Paris, December 2010

Russia: steel market

developments

OECD STEEL COMMITTEE

DEVELOPMENTS IN WORLD STEELMAKING CAPACITY

Maria Ivanova, Novolipetsk Steel

Russia’ Steel Industry Dynamics

Average pre-crisis steel production

Average pre-crisis rolled steel production

-2-Sources: Metal-Expert, Russian Statistics Agency, Metal Courier

3,23,4

3,7

3,7

3,8

3,8

3,9

3,83,5

2,7

1,5 1,3

1,4

1,9

2,3

2,0

1,9

2,1

2,4

2,7

2,6

2,7

2,5

2,6

2,5

2,5

3,0

2,8

2,8

3,0

2,9 3,0

3,0

-4,0

-2,0

0,0

2,0

4,0

6,0

Jan-

08

Feb-

08

Mar

-08

Apr

-08

May

-08

Jun-

08

Jul-0

8

Aug

-08

Sep-

08

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

May

-09

Jun-

09

Jul-0

9

Aug

-09

Sep-

09

Oct

-09

Nov

-09

Dec

-09

Jan-

10

Feb-

10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep-

10

Production Export Import Consumption

Peak low

Production volume, mmt Consumption, mmt

3,1 3,2

3,5 3,4 3,3 3,4 3,4 3,6

3,2

2,5

1,4 1,41,2

1,8

2,11,8 1,7

1,9

2,22,5 2,5 2,4

2,3 2,4 2,3 2,4

2,92,6 2,7 2,8 2,9

3,03 2,9

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

Jan-

08

Feb-

08

Mar

-08

Apr-

08

May

-08

Jun-

08

Jul-0

8

Aug-

08

Sep-

08

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr-

09

May

-09

Jun-

09

Jul-0

9

Aug-

09

Sep-

09

Oct

-09

Nov

-09

Dec

-09

Jan-

10

Feb-

10

Mar

-10

Apr-

10

May

-10

Jun-

10

Jul-1

0

Aug-

10

Sep-

10

Crude steel production Finished steel production Consumption

Peak low

Semi-finished & Finished steel balance, mmt

Current Economic Situation In Russia

Ind

ustrial p

rod

ucer’s p

rice ind

ex

Ind

ust

rial

pro

du

ctio

n g

row

th r

ate

Budget Income & Spending, % GDPGDP and its elements growth rates, y-o-y, %

-3-Sources: Metal-Expert, Metal Courier, Russian Statistics Agency , Ministry of Industry and Trade, Ministry of Economic Development

Industrial Production & Industrial Producer's Price index, y-o-y, %

IP & Fixed Capital Investments indices

Surplus period

Deficit period

70

75

80

85

90

95

100

105

110

Jan-

08

Mar

-08

May

-08

Jul-

08

Sep-

08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-

09

Sep-

09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-

10

Sep-

10

IP index Investments in fixed capital

Russia’ Steel Using Sectors Output Dynamics

Sources: Metal-Expert, Metal Courier, Russian Statistics Agency , Ministry of Industry and Trade

Construction & Metal Products Output Indices , y-o-y, % Pipes & Tubes Production Index, y-o-y, %

-140

-90

-40

10

60

110

160

Jan

-08

Ma

r-08

Ma

y-08

Jul-0

8

Se

p-0

8

No

v-08

Jan

-09

Ma

r-09

Ma

y-09

Jul-0

9

Se

p-0

9

No

v-09

Jan

-10

Ma

r-10

Ma

y-10

Jul-1

0

Se

p-1

0

Automotive Industry Production Index, y-o-y, %

-4-

-40

-30

-20

-10

0

10

20

30

Jan-0

8

Mar-0

8

May-0

8

Jul-0

8

Sep

-08

No

v-08

Jan-0

9

Mar-0

9

May-0

9

Jul-0

9

Sep

-09

No

v-09

Jan-1

0

Mar-1

0

May-1

0

Jul-1

0

Sep

-10

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

-45

-25

-5

15

35

55

75

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

-55

-35

-15

5

25

45

Jan-0

8

Ap

r-08

Jul-0

8

Oct-0

8

Jan-0

9

Ap

r-09

Jul-0

9

Oct-0

9

Jan-1

0

Ap

r-10

Jul-1

0

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

Steel consumption in Russia

5 16 1513 7 12

8 57

-1

-20

-20

-40-39 -34

-37

-39

-30

-29 -34

-23

-19

9

13

32

18

1931 34

2725

50

36

-50

-40

-30

-20

-10

0

10

20

30

40

50

60

0

0,5

1

1,5

2

2,5

3

3,5

4Ja

n-0

8

Ma

r-0

8

Ma

y-0

8

Jul-

08

Se

p-0

8

No

v-0

8

Jan

-09

Ma

r-0

9

Ma

y-0

9

Jul-

09

Se

p-0

9

No

v-0

9

Jan

-10

Ma

r-1

0

Ma

y-1

0

Jul-

10

Se

p-1

0

Ind

ex ave

rage, y

-o-y %

Ste

el c

on

sum

pti

on

, m

mt

13

13

6

3

2

Construction

Other

Pipes & Tubes

Automotive industry

Mecanical machinery

Steel consumption breakdown by sector, mmt 2010

Steel Consumption & Russian Steel Using Sectors Production Index Average

-5-Sources: Metal-Expert, Metal Courier, Russian Statistics Agency , Ministry of Industry and Trade; NLMK research

Peak low

Mecanical

machinery; 5%Automotive industry;

8%

Pipes & Tubes; 16%

Other; 35%

Construction; 36%

104 105 100

91

100 112 116

0

20

40

60

80

100

120

140

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

Consumption Production

68 70 64 61 6778

87

0

20

40

60

80

100

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

Vo

lum

e, m

mt

Consumption Production

3 35 5 5

6

12

0

2

4

6

8

10

12

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

Vo

lum

e, m

mt

Production

20 21 21

11

22

15 16

0

10

20

30

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

Vo

lum

e,

mm

t

Consumption Production

Iron Ore

HBI/DRI

Coking Coal

Scrap

Sources: Strategy of Russian Steel Industry Development till 2020, Ministry of Industry and Trade; MetalCourier, Chermet, AME

Production forecast of steelmaking raw materials

-6-

+4%

+20%

+100%

+12%

-32%

+47%

+7%

+82%

-32%

+47%

-32%

+47%

Import 9Import

<1Import

<1

Export 21 Export 16.5 Export 3.3

Output

91

Output

61

Output 18

-40

-20

0

20

40

60

80

100

iron ore Coking coal concentrate Scrap

Import Export Output

Domestic

consumptio

n

78

Domestic

consumptio

n

44,7 Domestic

consumption

15,8

Sources: Metal Expert, Rasmin, NLMK research-7-

Raw Materials Market

Russian Steel Industry Self-sufficiency in Raw Materials (2009, mmt)

Raw material price dynamics

0

1000

2000

3000

4000

5000

6000

7000

0

500

1000

1500

2000

2500

3000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Coking coal Iron ore Pellets Coke

Co

keC

oki

ng

coal

;Ir

on

ore

;Pel

lets

Russian economy growth forecast

-20

-15

-10

-5

0

5

10

15

2009 2010 2011 2012 2013

Optimistic Basic Low basic Pessimistic

-10

-8

-6

-4

-2

0

2

4

6

8

10

2009 2010 2011 2012 2013

Optimistic Basic Low basic Pessimistic

-9

-7

-5

-3

-1

1

3

5

7

2009 2010 2011 2012 2013

Optimistic Basic Low basic Pessimistic

55

60

65

70

75

80

85

90

95

2009 2010 2011 2012 2013

Optimistic Low basic Pessimistic

-8-Sources: Russian Statistics Agency; Ministry of Economic Development

Oil Prices Forecast, USD/bl GDP Index Growth Rate Forecast, y-o-y, %

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

Russia’s steel production forecast

Ferrous Metallurgy Production Index Forecast, y-o-y, %

Finished steel production index forecast, y-o-y, %

31,71,7

53,44,7

15,2

-14,7-20

-15

-10

-5

0

5

10

15

20

2009 2010 E 2011 F 2012F 2013 FFerrious metallurgy conservative variant

Ferrious metallurgy optimistic variant

-14,4

1,7 0,53,5

23,3

5,73

5,5

-20

-15

-10

-5

0

5

10

15

20

25

30

2009 2010 E 2011 F 2012 F 2013 F

Steel pipes&tubes conservative variant

Steel pipes&tubes optimistic variant

-10,3

1 1,5 2,3

12,1

4,53,2

4,5

-15

-10

-5

0

5

10

15

2009 2010 E 2011 F 2012 F 2013 F

Finished steel conservative variant Finished steel optimistic variant

Steel Pipes & Tubes Production Index Forecast, y-o-y, %

-9-

Metal Products Output Index Growth rate, y-o-y, %

Source: Ministry of Economic Development, NLMK research

-33-33

46 4845

40

4650 49

44

-40

-20

0

20

40

60

2009 2010 E 2011 F 2012 F 2013 F

Metal products concervative variantMetal products optimistic variant

Russian Producer Price Indices

75,00

85,00

95,00

105,00

115,00

125,00

135,00

2007 2008 2009 2010 2011 2012 2013

Steel industry Metalware Machinery and engineering Construction (deflator index)

81,50

117,9

Producer Price Indices of Steel & Using Sectors

75,00

85,00

95,00

105,00

115,00

125,00

135,00

145,00

2007 2008 2009 2010 2011 2012 2013

Energy Energy raw materials Metal ores Oil

81,1

145,7

Correlation between metal ore price and steel industry price

Raw Materials Producer Price Indices

-10-Sources: Ministry of Economic Development, NLMK research

Steel Consumption in Russia Long Product Consumption Forecast, mmt Flat Product Consumption Forecast, mmt

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

-11-Sources: Ministry of Economic Development, NLMK research

Steel Using Sector Output Forecast

-12-Sources: Ministry of Economic Development, NLMK research; AEB; Avtostat

41

156

111 116 11441

156

117123

119

0

200

400

600

800

1000

1200

1400

1600

1800

2009 2010 E 2011 F 2012 F 2013 F

0

20

40

60

80

100

120

140

160

180

Passenger car production optimistic variantPassenger car production conservative variantCar production index pess imisticCar production index optimistic

Trucks p

rod

uctio

n in

dex gro

wth

rate

-64,2

22,413,5 14,6 16,2

-64

22

15 17 20

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

0

20

40

60

80

100

120

140

160

180

200

2009 2010 E 2011 F 2012 F 2013 F

Trucks production concervative Trucks production optimistic

Trucks index conservative Trucks index optimistic

Tru

cks

pro

du

ctio

n 0

00

Trucks productionPassenger car production

1,82

2,42,8

3,13,3 3,4 3,5 3,6 3,6 3,6

0

1

2

3

4

5

6

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

Imported Foreign brands in Russia Domestic OEMs Forecast

Economic crisis

Economic crisis

0.7 0.81.0

0.80.9 0.9 1.0 1.0 1.1 1.3 1.4

1.8

2.42.8

1.4

Forecast ran

ge

Initial growth Stagnation Market growth Post-crisis development Market stabilization

Vehicle market forecast

New

car

sal

es m

ln. u

nit

s

-34,2

8,4 8,5 10,6

20,2

9,9 1114,3

-40

-30

-20

-10

0

10

20

30

2009 2010 E 2011 F 2012 F 2013 F

Machinery production conservative variant

Machinery production optimistic variant

Steel Using Sector Output Forecast

Sources: Ministry of Economic Development, NLMK research

Machinery Production Index Forecast, y-o-y, %

1,7 0,53,5

-14,4

23,3

5,73

5,5

-20

-15

-10

-5

0

5

10

15

20

25

30

2009 2010 E 2011 F 2012 F 2013 F

Pipes & tubes 2b Pipes & tubes 2b

Pipes & Tubes index forecast, y-o-y, %

-13-

-44,6

82,6

2,2 3 3,8

-44,6

82,6

3,8 4,4 6,9

-60

-40

-20

0

20

40

60

80

100

2009 2010 E 2011 F 2012 F 2013 F

freight car concervative variant freight car optimistic variant

-34,1

7

11,9 13,115,1

-34,1

7

13,315,9

18,3

-40

-30

-20

-10

0

10

20

30

2009 2010 E 2011 F 2012 F 2013 F

passenger car conservative variant passenger car optimistic variant

Freight Railcar Production Index Forecast, y-o-y, % Passenger Railcar Production Index Forecast, y-o-y, %

RUSSIA WILL REMAIN ATTRACTIVE FOR FOREIGN DIRECT

INVESTMENTS

The Government pays attention to special economic areas with

favorable taxation regime

The Government develops strategies for development of key national

sectors which have a multiple effect on upstream industries

Currently most attractive for FDI are following steel-using sectors:

Energy

Shipbuilding

Machinery

Construction

Automotive industry

Railcar production

Steel Consumption Sector Investments for Modernization

-14-

23,4 31 28,9 36,2

81100,8

122,3 128

199

159 160

200

-30

20

70

120

170

220

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

66% 63%85% 92%

74% 77%97%

59%

35% 37%15% 8%

26% 23%3%

41%

0%

20%

40%

60%

80%

100%

2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1H 2010E

Brownfield Greenfield

Company Investments (% of Total in Steel Sector)

Steel Sector Investments for Modernization

Steel industry investment structure

Investments bln.RUR

+ 580 %

Sources: Ministry for Industry and Trade, Strategy for Development of Metallurgy to 2020

Novolipetsk Steel; 14,86 %

Severstal; 25,16 %

MMK; 14,87 %Metalloinvest;

19,2 %

Evrazholding;11,52 %

Mechel; 14,4 %

-15-

Paris, December 2010

THANK YOU

OECD STEEL COMMITTEE

DEVELOPMENTS IN WORLD STEELMAKING CAPACITY

Maria Ivanova, Novolipetsk Steel