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Overview of the Steel and Iron Ore Market 2020

Overview of the Steel and Iron Ore Market 2020

OverviewОбзор рынка of the черной металлургии Исследовательскийand центр Market компании «Делойт»December 2020 в СНГ DeloitteМосква, CISNovember Research 2020 Center года Contents 01 Foreword Key Findings Overview of the Global 02 Foreword 4 Steel and Market 01 Overview of the Russian Key Findings 5 03 Steel and Iron Ore Market

Overview of the Global Steel and Iron Ore Market 6 04 Contacts 02 Production Trends: the Global Market 7 Production Trends: 8 Production Trends: the EU and North America 9 Consumption Trends: the Global Market 10 Consumption Trends: China 11 Consumption Trends: the EU and North America 12 of Raw Materials: Iron Ore 13 Prices of Raw Materials: Coking 14 Prices of Raw Materials: Ferrous 15 Steel Prices 16 The Global Steel Trade 17

03 Overview of the Russian Steel and Iron Ore Market 18 Production Trends 19 Financial Performance of Leading Russian Steelmakers 20 Consumption Trends 21 Exports of Ferrous 22 Imports of Ferrous Metals 23 Key Events 24 Measures to Combat COVID-19 25

04 Contacts 26

03 Foreword 01 Foreword Key Findings Overview of the Global 02 Steel and Iron Ore Market We are pleased to present you In 2020, the iron and steel Overview of the Russian 03 with the full version of our analytical industry was significantly affected Steel and Iron Ore Market report on the steel and iron ore market by the COVID-19 pandemic. in 2020. This document contains a summary 04 Contacts of preliminary data for nine months of 2020 According to our analysts’ forecasts, in 2020 and our experts’ outlook for 2020–2021. global steel output will be 1,799 million tonnes (-2.8 percent YoY), and consumption will amount We have published this report every to 1,782 million tonnes (-4.3 percent YoY). year since 2015 with the aim of providing Andrew Sedov a comprehensive study of the metals industry. Vitaly Mikhalchuk Despite the pandemic, steel output and Partner, Leader Research Projects consumption will continue to grow in 2020 of the Metals Group Please feel free to contact us if you have Leader of Deloitte in China due to large-scale initiatives aimed [email protected] any questions regarding this report. CIS Research Center at boosting investments. By the end of 2020, [email protected] China’s share in global steel production will reach 57 percent (+3 pp compared to 2019).

Russian steel output in January–September 2020 was 52.5 million tonnes(-2.9 percent YoY). By year end, metals production is expected to be down by 3 percent year-on-year.

04 Key Findings 01 Foreword Key Findings Overview of the Global 02 Steel and Iron Ore Market Overview of the global steel Overview of the Russian steel Overview of the Russian and iron ore market and iron ore market 03 Steel and Iron Ore Market Decrease in global • In 2020, global steel production Decrease in Russian • In January–September 2020, steel output -2.8 % steel production is expected to decrease by 2.8 percent YoY, -3.0 % steel production went down by 2.9 percent YoY, to 52.5 million 04 Contacts to 1,799 million tonnes. tonnes. By the end of 2020, the Russian Share of major Russian Ministry of Economic Development expects • China’s output will continue to grow in 2020 China’s share in global steel producers metals output to decline by 3 percent (by 4 percent YoY) due to initiatives aimed steel production for the three year‑on‑year in comparable prices. 57 % at boosting investments. China’s share 87 % quarters of 2020 in global steel production will reach 57%. • For nine months of 2020, NLMK, , , MMK, and Metalloinvest had Decrease in global • Steel consumption will shrink by 4.3 percent Decrease in Russian a combined output of 45.4 million tonnes, steel consumption year-on-year. Decline in demand for steel steel consumption -4.3 % -8.5 % or 87 percent of Russian steel production will be uneven across the world, in this period. depending on epidemiological trends Average for Share of exports and government support measures. • The aggregate revenues of five companies 1 tonne of hot-rolled in steel production (excluding EVRAZ) for nine months 491 USD products (FOB EU) • It is highly probable that a second wave 44 % in of 2020 were USD 24 billion (-18% percent of coronavirus will result in volatile YoY), while EBITDA was USD 6.6 billion demand and prices for steel at the end (-23 percent YoY). The EBITDA margin of 2020 and first half of 2021. Average prices dropped by 2 pp: to 27.4 percent. will be at USD 491 per 1 tonne in 2020. • In 2019, steel consumption in Russia amounted to 43.7 million tonnes. In 2020, consumption is expected to decline to 40 million tonnes (-8.5% percent YoY).

05 Overview

01 Foreword of the Global Steel Key Findings Overview of the Global 02 and Iron Ore Market Steel and Iron Ore Market Production Trends: the Global Market Production Trends: China Production Trends: the EU and North America Consumption Trends: the Global Market Consumption Trends: China Consumption Trends: the EU and North America Prices of Raw Materials: Iron Ore Prices of Raw Materials: Coking Coal Prices of Raw Materials: Ferrous Scrap

Steel Prices The Global Steel Trade Overview of the Russian 03 Steel and Iron Ore Market 04 Contacts

06 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Global Steel and Iron Ore Market

Production Trends: 01 Foreword Key Findings the Global Market Overview of the Global 02 Steel and Iron Ore Market Production Trends: Figure 1. Global steel output In the last quarter of 2019, a sharp fall in prices the Global Market for steel amid still high prices for raw materials 1,538 1,560 1,650 1,669 1,620 1,627 1,718 1,796 1,850 1,799 1,900 1,988 Steel production (mln tonnes) resulted in lower margins and a decline Production Trends: Growth (%/ year-on-year) in global steel output. Steel production growth China 7.3 rates were down to 3.0 percent in 2019 5.8 5.6 5.6 Production Trends: 4.5 overall (compared to a growth of 4.5 percent the EU and North America 3.0 and 5.6 percent in 2018 and 2017 respectively). 4.7 Consumption Trends: the Global Market In Q1 2020, steel output declined 1.4 by 1.2 percent year-on-year. Steel output Consumption Trends: 1.2 0.4 grew by 1.2 percent year-on-year in China China while decreasing by 4.1 percent globally. Consumption Trends: 2.9 -2.8 the EU and North America Q2 2020 was more thoroughly affected by the COVID-19 pandemic. Chinese steel output Prices of Raw Materials: 2011 2012 2013 2017 2015 2019 2016 2014 2018 2021 2020 2022 remained the same, while the rest of the world Iron Ore Source: Economist Intelligence Unit (EIU) a decline of 20 percent year-on-year. Prices of Raw Materials: In the first eight months of 2020, steel Coking Coal production was down by 4.2% percent Prices of Raw Materials: Figure 2. Steel output, by month (mln tonnes) year‑on‑year. In August 2020, production Ferrous Scrap grew on a year-on-year basis for the first 152 140 157 158 164 159 156 155 151 151 148 152 151 145 147 137 149 149 153 158 156 time since May 2019 (158 million tonnes Steel Prices against 155 million tonnes). The Global Steel Trade EIU experts forecast a decline in global steel Overview of the Russian 03 production by 2.8 percent in 2020, which Steel and Iron Ore Market will be followed by 5.6 percent growth in 2021. 04 Contacts July 2019 July 2020 May 2019 May 2020 May June 2019 June 2020 June April 2019 April 2020 March 2019 March 2020 March August 2019 August 2020 January 2019 January 2020 October 2019 February 2019 February 2020 December 2019 December November 2019 November September 2019 September September 2020 September Source: World Steel Association

07 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Global Steel and Iron Ore Market

Production Trends: 01 Foreword Key Findings China Overview of the Global 02 Steel and Iron Ore Market Production Trends: Table 1a. Forecast steel production (%, year-on-year) In 2019, Chinese steel production rose the Global Market 8 percent YoY to 993 million tonnes, 2019 2020 2021 2022 accounting for 54 percent of global steel output. Production Trends: Global production 3.0% -2.8% 5.6% 4.7% China 5.4% 0.5% 4.6% 4.1% Despite the pandemic, in January–August 2020 Production Trends: China 8.0% 4.0% 3.8% 3.5% steel production grew by 3.4 percent YoY. the EU and North America The Chinese government announced Other Asian countries -1.5% -10.0% 7.2% 6.0% its readiness to boost investments to avoid Consumption Trends: EU -5.4% -16.0% 9.0% 5.0% the Global Market a decrease in production. Given the current North America -0.7% -15.0% 14.0% 9.0% output rates, which exceed 1 billion tonnes Consumption Trends: CIS -0.5% -4.0% 3.0% 4.9% per year, EIU analysts forecast a 4 percent China rise in 2020. Consumption Trends: the EU and North America Table 1b. Forecast steel production (mln tonnes) Since 2016, a major part of China’s old capacities have been replaced with new and more Prices of Raw Materials: 2019 2020 2021 2022 advanced ones, which keeps overall capacity Iron Ore Global production 1,850 1,799 1,900 1,988 at approximately 1.2 billion tonnes per year. Prices of Raw Materials: Asia 1,329 1,335 1,396 1,453 Coking Coal In 2022, Chinese steel output will China 993 1,033 1,072 1,110 Prices of Raw Materials: be 1.1 billion tonnes, with capacity Other Asian countries 336 302 324 343 Ferrous Scrap utilization at over 80 percent. EU 159 134 146 153 Steel Prices North America 119 101 115 126 CIS 101 97 99 104 The Global Steel Trade Overview of the Russian 03 Steel and Iron Ore Market 04 Contacts

Source: Economist Intelligence Unit (EIU)

08 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Global Steel and Iron Ore Market

Production Trends: 01 Foreword Key Findings the EU and North America Overview of the Global 02 Steel and Iron Ore Market Production Trends: Figure 3. Global steel consumption (%, 2020) The EU North America (US, , Mexico) the Global Market In Q4 2019, ArcelorMittal, USS Slovakia, North American steel plants were Arvedi, SSAB, Liberty, and Salzgitter also partially closed down due Production Trends: China (57%) in the EU reduced their steel production to a decline in orders in March 2020. China Other Asian countries (17%) volumes, which resulted in a drop in steel Average utilization rates were at 52 percent EU (7%) Production Trends: output by 5.4 percent in 2019. in H1 2020, and some companies are likely North America (7%) the EU and North America to be closed for most of the year. CIS (5%) The weakening of demand due Consumption Trends: (2%) the Global Market to COVID-19 has resulted in the closedown In January-August 2020, US steel output fell Other European countries (2%) of several plants. ArcelorMittal, Thyssenkrupp, by 19.8 percent YoY; regional steel production Consumption Trends: Middle East (2%) Liberty, SSAB, British Steel, Tata, and other will have reduced by 16 percent in 2020. China Africa (1%) steel makers have postponed restarting & New Zealand (<1%) Consumption Trends: blast furnaces, closed down , The year 2021 will see a recovery, with new the EU and North America or shut down blast . capacities being put into operation at , Steel Dynamics, and Big River Steel, although Prices of Raw Materials: In H1 2020, EU steel production dropped some of these have been postponed until Iron Ore by 18.7 percent YoY. A gradual output rebound 2023–2025. In addition, as demand for fuel Prices of Raw Materials: started in August-September, and according and power output will likely be weakening Coking Coal to EIU forecasts there will be a 16 percent steadily, full production recovery is not possible. Prices of Raw Materials: decrease in steel output at the end of 2020. Ferrous Scrap

Despite the recovery expected for Steel Prices 2021, certain highly indebted EU metals companies will struggle to survive. The Global Steel Trade Overview of the Russian 03 Steel and Iron Ore Market 04 Contacts

Source: Economist Intelligence Unit (EIU)

09 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Global Steel and Iron Ore Market

Consumption Trends: 01 Foreword Key Findings the Global Market Overview of the Global 02 Steel and Iron Ore Market Production Trends: Steel consumption grew by 4 percent Figure 4. Global steel consumption the Global Market and 3.9 percent in 2018 and 2019 respectively. Meanwhile, only China saw demand rise 1,492 1,552 1,613 1,627 1,591 1,611 1,723 1,791 1,862 1,782 1,893 1,983 Steel consumption (mln tonnes) Production Trends: China in 2019, while it remained at the 2018 level 6.9 Growth (%/ year-on-year) 6.5 6.2 in other countries, falling by 3 percent 4.0 Production Trends: year-on-year in EU countries against 3.9 3.9 the EU and North America the backdrop of the economic slowdown. 4.8 4.0 0.9 Consumption Trends: the Global Market According to EIU forecasts, demand for steel will contract by 4.9 percent in 2020. Depending 1.3 Consumption Trends: on the spread of COVID-19 and government China -2.2 support initiatives, demand will be weakening Consumption Trends: unevenly across the globe. Flattening demand -4.3 the EU and North America will be brought about by a sharp reduction in production and capital investments. Prices of Raw Materials: 2011 2012 2013 2017 2015 2019 2016 2014 2018 2021 2020 2022 Iron Ore Demand for steel started recovering Prices of Raw Materials: in H2 2020. If an effective coronavirus Figure 5. Steel supply and demand balance (mln tonnes) Coking Coal vaccine is successfully distributed by the end Prices of Raw Materials: of 2021, demand will continue growing Ferrous Scrap 1,983 in 2022 as a result of suppressed demand 1,988 Steel production 1,900 in 2020– 2022, the necessity of stock 1,893

1,862 Steel Prices 1,850 Steel consumption 1,796 1,791 1,799 replenishment, and government investments. 1,782 1,723 1,718 The Global Steel Trade Overview of the Russian 03 Steel and Iron Ore Market 2017 2018 2019 2020 2021 2022 04 Contacts

Source: Economist Intelligence Unit (EIU)

10 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Global Steel and Iron Ore Market

Consumption Trends: 01 Foreword Key Findings China Overview of the Global 02 Steel and Iron Ore Market Production Trends: Table 2a. Forecast steel production (%, year-on-year) In 2019, China accounted for 48 percent the Global Market of global steel consumption, while Asia 2019 2020 2021 2022 as a whole was responsible for 70 percent. Production Trends: Global consumption 3.9% -4.3% 6.2% 4.8% Among major steel consuming countries, China Asia 6.5% -0.1% 4.4% 4.3% the Chinese market showed the strongest Production Trends: China 9.0% 4.5% 3.1% 4.0% growth (+9 percent YoY) due to government the EU and North America support for the sector. Other Asian countries 1.2% -11.0% 7.8% 5.0% Consumption Trends: EU -3.0% -18.0% 11.0% 5.0% the Global Market The Chinese construction sector accounts North America -1.0% -17.0% 15.0% 7.0% for about two-thirds of the country’s steel Consumption Trends: CIS 1.0% -6.0% 4.5% 4.5% consumption. In Q1 2020, reduced private China investments in this segment were offset Consumption Trends: by the growth of state infrastructure the EU and North America Table 2b. Forecast steel consumption (mln tonnes) spending. China plans to support demand in the construction sector until private Prices of Raw Materials: 2019 2020 2021 2022 investments rebound in H2 2020. Iron Ore Global consumption 1,862 1,782 1,893 1,983 Prices of Raw Materials: Asia 1,296 1,294 1,350 1,408 The industry ( building, Coking Coal the automotive sector, household China 909 950 979 1,018 Prices of Raw Materials: appliances) accounts for one-third Other Asian countries 387 344 371 390 Ferrous Scrap of Chinese steel consumption. In Q1 2020 EU 166 136 151 159 these segments witnessed a recession, Steel Prices North America 149 124 142 152 followed by a subsequent rise in Q2 2020 CIS 40 38 40 41 as compared to 2019. The Global Steel Trade Overview of the Russian 03 In 2020, consumption growth Steel and Iron Ore Market in China will amount to 4.5 percent YoY (950 million tonnes), and the country’s share 04 Contacts in global consumption will be 53 percent.

Source: Economist Intelligence Unit (EIU)

11 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Global Steel and Iron Ore Market

Consumption Trends: 01 Foreword Key Findings the EU and North America Overview of the Global 02 Steel and Iron Ore Market Production Trends: Figure 6. Global steel consumption (%, 2020) The EU North America (US, Canada, Mexico) the Global Market In Europe, manufacturing accounts The US accounts for 75 percent of steel for approximately 60 percent of regional consumed in North America. According Production Trends: China (53%) steel consumption. This demand driver to the American Iron and Steel Institute China Other Asian countries (19%) has been in recession ever since 2019, (AISI), in 2018 43 percent of steel was used EU (8%) Production Trends: and the pandemic has only reinforced in the construction sector, 27 percent North America (7%) the EU and North America this trend. in the automotive sector, and 10 percent Middle East (4%) in the fuel and power complex. Slumping energy Consumption Trends: Africa (3%) the Global Market European output will be slowly recovering prices have affected direct investments and South America (2%) in H2 2020. Low business and consumer related construction business. Automotive Consumption Trends: CIS (2%) activity will have an on capital plants resumed operations only in the middle China Other European countries (2%) expenditure and sales. of May, after being closed down for six weeks. Australia & New Zealand (<1%) Consumption Trends: the EU and North America According to the EIU, a further 18% decline Canada and Mexico have been less affected is in store for steel demand in 2020. by COVID-19 than the US. Steel demand Prices of Raw Materials: In 2021, demand is expected to rebound in both countries will largely suffer Iron Ore by 11 percent; however, the aggregate figures from low energy prices, as the fuel and power Prices of Raw Materials: in the region will be below the 2019 level. complex is a major steel consumer. Coking Coal Prices of Raw Materials: Overall, the region will see a 17 percent Ferrous Scrap drop in demand. The Federal Reserve System is taking a number of measures Steel Prices to boost the economy, but their effect will only be perceivable in 2021. The Global Steel Trade Overview of the Russian 03 Steel and Iron Ore Market 04 Contacts

Source: Economist Intelligence Unit (EIU)

12 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Global Steel and Iron Ore Market

Prices of Raw Materials: 01 Foreword Key Findings Iron Ore Overview of the Global 02 Steel and Iron Ore Market Production Trends: Figure 7. Price of iron ore, USD/tonne, Despite the closing down of a number the Global Market 2019–2020 (iron ore fines, Fe 62% CFR, Tianjin, China) of integrated plants in Europe, Japan, and other countries, prices for iron ore (Fe 62% CFR, Production Trends: 76 87 86 93 99 109 120 91 93 90 85 92 92 86 88 84 92 103 109 123 126 China) were kept at above USD 80 per China 1 tonne in 2019. This is primarily attributable Production Trends: to high demand for iron ore in China the EU and North America and uncertainty around supply volumes. Consumption Trends: Due to the outbreak of COVID-19, may the Global Market be exposed to further output contraction Consumption Trends: in 2020, which has resulted in prices rising above China July 2019 July 2020 May 2019 May 2020 May June 2019 June 2020 June April 2019 April 2020 March 2019

March 2020 March USD 100 per 1 tonne, as the country accounts August 2019 August 2020 January 2019 January 2020 Consumption Trends: October 2019 February 2019 February 2020 for 18 percent of global iron ore exports. December 2019 December November 2019 November September 2019 September September 2020 September the EU and North America Source: Investing.com Iron ore production in , , Prices of Raw Materials: and Canada has also been affected Iron Ore Figure 8. Forecast price of iron ore, USD per tonne by coronavirus-related restrictions. Although Prices of Raw Materials: (iron ore fines, Fe 62% CFR, Tianjin, China) these countries account for 11 percent of global Coking Coal export, Chinese iron ore buyers cannot put Prices of Raw Materials: extremely reduced supply at risk as steel 58 72 70 94 94 85 74 69 Ferrous Scrap output remains high. Steel Prices Subject to further growth in Chinese steel production, iron ore prices will go The Global Steel Trade down to USD 90–100 by the end of 2020, Overview of the Russian 03 when supply partially rebounds. Steel and Iron Ore Market 2017 2019 2016 2018 2021 2020 2022 2023 04 Contacts Source: World Bank, CIBC’s consensus forecast (September 2020)

13 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Global Steel and Iron Ore Market

Prices of Raw Materials: 01 Foreword Key Findings Coking Coal Overview of the Global 02 Steel and Iron Ore Market Production Trends: Figure 9. Prices of premium-grade hard coking coal, USD/tonne, Deficits, growing demand from Chinese However, the beginning of April saw coking the Global Market 2018–2020 (FOB DBCT, Australia) metals companies, and supply disruptions coal prices plummet. Demand in major brought about by natural disasters in Asia Asian coking coal importing countries (other Production Trends: 228 189 188 221 206 203 161 139 155 117 136 149 and Australia kept prices at around USD 200 than China) decreased due to COVID-19. China per 1 tonne (FOB, Australia) in H1 2019. Meanwhile, Australia, as the key coking Production Trends: coal exporter, managed to ensure steady the EU and North America Prices started falling in H2 2019 against supplies. This resulted in supply exceeding the backdrop of stabilizing supply, as demand and lower prices: the price Consumption Trends: the Global Market as China’s policy of ensuring its own coal for premium-grade coking coal in Australia supplies and Australian coal import restrictions. in June went below USD 100 per tonne. Consumption Trends: 1Q 19 1Q 18 2Q 19 2Q 18 1Q 20 3Q 19 3Q 18 4Q 19 4Q 18 2Q 20 3Q 20 4Q 20 China Source: UMMC At the beginning of 2020, coking coal prices Consumption Trends: grew as a result of high demand in China the EU and North America and coal supply disruptions (the closing Figure 10. Forecast prices of premium-grade hard coking coal, of borders with Mongolia, a force majeure Prices of Raw Materials: USD/tonne, (FOB DBCT, Australia) event at the Moranbah North mine in January, Iron Ore the closing of major coal ports in Australia Prices of Raw Materials: 187 207 177 133 141 141 143 144 150 for three days in mid-March). Coking Coal Prices of Raw Materials: Ferrous Scrap

Steel Prices The Global Steel Trade 2017 2019 2018 2021 2024 2020 2025 2022 2023 Overview of the Russian 03 Source: UMMC Steel and Iron Ore Market 04 Contacts

14 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Global Steel and Iron Ore Market

Prices of Raw Materials: 01 Foreword Key Findings Ferrous Scrap Overview of the Global 02 Steel and Iron Ore Market Production Trends: Figure 11. Prices for ferrous scrap and iron ore, 2019– 2020, USD/tonne Scrap is a substitute for iron ore, the Global Market and these raw materials had similar price 289 320 321 310 299 289 295 282 238 239 262 295 289 271 251 245 247 261 262 284 300 trends, except for H1 2019. Production Trends: China In January-June 2019, iron ore prices grew Production Trends: compared to scrap prices as a result the EU and North America of the disaster at Corrego de Feijao ore mine in January 2019, after which Vale (Brazil) Consumption Trends: the Global Market 76 87 86 93 99 109 120 91 93 90 85 92 92 86 88 84 92 103 109 123 126 operated below its production capacity. Consumption Trends: In 2020, metals processing plants faced China high volatility of scrap prices. The 15% July 2019 July 2020 May 2019

May 2020 May Consumption Trends: June 2019 June 2020 June April 2019 April 2020 price reduction in H1 2020 was associated March 2019 March 2020 March August 2019 August 2020

January 2019 the EU and North America January 2020 October 2019 February 2019 February 2020 with a contraction in steel demand December 2019 December November 2019 November September 2019 September September 2020 September due to the pandemic. Prices grew Prices of Raw Materials: Source: Investing.com Price for ferrous scrap (Steel Scrap Futures, SSCc1) to USD 300 per tonne in September 2020, Iron Ore Price for iron ore (iron ore fines, Fe 62% CFR, Tianjin, China) and demand rebounded in Q3 2020. Prices of Raw Materials: Coking Coal Consolidation will be the key factor Prices of Raw Materials: on the ferrous scrap market in 2020–2021. Ferrous Scrap Continuous price depreciation during the year adversely affected the financial Steel Prices standing of many processing companies. They are currently looking for opportunities The Global Steel Trade for vertical integration in large steel Overview of the Russian 03 companies or consolidation with other Steel and Iron Ore Market ferrous scrap processing plants. 04 Contacts

15 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Global Steel and Iron Ore Market

Steel Prices 01 Foreword Key Findings Overview of the Global 02 Steel and Iron Ore Market Production Trends: Figure 12. Hot-rolled steel price In H1 2020, steel demand was falling the Global Market trends and forecast, USD/tonne, faster than supply, which resulted in price 2018–2022 (FOB EU export) deflation to USD 430 per tonne in Q2 2020. Production Trends: China 657 540 491 574 604 As restrictions were gradually Production Trends: removed in H2 2020, demand began the EU and North America to outstrip supply, which drove prices up to USD 510 per tonne in Q3 2020. Consumption Trends: the Global Market Due to the second wave of the COVID-19 Consumption Trends: pandemic, steel demand and prices China 2019 2018 2021 2020 2022 will likely display high volatility from Consumption Trends: Source: Economist Intelligence Unit (EIU) the end of 2020 through H1 2021. the EU and North America

In H2 2021, government incentives Prices of Raw Materials: will have a significant impact, Iron Ore and business confidence will rebound Prices of Raw Materials: due to the potential distribution of a vaccine, Coking Coal which may be followed by rapid price Prices of Raw Materials: growth and full recovery of global steel Ferrous Scrap output by the end of 2021. Steel Prices The Global Steel Trade Overview of the Russian 03 Steel and Iron Ore Market 04 Contacts

16 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Global Steel and Iron Ore Market

The Global Steel Trade 01 Foreword Key Findings China remains the world’s largest exporter, although its export figures show a downward trend for the second year in a row (by 5 million tonnes compared to 2018). Japan still comes second, Overview of the Global 02 with exports decreasing by 2.7 million tonnes. Russia has moved to fourth place and posted exports of 29.5 million tonnes. Steel and Iron Ore Market The top five steel importing markets have remained unchanged since 2018. The EU is the leader (-4.7 million tonnes compared to 2018), then comes the US (-3.6 million tonnes compared to 2018), Production Trends: followed by Germany (-3.5 million tonnes compared to 2018). China moved from ninth to seventh place on the 2019 rating. the Global Market Production Trends: Table 4. Table 3. Table 5. China Top 20 exporting countries Global steel trade Top 20 importing countries Production Trends: (2019, mln tonnes) (2019, mln tonnes) (2019, mln tonnes) the EU and North America

1 China 63.8 1 EU (1) 40.2 Consumption Trends: 2 Japan 33.1 2 US 27.1 the Global Market 3 South Korea 29.9 3 Germany (2) 23.1 Consumption Trends: 4 Russia 29.5 4 Italy (2) 20.1 China 5 EU (1) 27.8 5 Thailand 16.7 6 Germany (2) 24.1 EU Other European countries CIS North America America countries) (other Africa and Middle East China Japan Other Asian countries Oceania imports Total Non-regional imports 6 South Korea 16.4 Consumption Trends: 7 Turkey 19.7 EU 111.5 10.1 15.3 0.2 1.3 1 3.2 0.3 8.8 0.1 151.6 40.2 7 China 15.5 the EU and North America 8 Italy (2) 17.9 Other European countries 8.8 0.9 5.3 0 0.4 0.9 0.7 0.3 1.1 0 18.6 17.7 8 Vietnam 15.4 9 Belgium (2) 17.2 9 France (2) 14.5 Prices of Raw Materials: CIS 1.8 0.5 10.2 0 0 0 2.5 0.1 0.4 0 15.6 5.3 10 15.6 10 13.4 Iron Ore North America 6.3 0.6 1.7 15.8 7.6 1 1.6 2.9 7.7 0.4 45.6 29.8 11 France (2) 13.6 11 Mexico 13 Prices of Raw Materials: 12 India 13.4 America (other countries) 1.1 1.5 0.6 1.3 3.5 0 6.6 1.1 1.1 0 16.8 13.3 12 Belgium (2) 12.9 Coking Coal 13 Brazil 13.3 Africa 4.4 3.9 3.9 0.1 0.1 5.8 5.3 0.9 1 0 25.4 19.6 13 Turkey 12.4 Prices of Raw Materials: 14 Taiwan 11.2 Middle East 1.4 4.4 4.3 0.1 0.3 5.8 5.6 0.9 3.8 0.1 26.5 20.8 14 Poland (2) 10.9 15 Netherlands (2) 10.1 15 Spain (2) 10.1 Ferrous Scrap China 1.2 0 0.2 0.1 0.1 0.1 - 5 8.8 0 15.5 15.5 16 8.7 16 Netherlands (2) 9.7 Steel Prices 17 Spain (2) 8.7 Japan 0.1 0 0 0 0 0 1.3 - 5 0 6.5 6.5 17 India 8.9 18 US 7.3 Other Asian countries 2.4 1.7 7.5 0.3 1 5.6 36.3 21.4 34.7 0.5 111.3 76.6 18 7.4 The Global Steel Trade 19 Austria (2) 7 Oceania 0.3 0.2 0 0 0 0 0.8 0.2 1 0.2 2.6 2.4 19 Canada 7.3 20 Poland (2) 5.8 20 Taiwan 7.3 Overview of the Russian Total exports 139.3 23.7 49.1 18 14.3 20.1 63.8 33.1 73.3 1.3 436 247.7 03 Steel and Iron Ore Market Non-regional exports 27.8 22.8 38.8 2.2 10.8 8.6 63.8 33.1 38.7 1.1 247.7 Balance (export/import) -12.4 5.2 33.5 -27.6 -2.5 -31.9 48.3 26.7 -38 -1.3 04 Contacts

Source: World Steel Association (1) excluding intra-European trade (2) including intra-European trade

17 Overview of the Russian

01 Foreword Steel and Iron Ore Key Findings Overview of the Global 02 Market Steel and Iron Ore Market Overview of the Russian 03 Steel and Iron Ore Market Production Trends

Financial Performance of Leading Russian Steelmakers

Consumption Trends Exports of Ferrous Metals Imports of Ferrous Metals Key Industry Events Measures to Combat COVID-19 04 Contacts

18 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Russian Steel and Iron Ore Market

Production Trends 01 Foreword Key Findings Figure 13. products shipped (RUB billion) In 2019, steel output in Russia contracted Overview of the Global 02 by 0.6 percent (71.7 million tonnes), meaning Steel and Iron Ore Market 452 477 517 511 533 541 577 581 576 580 535 579 524 554 631 580 533 597 619 657 that by the end of 2019, Russia was the fifth Overview of the Russian largest steel producer globally, following 03 China, India, Japan, and the US. It accounted Steel and Iron Ore Market for approximately 4 percent of global output. Production Trends

In January-September 2020, steel production Financial Performance decreased by 2.9 percent YoY to 52.5 million of Leading Russian tonnes. Starting from April 2020, steel output Steelmakers July 2019 July 2020 May 2019 May 2020 May June 2019 June 2020 June April 2019 April 2020 March 2019 March 2020 March did not exceed 6 million tonnes per month. August 2019 August 2020 January 2019 January 2020 October 2019 Consumption Trends February 2019 February 2020 In 2020, the Russian Ministry of Economic December 2019 December November 2019 November September 2019 September Development expects metals production Source: Russian Federal State Statistics Service (RosStat) Exports of Ferrous Metals to have fallen by 3 percent year-on-year in comparable prices. Imports of Ferrous Metals Figure 14. Steel output, by month (mln tonnes) Key Industry Events In 2019, major Russian steel producers 6.2 5.7 6.1 5.8 6.3 6.1 6.1 5.8 5.8 5.8 5.7 6.2 6.3 5.8 6.1 5.7 5.8 5.6 5.8 5.6 5.9 presented their updated growth strategies Measures to Combat up to 2023, which provided for an increase COVID-19 in capital expenditure to expand and upgrade production capacities. Starting from 2021, 04 Contacts these investments will result in a rebound of Russian steel production. July 2019 July 2020 May 2019 May 2020 May June 2019 June 2020 June April 2019 April 2020 March 2019 March 2020 March August 2019 August 2020 January 2019 January 2020 October 2019 February 2019 February 2020 December 2019 December November 2019 November September 2019 September September 2020 September Source: World Steel Association

19 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Russian Steel and Iron Ore Market

Financial Performance 01 Foreword Key Findings of Leading Russian Steelmakers Overview of the Global 02 Steel and Iron Ore Market Overview of the Russian Figure 15. Steel output by leading steelmakers, For the nine months of 2020, NLMK, EVRAZ, 03 for nine months of 2019 and 2020, mln tonnes Severstal, MMK, Metalloinvest and Steel and Iron Ore Market had a total output of 45.4 tonnes, accounting Production Trends for 87 percent of domestic output for the period. 11.9 11.9 Financial Performance 10.4

10.2 9m 2019 9.1 9.4 of Leading Russian 8.5 The aggregate revenues of these companies 8.3 9m 2020 (excluding EVRAZ) for the nine months Steelmakers

3.7 3.6 of 2020 were USD 24 billion (-18 percent YoY), 2.8 2.7 Consumption Trends while EBITDA was USD 6.6 billion (-23 percent YoY). The EBITDA margin decreased by 2 pp Exports of Ferrous Metals NLMK EVRAZ Severstal MMK Metalloinvest Mechel to 27.4 percent. Imports of Ferrous Metals Source: Company data The lower revenues and EBITDA Key Industry Events were attributable to price deterioration Table 6. Financial performance of leading Russian steelmakers and weakening of demand in major countries Measures to Combat that consume Russian ferrous metals. COVID-19 Revenue, USD million EBITDA, USD million EBITDA margin The impact of these factors on profitability 04 Contacts H1 2019 H1 2020 9М 2019 9М 2020 H1 2019 H1 2020 9М 2019 9М 2020 H1 2019 H1 2020 9М 2019 9М 2020 was partially offset by a reduction in cost EVRAZ 6,140 4,983 n/a n/a 1,482 1,073 n/a n/a 24% 22% n/a n/a of sales due to the ruble depreciating. NLMK 5,666 4,631 8,242 6,860 1,430 1,176 2,084 1,755 25% 25% 25% 26% Severstal 4,208 3,367 6,319 5,242 1,416 1,056 2,203 1,712 34% 31% 35% 33% MMK 3,835 2,978 5,844 4,543 937 668 1,462 1,018 24% 22% 25% 22% Metalloinvest 3,584 3,075 5,328 4,572 1,410 1,059 2,115 1,632 39% 34% 40% 36% Mechel 2,353 1,901 3,404 2,720 466 318 686 435 20% 17% 20% 16%

Total 25,786 20,935 29,137* 23,937* 7,141 5,350 8,550* 6,552* 28% 26% 29%* 27%*

Source: Company data *) excluding EVRAZ

20 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Russian Steel and Iron Ore Market

Consumption Trends 01 Foreword Key Findings Figure 16. Russian Purchasing Managers Index (PMI) In 2019, Russia consumed 43.7 million Overview of the Global 02 tonnes of steel. In April-May 2020, Steel and Iron Ore Market 50.9 50.1 52.8 51.8 49.8 48.6 49.3 49.1 46.3 47.2 45.6 47.5 47.9 48.2 47.5 31.3 36.2 49.4 48.4 COVID‑19-related restrictions resulted Overview of the Russian in a significant decline in production activity. 03 Steel and Iron Ore Market According to World Steel Association Production Trends forecasts, in 2020 consumption is expected to contract to 40 million tonnes Financial Performance (by 8.5 percent YoY), which is attributable of Leading Russian to low business activity caused by the pandemic. Steelmakers July 2019 July 2020 May 2019 May 2020 May June 2019 June 2020 June April 2019 April 2020 March 2019 March 2020 March August 2019 January 2019 January 2020 October 2019 Consumption Trends February 2019 February 2020 The construction sector accounts December 2019 December November 2019 November September 2019 September for about 70 percent of domestic demand Source: Markit Economics Exports of Ferrous Metals for ferrous metals in Russia. In H1 2020, construction activities shrank by 0.5 percent Imports of Ferrous Metals Figure 17. Ferrous metals consumption in Russia, million tonnes in comparable prices. Key Industry Events 42.8 43.3 43.1 39.8 38.7 40.9 41.2 43.7 40.0 42.0 Another major demand driver — Measures to Combat the manufacturing industry — is expected COVID-19 to reduce its output by 1.5 percent YoY in 2020. 04 Contacts According to the baseline scenario, starting from 2021 ferrous metals consumption will be fueled by the accelerated 2012 2013 2017 2015 2019 2016 2014 2018 2021 2020 implementation of national infrastructure Source: World Steel Association and residential construction initiatives, which will drive demand up to 42 million tonnes.

If strict quarantine measures are re‑introduced, ferrous metals consumption will only rebound in 2022.

21 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Russian Steel and Iron Ore Market

Exports of Ferrous Metals 01 Foreword Key Findings In H1 2020, flat-rolled product exports grew by 8 percent in volume terms, while falling In H1 2020, exports of products grew by 31 percent by volume compared Overview of the Global 02 by 11 percent in value terms compared to the same period of 2019, amounting to 3.7 million to the same period of 2019 and 45 percent by value, amounting to 1.2 million Steel and Iron Ore Market tonnes (USD 1.7 billion). Major importers of Russian flat-rolled products by value tonnes (USD 1.2 billion). Major importers of Russian pipes included Uzbekistan Overview of the Russian were Turkey (806,000 tonnes), Belarus (310,000 tonnes), and Poland (286,000 tonnes). (234,000 tonnes), (209,000 tonnes), and Bulgaria (180,000 tonnes). 03 Steel and Iron Ore Market Figure 18. Exports of Russian flat-rolled products Figure 19. Exports of Russian pipes Production Trends 1,737 1,705 1,774 1,731 1,538 2,191 404 506 669 524 501 694 Financial Performance Weight (‘000 tonnes) Weight (‘000 tonnes) of Leading Russian Value (USD mln) Value (USD mln) Steelmakers

Consumption Trends

971 973 977 863 748 979 351 477 690 565 490 707 Exports of Ferrous Metals

Q1 Q2 Q3 Q4 Q1 Q2 Source: Russian Federal Customs Service Q1 Q2 Q3 Q4 Q1 Q2 Source: Russian Federal Customs Service Imports of Ferrous Metals

2019 2020 2019 2020 Key Industry Events

Table 7. Exports of Russian flat-rolled products by country Table 8. Exports of Russian pipes by country Measures to Combat COVID-19 Value (USD mln) Weight (‘000 tonnes) Value (USD mln) Weight (‘000 tonnes) 04 Contacts H1 2019 H1 2020 H1 2019 H1 2020 H1 2019 H1 2020 H1 2019 H1 2020 Turkey 435 319 905 806 Uzbekistan 41 287 38 234 Belarus 192 184 283 310 Bulgaria 7 202 8 180 Uzbekistan 207 166 290 249 Kazakhstan 261 162 278 209 Poland 171 122 308 286 Turkmenistan 7 121 6 96 Latvia 148 115 243 210 Belarus 102 98 120 131 Kazakhstan 122 113 182 194 India 12 49 1 22 Vietnam 62 85 127 240 0 43 0 1 Italy 55 74 116 191 US 155 41 169 56 France 30 51 57 119 Azerbaijan 36 24 44 34 Belgium 6 45 12 105 Algeria 0 16 0 13

Source: Russian Federal Customs Service (TNVED 7208, 7209, 7210, 7211, 7212) Source: Russian Federal Customs Service (TNVED 7303, 7304, 7305, 7306)

22 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Russian Steel and Iron Ore Market

Imports of Ferrous Metals 01 Foreword Key Findings In H1 2020, imports of flat-rolled products decreased by 21 percent in volume terms Imports of pipes in H1 2020 decreased by 52 percent by volume compared Overview of the Global 02 and 31 percent in value terms compared to the same period of 2019, amounting to the same period of 2019 and 35 percent by value, amounting to 234,000 tonnes Steel and Iron Ore Market to 1.2 million tonnes (USD 730 million). (USD 437 million). Overview of the Russian 03 Figure 20. Imports of flat-rolled products Figure 21. Imports of pipes Steel and Iron Ore Market

568 1,005 782 682 564 672 263 408 442 269 231 206 Production Trends Weight (‘000 tonnes) Weight (‘000 tonnes) Financial Performance Value (USD mln) Value (USD mln) of Leading Russian Steelmakers

Consumption Trends 384 676 552 424 341 389 148 344 386 151 114 120 Exports of Ferrous Metals Q1 Q2 Q3 Q4 Q1 Q2 Source: Russian Federal Customs Service Q1 Q2 Q3 Q4 Q1 Q2 Source: Russian Federal Customs Service Imports of Ferrous Metals 2019 2020 2019 2020 Key Industry Events Table 9. Imports of flat-rolled products by country Table 10. Imports of pipes by country Measures to Combat Value (USD mln) Weight (‘000 tonnes) Value (USD mln) Weight (‘000 tonnes) COVID-19 H1 2019 H1 2020 H1 2019 H1 2020 H1 2019 H1 2020 H1 2019 H1 2020 04 Contacts Kazakhstan 376 306 635 601 China 172 134 79 71 Ukraine 264 150 483 331 Kazakhstan 89 51 90 63 China 181 81 240 101 Japan 28 28 11 10 South Korea 83 67 84 70 Spain 4 25 1 2 Germany 47 37 41 35 Belarus 34 25 37 33 Belgium 31 19 29 21 Italy 25 22 8 6 Italy 6 15 2 10 Germany 26 22 4 5 13 9 10 8 Mexico 4 18 1 2 Slovakia 9 9 8 8 Argentina 8 10 3 5 France 11 9 10 9 Ukraine 26 10 12 4

Source: Russian Federal Customs Service (TNVED 7208, 7209, 7210, 7211, 7212) Source: Russian Federal Customs Service (TNVED 7303, 7304, 7305, 7306)

23 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Russian Steel and Iron Ore Market

Key Industry Events 01 Foreword Key Findings Overview of the Global 02 Steel and Iron Ore Market Mechel announces the sale of the Elginsky coal mine TMK completes a deal to acquire OOO Parus Metalloinvest launches a bar-rolling at OEMK Overview of the Russian and finishes restructuring its state bank loans TMK has finalized a deal to acquire a 100% participation The bar-rolling mill will produce about 43,000 tonnes 03 Pursuant to an agreement, Mechel sold its 51 percent interest in OOO Parus, a metals company. of rolled steel grinding balls annually to meet the needs Steel and Iron Ore Market ownership interest in OOO Elgaugol, OOO Elga-doroga, of Metalloinvest’s entities. The project also envisions Production Trends and OOO Mechel Trans Vostok to OOO A-Property. The company consist of and rolling the production and shipment of new products to third parties. The deal was worth RUB 89 billion, including a premium facilities that produce rolled steel with a capacity Financial Performance for the controlling interest; the buyer has also fully repaid of over 300,000 tonnes per year. The core business The construction of the bar-rolling mill began in September of Leading Russian Mechel’s obligations to State Development Corporation VEB. is fittings and continuous cast billet for rerolling. 2019. Metalloinvest invested about RUB 1 billion in the project. Steelmakers RF, which amounted to USD 107 million. The company has demonstrated stable operational Consumption Trends and financial performance, with its share of the Russian Simultaneously, Mechel signed an agreement fittings market being at 4 percent since 2016. Exports of Ferrous Metals on debt restructuring with Gazprombank and VTB Bank. Under the terms of these agreements, revenues from Imports of Ferrous Metals selling the 51 percent interest in the Elginsky coal mine Key Industry Events should be used to repay debt obligations to these two banks pro rata to their shares in the Mechel Group’s debt. Measures to Combat COVID-19 04 Contacts

Source: Interfax 24 Overview of the Steel and Iron Ore Market, December 2020 | Overview of the Russian Steel and Iron Ore Market

Measures to Combat COVID-19 01 Foreword Key Findings Overview of the Global 02 Steel and Iron Ore Market EVRAZ supports the construction of an infectious MMK imposes strict measures to combat COVID-19 Metalloinvest allocates RUB 550 million to support Overview of the Russian disease hospital in Novokuznetsk Preventive measures primarily include wearing face masks the public health service of the Orenburg Region 03 EVRAZ has allocated RUB 200 million to the construction when going to and from work. Metalloinvest is supplying medical organizations in the Orenburg Steel and Iron Ore Market of a municipal infectious disease hospital in Novokuznetsk, Region with hi-tech equipment, personal protective equipment Production Trends as well as supplying rolled metals for the project. “We have supplied employees with safety equipment for medical staff, and medicines for a total of RUB 550 million. and insist on their strict compliance with the rules, which have Financial Performance In June-August, EMI’s Novokuznetsk branch shipped been clearly defined and communicated to staff members. Overall, Metalloinvest has purchased six CT scanners, three of Leading Russian over 400 tonnes of shaped bars and long products produced This process is now being monitored at entrance checkpoints”, diagnostics labs, 82 artificial lung ventilation units, blood gas Steelmakers by EVRAZ ZSMK and EVRAZ NTMK. These included fittings, noted Pavel Shilyaev, General Director of PJSC MMK. analysis units, concentrators, ECG units, defibrillators, Consumption Trends INP beams, angles, and channels. They plan to ship about 400 cardiostimulators, observation beds and carts, more tonnes of rolled metals in September, primarily fittings. According to him, social distancing is also of great importance. biosafety cabinets, air sanitizers, personal protective Exports of Ferrous Metals Traffic routes at MMK are designed to minimize how equipment for medical staff, and other medical equipment. The construction of the hospital will be finished often staff cross paths, with access to premises clearly Imports of Ferrous Metals by year end: modern frame and panel will reduce demarcated. The company has also imposed measures Key Industry Events the construction timeline by several times as compared to reduce the number of relocations, inspections, meetings, to traditional methods. The clinical complex will include and meeting participants. Wearing face masks is obligatory. Measures to Combat a main four-storey building and 10 auxiliary buildings, COVID-19 with a total area of 27,800 square meters. The new medical establishment will replace Municipal Hospital No. 8. 04 Contacts

Source: Company data 25 Contacts 01 Foreword Key Findings Overview of the Global 02 Steel and Iron Ore Market Andrew Sedov Vitaly Mikhalchuk Overview of the Russian Partner, Leader Research Projects 03 Steel and Iron Ore Market of the Metals Group Leader at the Deloitte CIS Research Center [email protected] 04 Contacts [email protected]

Kamilla Zhalilova Daniil Shelomentsev Head of the Project Office Junior Specialist at the Deloitte for Key Clients and Markets CIS Research Center [email protected] [email protected]

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