foreign loans just to avert bankruptcy. Without credit, most construction has stoppedand the price and volume of steel, which accounts for over 40% of exports and is Ukraine’s main exportproduct fell sharply in H109, according to BMI’s latest Ukraine Metals Report. In the first five months of2009, crude steel output was down 39.2% year-on-year (y-o-y) to 11.31mn tonnes. Meanwhile, domesticmetal consumption fell 56.1% y-o-y in January-May to 1.79mn tonnes and imports plummeted 78% to197,243 tonnes, according to a report by Interfax quoting the Ukrainian Metal Traders Association.While demand for Ukrainian semis on emerging markets showed signs of revival in Q209, BMI does notbelieve there is sufficient sustained domestic and external stimulus to lift output above 30mn tonnes. Moreover, demand growth in emerging markets such as Egypt has been volatile and there are signs ofover-supply with the distinct possibility of a cut in orders in Q309 as inventories are cleared. Much of thedemand growth can be attributed to the mid-year construction season, which is expected to diminish fromSeptember. Ukrainian producers have had to slash prices to win relatively small orders from MiddleEastern buyers. Arab buyers in the Gulf were reportedly ordering Ukrainian billet at US$390-400 pertonne in June, largely to replenish inventories that had been drawn down in previous months. On theupside, there are signs of stability on the domestic market, with rebar and flats products stabilising. Consequently, the Ukrainian market appeared to have reached or passed its nadir by June, although it isunclear whether the reports of modest growth in output are related to a genuine increase in demand orshort-term stock building; BMI suspects it is the latter. Our research suggests that exports will decline by22% to 21.56mn tonnes, but will stage a recovery from 2010, rising by 18.1%, with Ukrainiansteelmakers enjoying a competitive advantage as the global market revives. BMI forecasts monthly average crude output of around 2.5mn tonnes per month in the June-Decemberperiod, which is an improvement on the levels achieved in the first five months and supported by amoderation in the contraction in exports. On the downside, domestic consumption of finished steel willfall by over 30% - to just under 6.08mn tonnes - due to a slowdown in construction, caused by a fall infixed capital formation and the credit crisis combined with a collapse in output from the automotiveindustry. As such, we forecast total crude output at 28.9mn tonnes for the full year, a fall of 22% y-o-yand towards the lower end of the forecast range of Ukrainian steelmakers. However, by Q409, quarterlyoutput should be growing on a y-o-y basis. Gloomy prospects are also in store for the relatively smallaluminium sector, which is expected to see production halve to just 50,000 tonnes. As such, finished steel consumption is set to grow by 11% in 2010 to 6.4mn tonnes and a further 21% to7.7mn tonnes in 2011. Beyond that, while there is a risk that the ongoing financial market instability inUkraine may result in Kiev losing its right to host the UEFA European Football Championship, ourforecast for real GDP growth ticking up to 4.3% by 2013 assumes a best case scenario, if the tournamentproceeds as planned. As a result, we forecast crude steel output reaching 43.8mn tonnes, a 2.3% increaseover the industry’s 2007 peak while hot rolled production is expected to approach 35.2mn tonnes, whichis 3% less than 2007 but still a rapid turnaround from the 2009 low point of 21.5mn tonnes. Although we expect a full recovery in aluminium by 2013, this is dependent on RusAl maintainingoperations in Ukraine. RusAl indicated even before the financial crisis that it may close the 130,000tpaZalk smelter as it was unprofitable to keep it running. With output set to nosedive and the debt-riddencompany already facing severe financial problems, it may consider permanent closure and sale. If RusAlcan find a way to improve efficiency, BMI believes the smelter can be returned to full capacity after therecession, assisted by a recovery in supplies to the automotive industry. However, until RusAl announcesthat it will close Zalk, BMI will forecast a return to full capacity within five years. Get Full Details About This Report >> |
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