A look at the markets in Russia and India

06 October 2011

Speaker interviews leading up to Met Coke 2011

Alexander A. Ignatov, President / Senior Partner, Ignatov & Company Group, and Jitendra Nanda, GM & Head- Coal & other raw materials, Essar Steel Ltd., gave us a preview of some of the expertise they'll be sharing on-site at the Met Coke World Summit 2011.

Interview with Alexander A. Ignatov, President / Senior Partner, IGNATOV & COMPANY GROUP

Q.: How would you describe the current coke, coal and steel industries in Russia?
Steel industry is one of the key exporters - together with O&G and other commodities. Russian steel export targets mainly CIS and Western Asia (Turkey, Syria, etc.). At the same time domestic demand is also large and it exceeds export. Russia specializes in slabs and long products rather than in flat products.

Steel industry is highly concentrated - "Big Six" of the largest steel-making holdings control >90% of steel output in the country: Evraz, Severstal, MMK, NLMK, Mechel, and Metalloinvest.

Self-supply with ore and coke is the "mantra" for these players. They passed a period of iron ore and coal "wars" in the past - for control over supply sources. Currently ¾ of the coking coal output and almost 100% of iron ore output is controlled with "Big Six".

"Big Six" run few large integrated iron-and-steel mills that in particular integrate coke-chemical workshops. So having coking coal self-supply they can easily do coke in the same facilities where they produce crude steel.

Q.: What are the driving forces / factors?
Steel demand is impacted with domestic industries - such as energy machinery, construction, and automotive (flat products). Steel export strongly depends on the situation in construction - that is the major consuming segment for Russian long products outside Russia.

Q.: Who / where does Russia supply coke and coal?
Russia exports a minor share of coking coal - not more than 30% of coking coal total production. Ukraine was the largest consumer of the Russian coking coal - due to a deficit in its own coking coal production.
Russia consumes almost 100% of coke - moreover, most of the coke is being produced directly with the "consumers', i.e. with steel mills.

Q.: Is demand for raw materials up or down? Why?
Rapid growth in 2004-2008 (with two-digit growth rate) was replaced with a decline in 2009, then slow growth in 2010 (less than 5% growth to 2008); in 2011 it's seemed Russia may return back to the period of growth - but not so quick as in 2004-2008.

Q.: Can you describe this crisis in Russia, which you mention in your presentation bullet points?
In 2008-2009 the construction industry felt significantly - thus the demand for long products also declined. People stopped to buy new cars that time - so the fall in galvanized flat steel demand. The federal government paused the funding for few large infrastructure projects in 2009-2010 - thus the decline of energy machinery production, and decline in steel supply for this segment.

2011 became the year of the recovery - with slow growth in demand with the construction industry, and faster growth in automotive and energy machinery.

Q.: How do trends in Russia affect the global market? Do certain regions across the globe heavily rely on Russia as a supplier of raw materials? Also, how does world demand for steel affect the market in Russia? Is Russia a major exporter of steel?
Russia has a weak impact over global market. Coking coal is being supplied mainly to Ukraine - thus the situation in Russia (with met coal) impacts only that particular country.

Steel export also has no strong "global impact"; the export volume is "shared" between many countries in CIS, etc. - so Russia's supply in each country is not critical.

The reverse impact is stronger - Russian domestic prices generally follow global prices for steel, so Russia has passed through a series of "price turmoil" in 2004-2008, then in 2010-2011.

Interview with Jitendra Nanda, GM & Head- Coal & other raw materials, ESSAR STEEL LTD

Q: How would you describe the current steel, coke, and coal markets in India?

With the envisaged growth in steel demand from the current 69 Mn MT (FY11) to over 100 million MT in FY15 the corresponding demand for coal and coke will increase. Current coking oven projects will not meet the supply gap for this projected increase in steel production, requiring significant imports of both coking coal and coke going forward.

Q: What forces / factors are affecting consumption and production of coke / coal in India?

The deficient of indigenous coking coal quality will require the imports of coal. However with the current stressed pricing conditions of imported coal the economic viability of coking projects are called into question. Creating an opportunity for coke producers to invest upstream in captive mines.

Q: What do you expect for India's steel, coke and coal market for the remainder of 2011? How about 2012?

Whereas the current year will play out as projected, 2012 will be under stress due to the various issues ranging from the ban on iron ore exports, duties, mining restrictions, etc. Nonetheless the Indian steel industry is well positioned to meet the economic growth needs of the country.

Q: How would you describe Essar's production of steel? Is production up? Are there particular regions that make up most of your demand?

With successful commissioning of our expansion project at Hazira, Essar Steel will be a 10 mtpa capacity producer in 2012. With our various iron making methods from DRI, blast furnace and COREX we have a natural hedge against the volatile energy/iron ore markets.