Overview of the steel

and iron ore market

Deloitte CIS Research Center
Moscow, H1 2019
Contents
01 Foreword
Key findings

Foreword 4 Overview of the global

02
iron and steel market
01
Key findings 5
Overview of the Russian
03
iron and steel market
Overview of the global iron and steel market 6
02 Production trends 7 04 Contacts
Consumption trends 9
Raw material price trends 11
Steel prices trends 14

Overview of the Russian iron and steel market 15

03 Production trends 16
Consumption trends 18
Exports of ferrous metals 19
Imports of ferrous metals 20
Digitalization in metals companies 21

04 Contacts 24

03
03
Foreword
01 Foreword
Key findings

Overview of the global

02
iron and steel market
We are pleased to present you Key topics of this project are:
with  the full version of our analytical Overview of the Russian
•• Overview of the global iron and steel market; 03
report. As the first issue in 2019, iron and steel market
this report will provide preliminary data •• Overview of the Russian iron and steel market;
for 2018 and expert forecasts for 2019.
•• Digitalization in Russian metals companies. 04 Contacts
The key findings of our research will be
published by leading Russian media outlets.

Andrey Sedov We have published this report

Partner every year since 2015 with the aim
Leader of the Metals group of providing a comprehensive study
in Deloitte, CIS on the metals industry.

Please feel free to contact us if you have

any questions regarding this report.

04
04
Key findings
In 2018:
•• Global steel production rose 4.9 percent
to 1.803 billion tonnes;
•• Global steel consumption increased
4.0 percent to 1.792 billion tonnes.
The increase in output was driven
by China, where production rose
by 7.8 percent (compared to 1.9 percent
for the rest of the world).
05
According to forecasts, steel prices will drop
in 2019, leading to a decline in production
growth rates from 4.9 to 1.3 percent.
At the same time, demand for steel
will increase this year, although at a more
modest rate of 1 percent.
Prices for raw materials reached their
multi-year highs in 2018. This was fueled
by a number of factors, including trade
disputes, the reduction in steel capacity
in China and various environmental disasters
that occurred during the year.
Russia produced 71.3 million tonnes
of steel in 2018. EVRAZ, NMLK, Severstal,
MMK, Metalloinvest and Mechel had
combined output of 64.1 million tonnes
of steel or 89 percent of Russian steel
production in 2018.
01 Foreword
Key findings
Overview of the global
02
EVRAZ posted the highest EBITDA iron and steel market
among Russia’s leading metals companies.
Overview of the Russian
03
iron and steel market
In monetary terms, Russian imports of rolled
steel were up 2 percent while imports
of pipe products in 2018 compared to 2017 04 Contacts
did not change. In physical terms imports
of rolled steel and pipe products fell
by 4 percent and 22 percent respectively.
Exports of rolled steel rose 10 percent
in monetary terms despite falling
3 percent in physical terms.
The value of pipe product exports were
up 26 percent and volumes rose 15 percent.
05
Overview of the global
iron and steel market 01 Foreword
Key findings

Overview of the global

02
iron and steel market
Production trends
Consumption trends
Raw material price trends
Steel price trends

Overview of the Russian

03
iron and steel market

04 Contacts

06
Overview of the steel and iron ore market |
 Overview of the global iron and steel market

Production trends
01 Foreword
Key findings
According to preliminary data from the World Steel Association (WSA), Asia
global production rose 4.9 percent to 1.803 billion tonnes in 2018. High prices fueled a 7.8 percent increase Overview of the global
02
This growth was mainly due to a 7.8 percent increase in Chinese output in Chinese steel production in 2018. Preliminary
iron and steel market
(compared to 1.9 percent growth for the rest of the world). forecasts for 2019 suggest that output Production trends
growth in China will slow to 1.5 percent
Global production rose 3.8% in the first two months of 2019, also principally in 2019, reflecting decreasing demand Consumption trends
driven by rising Chinese output, which has been fueled by a government program for steel from the construction industry
Raw material price trends
to stimulate domestic demand. Production in the US also grew – by 6.9 percent – and a reduction in inventories amid lower prices.
while in the rest of the world it fell 2 percent in the first two months of 2019. Steel price trends
Experts from the Economist Intelligence Unit (EIU) are expecting a decline Steel production in Asia (excluding China)
in steel prices in 2019, which it believes will lead to production growth slowing rose 2.1 percent in 2018, boosted by reduced Overview of the Russian
03
to 1.3 percent. The EIU is forecasting a 0.9% fall in global production in 2020. Chinese exports, allowing other producers iron and steel market
such as Vietnam and Malaysia (both of which
launched new capacity in 2018) to capture
Figure 1. Global steel output market share. Steel output in India increased
04 Contacts
by 5 percent in 2018 and replaced Japan
1,433 1,538 1,560 1,650 1,669 1,620 1,627 1,718 1,803 1,827 1,811 as the world’s second largest steel producer.
Japanese production fell 0.3 percent.
7.3
5.8 5.6 4.9
Steel output in Asia (excluding China)
1.4 1.2 0.4
is expected to grow 2.5 percent in 2019 amid
1.3
-0.9
a regional slowdown in economic growth and fall
-2.9 1.5 percent in 2020 as Chinese exports pick
up again, putting pressure on local production.

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F

Steel production (mln tonnes)

Growth (%)

Source: EIU and WSA data

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07
Overview of the steel and iron ore market |
 Overview of the global iron and steel market

Production trends
01 Foreword
Key findings
Figure 2. Steel output growth*, by month North America European Union
(mln tonnes) Regional output rose 3.9 percent in 2018, In July 2018, the European Commission Overview of the global
02
with growth of 6.2 percent in the US announced the introduction of tariff quotas iron and steel market
155 156 offsetting a decline in Canada and stable on 26 types of steel goods to protect
149 149
152 154 151 151 150 Production trends
145 147 production in Mexico. the domestic market. In January 2019,
132 these restrictions were extended until July 2021. Consumption trends
145 143 146 144 145
143 142 142 Steel producers in the US ramped up The quota has been set at the average
138 137 138 Raw material price trends
127 capacity utilization as prices and margins level of imports over the past three years,
improved for US metals companies. plus 5 percent. A 25 percent tariff applies Steel price trends
This may lead to an increase in inventories on anything above this. However, this move
January

February

March

April

May

June

July

August

September

October

November

December
by mid-2019, which alongside limited capacity does not represent an abrupt tightening Overview of the Russian
03
and the weakening effect of rising interest of supply and demand in Europe, as the annual iron and steel market
rates, could result in reduced demand. quota for most products is set at the 2017
2018 2017
Nonetheless, experts are forecasting that import level, plus/minus 10 percent.
output will continue to grow in North America:
04 Contacts
by 3 percent in 2019 and 1 percent in 2020. Output in the EU declined 0.3 percent
Figure 3. Steel output by region year‑on-year in the second half of 2018 against
(%, 2018) In the longer term, American steelmakers the backdrop of low production volumes
are potentially considering expanding over the summer month and a weakening
China (51%) investment in new capacity, as the tariffs economy. Despite minor consumption growth,
Other Asian countries (19%) imposed by the US administration in March falling rolled steel exports to Algeria and North
EU (9%) 2018 look increasingly likely to remain in place. America was a blow to production. Amid this
North America (7%) weakening demand, the EIU forecasts that steel
CIS (6%) production in the EU will decline 1 percent
South America (2%) in 2019, falling a further 1.5 percent in 2020.
Other European countries (2%)
Middle East (2%)
Africa (1%)
Australia & New Zealand (<1%)

* WSA compiles data for 64 steel-producing countries

Source: World Steel Association, EIU

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Overview of the steel and iron ore market |
 Overview of the global iron and steel market

Consumption trends
01 Foreword
Key findings
EIU figures show that global steel consumption rose 4% to 1.792 billion tonnes Asia
in 2018. China accounts for 48 percent of global In Asia (excluding China), steel demand rose Overview of the global
02
steel consumption while Asia as a whole by around 4 percent in 2018. Forecasts expect iron and steel market
There is stable consumption growth in North America and emerging is responsible for 68%, meaning that the region demand in the region to rise by an average Production trends
markets in Asia. Despite the economic slowdown, Chinese demand plays a pivotal role for the entire steel market. of 1.5 percent in 2019–2020. Regional
for steel demonstrated significant growth, up 5.5 percent. demand may also be dampened by the trade Consumption trends
Chinese demand for crude steel is estimated dispute between the US and China, although
Raw material price trends
After two years of rising steel consumption, faltering global economic to have risen 5.5 percent in 2018 although this will be offset by the ongoing expansion
growth, rising interest rates, lending restrictions in China, trade disputes consumption tailed off in the second half of production capacity in the region. Steel price trends
and a cyclical slowdown in the automobile sector in developed markets of the year as construction activity declined.
are set to slow down global consumption in 2019. Macroeconomic trends in the Chinese Steel consumption in India increased Overview of the Russian
03
economy have also had negative impact by around 7.5 percent in 2018, resulting iron and steel market
However, steel consumption is still forecast to increase in 2019, although on consumption and will continue to for some in declining exports and rising imports.
at a slower rate of 1 percent. Flagging global trade and debt problems time. Even though China’s economic growth India has one of the fastest growing steel
in emerging markets will cause a 0.4 percent decline in steel demand in 2020. remains relatively stable, fixed capital markets in the world. High steel consumption
04 Contacts
investments in China dropped 5.3 percent will likely be maintained over the next two
in August 5.8%, compared to 7.2% and 8.1% years, sustained by lower interest rates, which
Figure 4. Global steel consumption in August 2016 and 2017 respectively. The trade will in turn stimulate capital investment and
standoff between the US and China is stifling consumer spending. Infrastructure projects
1,401 1,492 1,552 1,613 1,627 1,591 1,611 1,723 1,792 1,810 1,802 manufacturing exports and poses a further such as the Bharatmala road and highways
6.9 problem for consumption. To make matters initiative, the Sagalmala logistics improvement
6.5
worse, Chinese industrial production fell program, the electrification of railway lines,
4.0 4.0
3.9 5.3 percent year-on-year. An overall tightening dedicated freight corridors and the production
1.3 of metro rails will also boost demand.
0.9
of lending to the residential and infrastructure
1.0
-0.4 construction sector will further suppress
-2.2 Chinese demand for steel in 2019–2020.
Given the above mentioned challenges,
the EIU believes that steel consumption
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F will increase by just 1 percent in 2019, followed
Steel production (mln tonnes)
by a slight decline in 2020 due to weakening
trade in manufactured goods and domestic
Growth (%)
restrictions on capital investments.

Source: World Steel Association, EIU, steelland.ru

09
09
Overview of the steel and iron ore market |
 Overview of the global iron and steel market
Consumption trends
Middle East and Turkey
The partial recovery of world oil prices
in 2018, despite declines towards the end
of the year, has enabled increased spending
by governments and private oil companies
in oil-exporting countries. Demand for steel
in Persian Gulf countries such as Saudi Arabia,
which plummeted 30 percent following
the sharp decline in commodity prices,
should recover in 2019–2020, but this recovery
may be constrained by internal problems
in specific countries. Oil prices have not
recovered sufficiently to allow countries
such as Oman and Saudi Arabia to balance
their budgets, resulting in comparatively
low spending on infrastructure.
Figure 5. Global steel consumption by region (%, 2018)
China (47%)
Other Asian countries (21%)
EU (10%)
North America (8%)
Middle East (4%)
Source: World Steel Association, EIU
10
Steel consumption in Turkey totaled
over 30 million tonnes in 2018. The country
is a major steel producer, accounting
for over 20 percent of interregional trade
of ferrous scrap. The sharp rise in interest
rates in the second half of 2018 was a major
blow to the construction industry and will
depress demand in 2019–2020. Turkish steel
output dropped 16 percent year‑on‑year
in January–February 2019 as a number
of steel mills shut down production due to lack
of demand. The situation is likely to get worse
as the government has halted new capital
projects and put projects that have already
started on hold, which will hurt steel demand.
The situation in Turkey is exacerbated by the loss
of key export markets in the US and Europe
as a consequence of trade protectionism.
South America (3%)
CIS (2%)
Africa (3%)
Other European countries (2%)
Australia & New Zealand (<1%)
North America
According to preliminary estimates, North
American steel consumption increased
4 percent in 2018. Rising consumption
was buoyed by a boom in the energy sector,
an increase in capital investment and high
consumer spending. However, these factors
are likely to have a more muted impact
in 2019. Car sales are expected to drop while
higher interest rates will stunt activity in both
residential and non-residential construction.
Higher prices will push down US steel demand
from the manufacturing industry, which
(where possible), will look to switch to foreign
steel goods, as tariffs push US prices above
those on the global market. EIU experts are
therefore forecasting a rise in consumption
of around 2 percent in 2019, and a small
decline in 2020 due to falling trade and weak
figures from the manufacturing sector.
01 Foreword
Key findings
European Union
European carmakers scaled down production Overview of the global
02
in the last quarter of 2018 and reduced iron and steel market
their steel orders. There are other factors Production trends
stifling steel consumption. The trade dispute
between the US and China has already had Consumption trends
an impact on German industrial production
Raw material price trends
as demand for high-cost goods has fallen.
There is a risk that if the EU-US trade conflict Steel price trends
goes on to affect the auto trade, this could
have an additional adverse impact on steel Overview of the Russian
03
consumption in the EU. The fastest growing iron and steel market
demand in the EU is concentrated in Central
Europe, where spending on infrastructure
and the relocation of production are 04 Contacts
bolstering demand for steel. However,
a revision of the EU budget (excluding the UK),
could reduce spending on infrastructure
projects. A hard Brexit could aggravate this.
Experts are therefore forecasting a 20 percent
drop in consumption in the EU in 2019 followed
by a small increase of 1 percent in 2020.
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Overview of the steel and iron ore market |
 Overview of the global iron and steel market

Raw material price trends

01 Foreword
Key findings
Figure 6. Price of iron ore, USD per tonne, 2018–2019 Prices for raw materials reached their The EIU’s initial forecast said that iron ore
(Fe 62% CFR, Tianjin, China) multi-year highs in 2018. This was fueled will trade between USD 45–70 per tonne Overview of the global
02
by a number of factors, including trade in 2019–2020. However, the loss of a significant iron and steel market
94
90 86 disputes, the reduction in steel capacity part of iron ore supply will keep the market Production trends
78 78 75 in China and various environmental disasters on edge, especially in the first half
75 73
65 67 67
69 72 70 that occurred during the year. At the start of 2019, and as a result, the forecast has Consumption trends
64 63
of 2019 the majority of experts were forecasting been changed to over USD 80 per tonne.
Raw material price trends
a decline in prices for steel, iron ore and coal. Prices will return to the initial forecast
However, in late January, a dam collapsed range by late 2019–early 2020. Steel price trends
January 2018

February 2018

March 2018

April 2018

May 2018

June 2018

July 2018

August 2018

September 2018

October 2018

November 2018

December 2018

January 2019

February 2019

March 2019

April 2019
at Vale’s Córrego do Feijão mine in Southern
Brazil, killing over 200 people and triggering Overview of the Russian
03
the closure of all upstream dams. Regulators iron and steel market
also temporarily halted the operation
of Brucutu mine in South-Eastern Brazil, with
annual capacity of 30 million tonnes, to conduct 04 Contacts
inspections. Due to the fact that other
mines may be closed for safety reasons,
iron ore production is expected to decline
by about 50 million tonnes in 2019. The price
of iron ore rose to USD 90 per tonne after
Vale declared a force majeure event. However,
other producers are expected to increase
supply in 2019. For example, Anglo American
(UK/South Africa) is reopening its mine in Brazil
with capacity of 26 million tonnes per year that
had been mothballed for the majority of 2018
due to leaks in a pipeline. Spot deliveries from
suppliers in Eastern Canada, North and West
Africa, Iran, South East Asia and the West coast
of South America may also increase. Any price
increase to over USD 100 per tonne will likely
lead to a wide-ranging restart of vacant capacity
in China, which would quickly drive down prices.

Source: EIU, The Steel Index S&P Platts

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Overview of the steel and iron ore market |
 Overview of the global iron and steel market

Raw material price trends

01 Foreword
Key findings
Figure 7. Coking coal, USD per tonne, 2018–2019 Prices for coking coal traded at around
(FOB, Australia) USD 200 per tonne in 2018. This is significantly Overview of the global
02
above marginal costs; even though prices iron and steel market
245 have periodically dropped to USD 175
225 233
226
Production trends
217 222 per tonne, they have then risen again
214
189 201 203 204 Consumption trends
197 191 185
193 due to multiple operational failures.
183
Raw material price trends
For example, a dispute between
the Queensland coal regulator and the railway Steel price trends
January 2018

February 2018

March 2018

April 2018

May 2018

June 2018

July 2018

August 2018

September 2018

October 2018

November 2018

December 2018

January 2019

February 2019

March 2019

April 2019
freight hauler Aurizon disrupted rail
deliveries from mines to Australian ports Overview of the Russian
03
in the second and third quarters of 2018. iron and steel market
A fire a the Peabody mine in North Goonyella
forced Australia to declare a force majeure
event and a fire at a mine in Shandong 04 Contacts
Figure 8. Coking coal, USD per tonne, Province, China, triggered safety inspections.
consensus forecast up to 2024 The interruptions are continuing into 2019:
Port Dalian restricted imports of Australian
160 160 coal, supposedly for ecological reasons,
145 but more likely in a politically-motivated move.
137 137
132 133
Barring further shocks in supply
(which cannot be completely ruled out),
prices are forecast to return to the long‑term
Q3 2019

Q4 2019

2020

2021

2022

2023

2024

forecast of USD 125–160 per tonne; however,

the deficit, consistently very strong Chinese
production volumes and the spectre
of future weather-related disruptions
could keep prices at USD 200 per tonne
FOB for the first half of 2019.

Source: EIU, The Steel Index S&P Platts, MetalBulletin

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Overview of the steel and iron ore market |
 Overview of the global iron and steel market

Raw material price trends

01 Foreword
Key findings
Figure 9. Ferrous scrap, USD per tonne, 2018–2019 Prices for ferrous scrap changed The US is also a major consumer of scrap,
(Steel Scrap Futures – (SSCc1)) in line with global trends and depended and in contrast to Turkey, has ramped Overview of the global
02
on the market situation. up imports to over 5 million tonnes, iron and steel market
369 376 an all‑time record for the country. This was
354 351 352
Production trends
347 344 Prices for steel and steel products grew mainly due to the 25% duty slapped on steel.
319 328 334 327 323
316 313 Consumption trends
301 284 following the Vale disaster in Brazil in early The US exported 17.33 million tonnes of scrap,
2019. This also affected prices for scrap a 15.7 percent increase on the previous
Raw material price trends
metal; however, they began declining year. These exports were worth around
in late February–early March. USD 5.9 billion, up 21.2 percent year‑on‑year. Steel price trends
January 2018

February 2018

March 2018

April 2018

May 2018

June 2018

July 2018

August 2018

September 2018

October 2018

November 2018

December 2018

January 2019

February 2019

March 2019

April 2019
The situation on the ferrous scrap
market is largely dependent on trade
relations between the US and Turkey,
which are the world’s largest exporters
and importers of iron and steel scrap.
Turkey exported 3.43 million tonnes
of scrap, down 5.6 percent year-on-year. Overview of the Russian
03
The US exported 1.97 million tonnes to Taiwan, iron and steel market
1.83 million tonnes to Mexico, 1.41 million
tonnes to Canada and 1.02 million tonnes
to Vietnam.
04 Contacts

Turkish scrap imports fell 1.5% to 20.7 million
tonnes. The value of imports reached
USD 7.1 billion, up 16.3 percent year-on‑year.
A total of 3.7 million tonnes of scrap was
imported from the US, a 2.45 percent
decline on the previous year. Scrap imports
from the UK dropped 16.72 percent
and totaled 2.6 million tonnes.
Price volatility for metals is expected
on the US market over the coming year
as potential price declines in Turkey could lead
scrap consumers to switch to Turkish
goods, in turn lowering prices in the US.

Source: EIU, The Steel Index S&P Platts, metalinfo

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Overview of the steel and iron ore market |
 Overview of the global iron and steel market

Steel prices trends

01 Foreword
Key findings
Figure 10. Prices for hot-rolled steel, USD per tonne, 2018–2019 Production of hot-rolled steel remained high
(CIS exports, FOB Black Sea) in China in the last two months of 2018, driving Overview of the global
02
prices down by an average of USD 50 per tonne iron and steel market
615 in the last six weeks of the year. After trading
574 586 598
568
Production trends
553 566 564 538 within a narrow range of around USD 570
526 518
487 466
496 499
per tonne for most of 2018, prices slumped Consumption trends
452
to a low of USD 450 per tonne by January
Raw material price trends
2019. The replenishment of inventories
after the Chinese New Year pushed prices Steel price trends
January 2018

February 2018

March 2018

April 2018

May 2018

June 2018

July 2018

August 2018

September 2018

October 2018

November 2018

December 2018

January 2019

February 2019

March 2019

April 2019
up by more than USD 50 to USD 525 per tonne.
However, prices will started dipped again Overview of the Russian
03
at the end of the second quarter amid faltering iron and steel market
demand in China, and is expected to hit
new lows in the second half of 2019.
04 Contacts
A number of suppliers from the emerging
markets – the CIS countries, India
and Brazil – were able to gain a market
share in 2018 due to rising prices in China.
When prices in China fell, these exporters
were forced to cut their prices in order
to hold onto their market share as domestic
demand in these countries is very weak.

Forecast prices are under pressure from

US trade policy and changes in Chinese
policy (including a reduction in the number
of working days at coal mines in 2016
and the closure of induction furnaces in 2017).
These factors will continue to have an impact
on steel prices in 2019–2020.

Source: EIU, MetalBulletin

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Overview of the Russian
iron and steel market 01 Foreword
Key findings

Overview of the global

02
iron and steel market

Overview of the Russian

03
iron and steel market
Production trends
Consumption trends
Exports of ferrous metals
Imports of ferrous metals
Digitalization
in metals companies

04 Contacts

15
Overview of the steel and iron ore market |
 Overview of the Russian iron and steel market

Production trends
01 Foreword
Key findings
According to preliminary figures published by the World Steel Association, Russia produced 71.7 million tonnes of steel in 2018.
Overview of the global
02
According to a Russian Economic Development Ministry estimate, Russian GDP increased 2.3 percent in 2018, following growth of 1.5 percent in 2017. iron and steel market
The Russian Federal Statistics Service’s revision of construction activity in 2017–2018, conducted in January, had a major impact on the GDP growth estimate.
The figures for 2018 changed most dramatically: construction activity rose 5.3 percent in the amended data for last year, while the previous estimate for 11 months Overview of the Russian
03
had been just 0.5 percent year-on-year growth. Construction sector growth in 2017 was revised up by 0.2 percentage points to 1.2 percent. iron and steel market
Production trends
The metals and machine building sectors also increased output slightly in 2018, rising 1.6 percent and 1.2 percent respectively. However, growth in these sectors, as in previous
years, is highly volatile: the standard deviation of annual growth was 7.9 percent and 6.8 percent respectively. Growth slowed for the metals and machine building Consumption trends
industries in the second half of the year, mainly driven by the overall sluggishness of the manufacturing sector.
Exports of ferrous metals
The slowdown in manufacturing is reflected it its median growth rate, which irons out the influence of the most volatile components. Growth was 1.9 percent year-on-year in H2 2018, Imports of ferrous metals
down from 3.0 percent year-on-year in January–June, and slowing to 0.2 percent by December (average manufacturing growth was zero in the last two months of 2018).
Digitalization
in metals companies

04 Contacts
Figure 11. Metal products shipped Figure 12. Steel production in Russia, 2018–2019
(RUB billion)
6,066 6,217 6,110 6,115 6,029 6,293 6,147
5,816 5,866 5,680 5,870 5,790
5,473 5,230
515 527 519 520 504 528
480 477 496 478
419 422 2.2 0.2 3.1 5.6
497 0.2 -1.9 -1.1
445 -1.0
427 409 433 435 427 3.2 -1.0
389 395 406
356 357
-4.5 -4.4
-0.8 -2.8
January

February

March

April

May

June

July

August

September

October

November

December

January 2018

February 2018

March 2018

April 2018

May 2018

June 2018

July 2018

August 2018

September 2018

October 2018

November 2018

December 2018

January 2019

February 2019
2018 2017

Steel production (‘000 tonnes) Growth (%)

Source: Rosstat, the Russian Ministry of Economic Development

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Overview of the steel and iron ore market |
 Overview of the Russian iron and steel market

Production trends
01 Foreword
Key findings
Table 1. Financial performance of leading Russian steelmakers Figure 13. Steel output by leading steelmakers, (‘000 tonnes)
Overview of the global
02
iron and steel market

17,493
Revenue, USD million EBITDA, USD million Margin (%)

17,076
2018

14,033
2018 2017 2018 2017 2018 2017 год

12,860
12,664
13,019

12,039
2017 Overview of the Russian

11,651
EVRAZ 12,836 10,827 3,777 2,624 29% 24% 03
iron and steel market
NLMK 12,046 10,065 3,589 2,655 30% 26%

5,053
Production trends

4,758

4,274
3,881
Severstal 8,580 7,848 3,142 2,577 37% 33%
MMK 8,214 7,546 2,418 2,032 29% 27% Consumption trends
Metalloinvest 7,187 6,231 2,934 2,120 34% 34%
NLMK EVRAZ Severstal MMK Metalloinvest Mechel
Exports of ferrous metals
Mechel 4,970 5,128 1,203 1,391 24% 27%
Imports of ferrous metals
In 1H 2018, EVRAZ, NLMK, Severstal, MMK, Metalloinvest, and Mechel produced a combined total of 64.1 million tonnes of steel, or 89 percent of Russian steel production in 2018.
The margins of leading Russian metals companies ranged between 24 percent and 37 percent in H1 2018, all up 2–5 percentage points on the previous year with the exception of Mechel, Digitalization
which saw EBITDA margin drop 3 percentage points, and Metalloinvest whose margin was unchanged.
in metals companies

Severstal, Rosnano and Windar Renovables opens
Bashni VRC, Russia’s first plant to manufacture
wind turbine towers.
The opening ceremony took place on 13 December in Taganrog,
Rostov Oblast. The Bashni VRC plant was built as part
of a government program to develop renewable energy,
specifying the localization of renewable equipment and
the creation of a new sector of high-tech machine building.
The joint venture (JV) is the first Russian producer of wind turbine
towers. Investment in the first phase is over RUB 750 million.
Windar Renouvables’ share in the JV is 51 percent with Rosnano
and Severstal holding 24.5 percent each. Severstal can deliver
the steel sheet required for production on competitive terms.
EVRAZ to expand production of railway wheels.
EVRAZ has launched an investment project to expand
the production capacity of its wheel shop at its Nizhniy
Tagil Steel Plant. The project will optimize the forging,
inspection and machining lines. This will boost output
by 78,000 wheels per year and meet the most stringent
customer requirements. The project includes the launch
of two automated full section wheel machining lines and the
construction of a third inspection line, which is to include
a wheel geometry laser measurement plant, nondestructive
testing stations for surface and internal defects, a shot
peening plant and a cold marking (embossing) station.
The company is investing around USD 60 million
in the project. Launch is scheduled for 2021.
Mechel prolongs coal supply contract 04 Contacts
with China’s Jidong Cement and expands
cooperation with Japan’s Itochu Corporation.
Mechel is planning to ship up to 2 million tonnes
of thermal coal to Jidong Cement in 2019. Monthly deliveries
will vary between 100,000 tonnes and 150,000 tonnes
of coal products. Mechel shipped 1.9 million tonnes
to Jidong Cement in 2017 and 1.4 million tonnes in 2018.
Mechel will also deliver up to 800,000 tonnes
of coking and thermal coal to Itochu Corporation
from December 2018 to March 2020.

Source: company data

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Overview of the steel and iron ore market |
 Overview of the Russian iron and steel market

Consumption trends
01 Foreword
Key findings
Рисунок 14. Russian Purchasing Managers’ Index (PMI), 2018–2019 Pipe industry Construction
According to preliminary data for 2018, Preliminary Rosstat data shows Overview of the global
02
52.6 52.8
Russian pipe output rose 2 percent compared that 75.66 million square meters iron and steel market
52.1
51.3 51.7
51.3 to 2017. Production of large diameter pipes of housing supply was commissioned
50.6
soared 18 percent while all other sectors in 2018. This is around 5 percent Overview of the Russian
03
49.5 50.9 of the market declined in the range of 2 percent. less than in 2017. Apartment blocks iron and steel market
50.2 50.0 50.1
49.8 Forecasts for 2019 expect a 5 percent increase accounted for 43.24 million square meters
48.9
Production trends
in demand for oil country tubular goods and individual housing construction
48.1
(OCTG) pipes and 2 percent for industrial totaled 32.42 million square meters. Consumption trends
pipes. The overall 2019 growth forecast As of 1 January 2019, around 127.5 million
January 2018

February 2018

March 2018

April 2018

May 2018

June 2018

July 2018

August 2018

September 2018

October 2018

November 2018

December 2018

January 2019

February 2019

March 2019
Exports of ferrous metals
for pipe consumption is 1%. square meters of apartment blocks were under
construction. The Construction Ministry Imports of ferrous metals
Gazprom is the main consumer of large has not ruled out a minor drop
diameter pipes, accounting for more than in construction in 2019 due to housing Digitalization
half of the entire market (58 percent). developers’ mandatory transition to escrow
in metals companies
accounts from 1 July this year. Given
Automotive industry the importance of the construction 04 Contacts
Car production rose 15.9 percent in 2018. industry, the Russian President has set
Output of Russian car brands increased the objective of reaching annual housing
by 18.1 percent to 414,900 units in 2018, commissioning of 120 million square meters
up from 351,400 units in 2017. Foreign car over the next five years (until 2024).
brands increased production in Russia
by 15.1 percent to 1.149 million units, up from
997,700 units in 2017. The share of foreign
brands in total Russian car production
was 73.5 percent in 2018, down slightly from
74 percent the previous year. Sales of light
commercial vehicles (LCV) fell 6 percent
in December 2018 and were down 0.7 percent
for the year. This year could see a small growth
in sales of 3–5 percent. Sales of trucks dropped
9.7 percent in December 2018 and were down
3 percent for the year. Truck sales are also
expected to show a slight sales growth
in the range of 5 percent in 2019.
Source: Russian Construction Ministry, ASM Holding, Foundation for the Development of the Tube Industry

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Overview of the steel and iron ore market |
 Overview of the Russian iron and steel market

Exports of ferrous metals

01 Foreword
Key findings

Exports of rolled steel rose 10 percent to USD 5.034 billion in monetary terms in 2018, The value of pipe product exports were up 26 percent to USD 2.625 billion Overview of the global
despite falling 3 percent to 8.351 million tonnes in physical terms. and volumes rose 15 percent to 2.478 million tonnes. 02
iron and steel market

Figure 15. Rolled steel exports by quarter Figure 16. Pipe product exports by quarter Overview of the Russian
03
iron and steel market
2,300 2,336 885 Production trends
1,958 2,041 1,901 2,222 2,025 2,203 786 798
Weight (‘000 tonnes) Weight (‘000 tonnes)
484 520 514
437 469 Consumption trends
Value (USD mln) 714 734 761 Value (USD mln)

1,145 1,201 1,369 1,246 1,269 488 496 446

1,046 1,169 1,150 386 430 Exports of ferrous metals
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Imports of ferrous metals
2017 2018 2017 2018
Digitalization
in metals companies
Table 2. Rolled steel exports Table 3. Pipe product exports
Value (USD million) Weight (‘000 tonnes) Value (USD million) Weight (‘000 tonnes) 04 Contacts
2018 2017 2018 2017 2018 2017 2018 2017
Turkey 1,249 1,288 2,218 2,666 Finland 599 793 456 686
Belarus 427 392 613 594 Kazakhstan 398 294 443 352
Poland 361 97 637 183 Turkey 397 282 293 237
Uzbekistan 326 236 433 332 US 258 156 285 207
Vietnam 307 170 576 356 Belarus 237 197 258 228
Latvia 262 172 419 310 Uzbekistan 108 38 91 29
Kazakhstan 261 237 373 374 Bulgaria 88 3 61 2
Egypt 187 200 345 439 Egypt 76 9 81 12
Ukraine 180 150 277 248 Azerbaijan 72 38 84 49
Germany 162 104 261 183 India 56 26 3 14

Source: Russian Federal Customs Service Flat-rolled products: TNVED 7208; 7209; 7210; 7211; 7212; pipe products: TNVED 7303,7304,7305 and 7306

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Overview of the steel and iron ore market |
 Overview of the Russian iron and steel market

Imports of ferrous metals

01 Foreword
Key findings
Imports of pipe products in monetary terms in 2018 compared
Imports of rolled steel rose 2 percent to USD 2.039 billion in monetary terms to 2017 did not change and amounted to USD 1.062 billion, Overview of the global
02
in 2018 despite falling 4 percent to 2.852 million tonnes in physical terms. while declining 22 percent to 574 thousand tonnes in physical terms. iron and steel market

Figure 17. Imports of flat-rolled products by quarter Figure 18. Imports of pipe products by quarter Overview of the Russian
03
iron and steel market
846 844 853 807 323 344 Production trends
672 610 600 Weight (‘000 tonnes) 267 274 249 Weight (‘000 tonnes)
592 196 234 235
Value (USD mln) Value (USD mln) Consumption trends
589 551 626 581 230 191 166 172
447 413 432 400 145 134 129 139 Exports of ferrous metals
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Imports of ferrous metals
2017 2018 2017 2018
Digitalization
in metals companies
Table 4. Imports of flat-rolled products Table 5. Imports of pipe products
Value (USD million) Weight (‘000 tonnes) Value (USD million) Weight (‘000 tonnes) 04 Contacts
2018 2017 2018 2017 2018 2017 2018 2017
Kazakhstan 881 797 1 414 1 352 China 247 203 107 115
Ukraine 370 338 649 644 Kazakhstan 163 123 160 135
China 317 414 380 556 Ukraine 108 125 83 150
South Korea 172 150 160 147 Italy 75 70 19 18
Germany 81 72 65 62 Belarus 63 73 72 89
Belgium 52 57 46 54 Japan 58 37 21 12
Hungary 23 14 16 11 Germany 54 193 12 135
France 22 25 18 24 South Korea 43 9 16 3
Finland 21 29 18 26 Austria 40 15 22 9
Turkey 18 14 17 15 US 33 38 3 5

Source: Russian Federal Customs Service Flat-rolled products: TNVED 7208; 7209; 7210; 7211; 7212; pipe products: TNVED 7303,7304,7305 and 7306

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Overview of the steel and iron ore market |
 Overview of the Russian iron and steel market

Digitalization
01 Foreword
in metals companies Key findings

Overview of the global

02
iron and steel market
The use of various IT tools and solutions is helping metals companies optimize production process management, industrial
safety, labor resources and financial flows, and the adoption of e-commerce services is enabling them to sell metals goods online. Overview of the Russian
03
Severstal launched its online store in 2017, closely followed by NLMK, Mechel and others. iron and steel market
Production trends

Severstal Metalloinvest Consumption trends

Computer modeling
Severstal is launching computer modeling services for external
clients. The computer modeling center uses mathematical
and machine analysis to calculate the characteristics
of products and equipment, work out strength and define
the special properties of materials. This technology can also
be used to simulate the processing and testing of materials,
and be employed on rolling and straightening, hydro-and
gas dynamics, pipe production and stamping projects.
In the two and a half years since its launch, the computer
modeling center has conducted 19 projects, generating
total savings of RUB 70 million. Now, having developed
modeling skills in various fields, the computer modeling
center is ready to actively expand its portfolio of projects,
offering its services to external as well as internal clients.
Smart power distribution system
Severstal and SAP have created a prototype solution for smart
power distribution, developed on SAP Cloud Platform.
The use of this new machine learning application will enable
Severstal to quickly detect deviations from the normal electricity
consumption rate, which can help reduce power costs.
The project, which took four months to create, was the result
of joint innovation by Severstal specialists and SAP Digital
Business Services. The solution uses mathematical algorithms
and machine learning tools to recognize anomalous situations,
and sends notifications to the users responsible. This product
will ensure the reliability of accounting data, improve energy
consumption forecasts and enhance production and repair
plans. The system will be able to quickly identify and eliminate
power supply problems. The Analytic Monitor submodule
makes it possible to analyze electricity consumption, purchases
and generation for by the half-hour, day and month.
Automated warehouse management system
Exports of ferrous metals
Metalloinvest has introduced an automated warehouse
management system (WMS). The basic version of the project Imports of ferrous metals
has been implemented in most of the company’s regional
warehouses and logistics centers. The project aims to drive Digitalization
a transition to a new modern accounting system for warehouse
in metals companies
operations, to improve their speed and accuracy, and thus
significantly improve customer service. The implementation 04 Contacts
process comprises several stages and is set to comprehensively
automate all warehouse processes. The system cuts customer
service times and simplifies the search and accounting
of rolled products. All product movements are recorded
by warehouse workers with the help of special portable
data terminals (PDT) to automate operations. The storage
area has been divided into cells and barcoded to make
product search easier. All products have been assigned
stock keeping units and labeled with special identification
tags. The selection of rolled products and processing
of paperwork have been optimized and a separate
accounting for surplus inventory has been introduced.

Source: Corporate press-releases, metalinfo

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Overview of the steel and iron ore market |
 Overview of the Russian iron and steel market
Digitalization
in metals companies
MMK
Corporate Information System
Magnitogorsk Iron and Steel Works (MMK) successfully
commissioned a new version of its corporate information
system (CIS) based on Oracle e-Business Suite v.12 technology
on 1 April 2019. Work to optimize and standardize MMK
Group’s business processes on the basis of a single CIS
was completed in 2018–2019.
The new CIS will improve the management of production
(both continuous and discrete), inventories, repairs
and purchases (including the e-trading platform), finances,
personnel (including payroll), projects, orders and sales.
Information streams have also been set up to provide data
for modeling the enterprise’s processes and predicting
the results of its activities. The steelmaker has successfully
reduced the number of old customizations and introduced
numerous enhancements, significantly increasing its efficiency.
Source: Corporate press-releases
22
01 Foreword
Key findings
Overview of the global
02
iron and steel market
Program-controlled RPA robot Overview of the Russian
03
The company expects to complete the second stage MMK Group has developed its first program-controlled robot iron and steel market
of the project in July, when MMK Metiz and USC will start capable of executing an employee’s functions on a computer. Production trends
using the CIS, supported by the new version of Oracle e-Business
Suite. The company also has plans to introduce this CIS The robot was created by MMK Infoservice’s Center for RPA Consumption trends
into its machine-building division, Mekhanoremontny Komplex, and Innovation based on innovative RPA (Robotic Process
Exports of ferrous metals
as well as into a number of its other enterprises. Automation) technology.
Imports of ferrous metals
The corporate information system will not only record  The robot, which has already been commissioned,
MMK’s business-related activities, but will also monitor was developed to promote efficient cooperation between Digitalization
the entire chain of production processes, the condition of all MMK’s commercial department and suppliers of metal
in metals companies
large mills and units, and equipment idleness and repairs. scrap. It processes incoming emails from suppliers, searches
The system presents real-time data on the activities of the Russian Railways databases to check the status of freight 04 Contacts
enterprise in question, allowing company management to make cars being dispatched to MMK, updates the commercial
informed decisions based on a single source of information.  department on the results of these checks, and drafts reports
about specialized services at MMK. The program carries out
these operations quickly and accurately, avoiding problems
associated with human error. 
The key task for MMK Infoservice’s Center for RPA
and Innovation is to design and launch program-controlled
robots capable of performing routine business operations.
This will give MMK’s specialists more time to solve complex
tasks requiring creativity and experience.
22
Overview of the steel and iron ore market |
 Overview of the Russian iron and steel market

Digitalization
01 Foreword
in metals companies Key findings

Overview of the global

NLMK
Personnel positioning system
NLMK has launched a pilot project to implement a personnel
positioning system at the Stoilensky open pit mine,
Russia’s second largest producer of iron ore concentrate.
The system will improve safety as it will enable a rapid response
to emergencies by monitoring and analyzing the actions
of employees and equipment. The system can locate workers
in the mine in real time, automatically sets shift targets
and  monitors results. It also warns the operator if workers
stray into hazardous areas or use equipment incorrectly.
02
iron and steel market
Automated human resources management system Overview of the Russian
03
NLMK Group has installed a human resources management iron and steel market
system based on SAP Human Capital Management (SAP HCM) Production trends
and the SAP SuccessFactors cloud solution. A centralized
human resources management system was created, Consumption trends
covering the 52,000 users of the company’s Russian sites.
Exports of ferrous metals
The remuneration system was unified, an integrated recruitment
process was launched, as well as a platform for evaluating Imports of ferrous metals
employees and calculating remuneration based on performance.
This has significantly reduced the time required to create analytical Digitalization
reports and streamlined the process of hiring employees
in metals companies
and moving them to new positions within the company.
The introduction of advanced technological solutions 04 Contacts
has improved the quality and efficiency of management decisions.

Source: Corporate press-releases, metalinfo

23
23
Contacts
01 Foreword
Key findings
Andrew Sedov Vladimir Perfiliev
Overview of the global
Leader of the Metals group Director, Consumer 02
iron and steel market
in Deloitte, CIS and Industrial
Partner, Head of Consumer Products Audit (Metals) Overview of the Russian
and Industrial Products Deloitte CIS 03
iron and steel market
Audit department vperfiliev@deloitte.ru
asedov@deloitte.ru
04 Contacts

Authors:
If you have any questions regarding the survey, please do not hesitate to contact us.

Lora Nakoryakova Dmitriy Kasatkin Yulia Afanasyeva

Research Centre Leader Head of research projects Analyst
Deloitte CIS Research Centre Research Centre
+ 7 (495) 787 06 00, ext. 1524 Deloitte CIS Deloitte CIS

lnakoryakova@deloitte.ru + 7 (495) 787 06 00, ext. 1605 + 7 (495) 787 06 00, ext. 6253
dkasatkin@deloitte.ru yafanasyeva@deloitte.ru

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deloitte.ru
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