OECD STEEL COMMITTEE

DEVELOPMENTS IN WORLD STEELMAKING CAPACITY

Russia: steel market

developments
Maria Ivanova, Novolipetsk Steel

Paris, December 2010

Russia’ Steel Industry Dynamics
Production volume, mmt Consumption, mmt
7,0 4,0
3,6
3,5 3,4
3,3 3,4 3,4 Peak low Average pre-crisis steel production
6,0 3,1 3,2 3,2 3,5
3,03 2,9
2,9 2,8 2,9
5,0 2,5 2,6 2,7 3,0
2,5 2,5 2,4 2,4
2,2 2,3 2,4 2,3 2,5
4,0 2,1
Average pre-crisis rolled steel production
1,9
1,8 1,8 1,7 2,0
3,0 1,4 1,4
1,2 1,5
2,0
1,0
1,0 0,5

0,0 0,0
Jul-08

Jul-09

Jul-10
Feb-08

Sep-09

Feb-10

Sep-10
Sep-08

Feb-09
Jan-08

Jan-09

Jan-10
Dec-08

Dec-09
Jun-09

Jun-10
Jun-08

Aug-08

Aug-10
Aug-09
May-08

May-10
May-09
Oct-08

Oct-09
Nov-08

Nov-09
Apr-08

Apr-09

Apr-10
Mar-09

Mar-10
Mar-08

Crude steel production Finished steel production Consumption

Semi-finished & Finished steel balance, mmt

6,0

3,7 3,8
Peak low
3,9
4,0
3,5 2,6 3,0 2,8 2,9 3,0
3,4 3,7 3,8 3,8 2,4 2,5 2,5
3,2 2,7 1,4 2,3 1,9 3,0
2,7 2,5 2,8 3,0
2,1 2,7 2,6
2,0 1,9
2,0
1,5 1,3

0,0

-2,0

-4,0
May-08

May-09

May-10
Jan-08

Jul-08
Aug-08

Jul-09

Jul-10
Jan-09

Aug-09

Jan-10

Aug-10
Jun-10
Jun-08

Jun-09
Nov-08

Nov-09
Oct-08

Oct-09
Mar-08

Mar-09

Mar-10
Apr-08

Apr-09

Apr-10
Feb-08

Sep-08

Feb-09

Sep-09

Feb-10

Sep-10
Dec-08

Dec-09
Production Export Import Consumption
-2-
Sources: Metal-Expert, Russian Statistics Agency, Metal Courier
Current Economic Situation In Russia
GDP and its elements growth rates, y-o-y, % Budget Income & Spending, % GDP
Deficit
Surplus period period

Industrial Production & Industrial Producer's IP & Fixed Capital Investments indices
Price index, y-o-y, %
110

Industrial producer’s price index

105
Industrial production growth rate

100

95

90

85

80

75

70
Mar-08
May-08

Nov-08

Mar-09
May-09

Nov-09

Mar-10
May-10
Jul-08

Jul-09

Jul-10
Jan-08

Sep-08

Jan-09

Sep-09

Jan-10

Sep-10
IP index Investments in fixed capital
-3-
Sources: Metal-Expert, Metal Courier, Russian Statistics Agency , Ministry of Industry and Trade, Ministry of Economic Development
Russia’ Steel Using Sectors Output Dynamics
Construction & Metal Products Output Indices , y-o-y, % Pipes & Tubes Production Index, y-o-y, %
30 75
20
55
10
35
0
-10 15

-20 -5
-30
-25
-40
Jan-08
Mar-08

May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09

May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
-45

Jul-08

Jul-09

Jul-10
May-08

Nov-08

May-09

Nov-09

May-10
Sep-08

Sep-09

Sep-10
Jan-08

Jan-09

Jan-10
Mar-08

Mar-09

Mar-10
Construction Metal products output, y-o-y, %

Machinery & Equipment Production Index, y-o-y , % Automotive Industry Production Index, y-o-y, %

45 160

25 110

60
5
10
-15
-40
-35
-90
-55 -140
Oct-08

Oct-09
Apr-08

Apr-09

Apr-10
Jan-08

Jan-09

Jan-10
Jul-08

Jul-09

Jul-10

Sep-08

Sep-09

Sep-10
Jan-08

Jan-09

Jan-10
Mar-08

Mar-09

Mar-10
Jul-08

Jul-09

Jul-10
May-08

May-09

May-10
Nov-08

Nov-09
-4-
Sources: Metal-Expert, Metal Courier, Russian Statistics Agency , Ministry of Industry and Trade
Steel consumption in Russia
Steel Consumption & Russian Steel Using Sectors Production Index Average
4 60

3,5
Peak low 50 50
31 34
32 25 40

Index average, y-o-y %

19 36
Steel consumption, mmt

3 27
13 30
15 18
16 9 20
2,5 5 13 7 12
8 5
7 10
2
-1 0
1,5 -20 -10
-30 -19 -20
1 -20
-37 -23 -30
0,5 -29 -34
-39 -34 -39 -40
-40
0 -50

Sep-09

Sep-10
Sep-08
Jan-08

Jan-09

Jan-10
Mar-08

Mar-09

Mar-10
Jul-08

Jul-09

Jul-10
May-08

May-09

May-10
Nov-08

Nov-09
Steel consumption breakdown by sector, mmt 2010
Mecanical
Automotive industry;
machinery; 5%
8%

Mecanical machinery 2
Construction; 36%
Pipes & Tubes; 16%

Other; 35%
Automotive industry 3

Pipes & Tubes 6

Other 13

Construction 13

Sources: Metal-Expert, Metal Courier, Russian Statistics Agency , Ministry of Industry and Trade; NLMK research
-5-
Production forecast of steelmaking raw materials
Iron Ore Coking Coal +47%
+47%
140 +4% 100

120 +12%
80 -32%
-32%
100

Volume, mmt
60
80

60
104 40
87
105 100 116 78
100 112 68 70 64 67
40 91
61
20
20

0 0
2006 2007 2008 2009 2010 2015 (f) 2020 (f) 2006 2007 2008 2009 2010 … 2015 (f) … 2020 (f)
Consumption Production Consumption Production

Scrap HBI/DRI
+100%
30 +47% +82%
12

10
Volume, mmt

-32%
Volume, mmt

20 +7% 8
+20%
6 12

10 20 21 21 22 4
15 16 6
11 2 5 5 5
3 3

0 0
2006 2007 2008 2009 2010 … 2015 (f) … 2020 (f) 2006 2007 2008 2009 2010 … 2015 (f) … 2020 (f)

Consumption Production
Production

Sources: Strategy of Russian Steel Industry Development till 2020, Ministry of Industry and Trade; MetalCourier, Chermet, AME -6-
Raw Materials Market
Russian Steel Industry Self-sufficiency in Raw Materials (2009, mmt)

100 Import Export Output

80 Output
91
60
Domestic Output
40 61 Dom estic
consumptio
consum ptio
20 n Import Import
Import 9 n
78 <1 <1 Output 18 Dom estic
0 44,7
Export 21 Export 16.5 consum ption
Export 3.3
-20 15,8

-40
iron ore Coking coal concentrate Scrap
Raw material price dynamics
3000 7000
Coking coal; Iron ore; Pellets

2500 6000

Coke
5000
2000
4000
1500
3000
1000
2000
500 1000
0 0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Coking coal Iron ore Pellets Coke

Sources: Metal Expert, Rasmin, NLMK research

-7-
Russian economy growth forecast
Oil Prices Forecast, USD/bl 7
GDP Index Growth Rate Forecast, y-o-y, %
95

90 5

85 3

80 1

75 -1 2009 2010 2011 2012 2013

70 -3

65 -5

60 -7

55 -9
2009 2010 2011 2012 2013
Optimistic Basic Low basic Pessimistic
Optimistic Low basic Pessimistic

Industry Growth Rate, y-o-y, % Fixed assets investments (FAI), y-o-y, %

15
10

8 10
6
5
4

2 0
0 2009 2010 2011 2012 2013
2009 2010 2011 2012 2013 -5
-2

-4 -10
-6
-15
-8

-10 -20
Optimistic Basic Low basic Pessimistic
Optimistic Basic Low basic Pessimistic

-8-
Sources: Russian Statistics Agency; Ministry of Economic Development
Russia’s steel production forecast
Ferrous Metallurgy Production Index Forecast, y-o-y, % Metal Products Output Index Growth rate, y-o-y, %
20 15,2 60 50 49
46 44
15
40 46
10 4,7 3,4 5 48
45
5 20 40
0
1,7 1,7 3
-5 0
-10
-20
-15
-33
-20-14,7 -40
2009 2010 E 2011 F 2012F 2013 F 2009 2010 E 2011 F 2012 F 2013 F
Ferrious metallurgy conservative variant
Meta l products concerva ti ve va ri a nt
Ferrious metallurgy optimistic variant Meta l products opti mi s ti c va ri a nt

Steel Pipes & Tubes Production Index Forecast, y-o-y, % Finished steel production index forecast, y-o-y, %
15 12,1
30
23,3
25
10
20
15 4,5 4,5
5 3,2
10 5,7 5,5
3
5 0 2,3
1 1,5
0 3,5
1,7 0,5
-5 -5
-10
-15 -10
-20-14,4 -10,3
2009 2010 E 2011 F 2012 F 2013 F -15
2009 2010 E 2011 F 2012 F 2013 F
Steel pipes&tubes conservative variant
Finished steel conservative variant Finished steel optimistic variant
Steel pipes&tubes optimistic variant

-9-
Source: Ministry of Economic Development, NLMK research
Russian Producer Price Indices
Raw Materials Producer Price Indices Correlation between metal ore price and
steel industry price
145,00

135,00 145,7
125,00

115,00

105,00

95,00
81,1
85,00

75,00
2007 2008 2009 2010 2011 2012 2013
Energy Energy raw materials Metal ores Oil

Producer Price Indices of Steel & Using Sectors

135,00

125,00 117,9

115,00

105,00

95,00
81,50
85,00

75,00
2007 2008 2009 2010 2011 2012 2013

Steel industry Metalware Machinery and engineering Construction (deflator index)

-10-
Sources: Ministry of Economic Development, NLMK research
Steel Consumption in Russia
Long Product Consumption Forecast, mmt Flat Product Consumption Forecast, mmt

Metal Product Consumption Forecast, mmt Pipes & Tubes Consumption Forecast, mmt

-11-
Sources: Ministry of Economic Development, NLMK research
Steel Using Sector Output Forecast
Vehicle market forecast
6
Initial growth Stagnation Market growth Post-crisis development Market stabilization
Economic crisis

Forecast range
5
New car sales mln. units

Economic crisis
4

3 2.8 3,5 3,6 3,6 3,6

2.4 3,3 3,4
3,1
1.8 2,8
2 2,4
1.1 1.3 1.4 1.4
1.0 0.9 0.9 1.0 1.0 2
0.7 0.8 0.8 1,8
1

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Imported Foreign brands in Russia Domestic OEMs Forecast

Passenger car production Trucks production

Trucks production index growth rate

1800 180 200 22 20 30
156 119 15 17
1600 160 180 20
123 22,4
1400 117 140 160 16,2 10
156
Trucks production 000
13,5 14,6
1200 120 140 0
120 -10
1000 116 100
111 114 100 -20
800 41 80
80 -30
600 60
60 -40
400 40
40 -50
200 41 20 -64
20 -60
0 0 0 -70
-64,2
2009 2010 E 2011 F 2012 F 2013 F 2009 2010 E 2011 F 2012 F 2013 F
Pa s s enger ca r production optimi s tic va ri a nt
Pa s s enger ca r production cons erva tive va ri a nt Trucks production concervative Trucks production optimistic
Ca r production i ndex pes s i mi s tic Trucks index conservative Trucks index optimistic
Ca r production i ndex optimi s tic
-12-
Sources: Ministry of Economic Development, NLMK research; AEB; Avtostat
Steel Using Sector Output Forecast
Machinery Production Index Forecast, y-o-y, % Pipes & Tubes index forecast, y-o-y, %
30 30
20,2 23,3
20 14,3 25
9,9 11
20
10
15
8,4 8,5 10,6
0 10 5,7 5,5
3
-10 5
0 3,5
-20 1,7 0,5
-5
-30 -10
-34,2
-40 -15 -14,4

2009 2010 E 2011 F 2012 F 2013 F -20

2009 2010 E 2011 F 2012 F 2013 F
Machinery production conservative variant
Machinery production optimistic variant Pipes & tubes 2b Pipes & tubes 2b

Freight Railcar Production Index Forecast, y-o-y, % Passenger Railcar Production Index Forecast, y-o-y, %
100 30
82,6
18,3
80 20 15,9
82,6 13,3
60 7
10 15,1
11,9 13,1
40
0 7
20 4,4 6,9
3,8
-10
0
2,2 3 3,8
-20
-20
-44,6 -30-34,1
-40

-60-44,6 -40-34,1
2009 2010 E 2011 F 2012 F 2013 F 2009 2010 E 2011 F 2012 F 2013 F

freight car concervative variant freight car optimistic variant passenger car conservative variant passenger car optimistic variant

-13-
Sources: Ministry of Economic Development, NLMK research
Steel Consumption Sector Investments for Modernization

RUSSIA WILL REMAIN ATTRACTIVE FOR FOREIGN DIRECT

INVESTMENTS
 The Government pays attention to special economic areas with
favorable taxation regime
The Government develops strategies for development of key national
sectors which have a multiple effect on upstream industries
Currently most attractive for FDI are following steel-using sectors:
Energy
Shipbuilding
Machinery
Construction
Automotive industry
Railcar production

-14-
Steel Sector Investments for Modernization
Investments bln.RUR
220

170
+ 580 %

120
199 200
159 160
70
122,3 128
100,8
81
20 31 36,2
23,4 28,9

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (e) … 2015 (f)
-30

Steel industry investment structure Company Investments (% of Total in Steel Sector)

100% 8% 3%
15% Novolipetsk
26% 23%
80% 35% 37% 41% Mechel; 14,4 % Steel; 14,86 %
Evrazholding;
60% 11,52 %
92% 97%
40% 85% 74% 77%
66% 63% 59%
20% Metalloinvest;
MMK; 14,87 %
19,2 %
0% Severstal; 25,16
2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1H 2010E %

Brownfield Greenfield

-15-
Sources: Ministry for Industry and Trade, Strategy for Development of Metallurgy to 2020
 OECD STEEL COMMITTEE
DEVELOPMENTS IN WORLD STEELMAKING CAPACITY

THANK YOU

Maria Ivanova, Novolipetsk Steel

Paris, December 2010