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Market Review

Metalloinvest supplies its products to all of the world’s largest markets. Russia, Eastern and Western Europe, Asia, the Middle East and North Africa, and North America are priority regions for the Company.

Iron ore market

Iron ore reserves, billion tonnes

Iron ore reserves, billion tonnes Iron ore reserves, billion tonnesEnlarge

The global iron ore market remains highly consolidated. Four leading companies (Vale, BHP Billiton, Rio Tinto, and FMG) control over two thirds of the global iron raw materials trade. The leading countries that produce commercial iron ore are Australia, Brazil, China, India and Russia, together accounting for over 80% of total global output. In 2016, both global pig iron output and demand for steel remained flat yearon- year, while global iron raw materials output was slightly down. However, taken separately, India, Australia and Brazil recorded higher output, while in China this figure declined considerably. Russia saw a relative stabilisation of its iron raw materials output.

Metalloinvest continues to assess the factors influencing the iron ore raw materials market for the purpose of mid-term and long-term growth planning. The Company’s management expects global demand for iron ore to continue improving over the medium term. This improvement will be driven mainly by growing GDP and steel output in developed economies and emerging markets, primarily in China.

  Iron ore output by country and region, million tonnes Iron ore consumption by country and region, million tonnes
2012 2013 2014 2015 201620122013201420152016
China 416 483 412 364 2841,1231,2601,2951,2671,261
Brazil 346 350 366 372 3794644464742
Australia 525 613 744 794 81365555
CIS 205 208 205 199 192132132130126124
India 133 121 109 107 131100103109113117
Japan - - - - -129133133128127
USA 50 49 50 41 404644443835
South Africa 63 72 75 73 69991088
Europe 40 40 43 42 40148151156154153
South America (excluding Brazil) 28 21 19 22 162017151611
North America (excluding USA) 55 58 58 56 552827292626
Rest of the world 103 102 124 100 108139148160159162
Total 1,965 2,170 2,204 2,169 2,1281,9252,0742,1322,0872,071

Iron ore prices (China spot fines, 62% Fe), USD / tonne

Iron ore prices (China spot fines, 62% Fe), USD / tonne Iron ore prices (China spot fines, 62% Fe), USD / tonneEnlarge

From 2012–2016, Australia and Brazil were the world’s leading iron ore exporters. Governments of some countries sought to cut iron ore exports through higher export duties, among other policies. India, for example, raised its iron ore export duty by 30%.

Key fundamentals, such as moderate growth in global steel output, along with steady output of iron ore raw materials, have contributed to the stabilisation of global iron ore prices. An increased supply of iron ore with low iron content brought about the deterioration in the average quality of iron ore raw materials around the world. The high volatility of global iron ore prices is a constraint on worldwide investment in commodities assets.

On the one hand, the iron ore raw materials market, in the long term, is affected by a gradual deterioration in ore quality globally. Lower quality raw materials increase the costs of steel production and lead to higher harmful emissions by steelmakers. On the other hand, environmental requirements are becoming more stringent. In particular, China, the world’s biggest consumer of iron ore raw materials, remains focused on toughening environmental requirements to mitigate the harmful environmental impact of the country’s steelmaking facilities. This is being achieved by improving the quality of iron ore raw materials consumed in the country, among other methods.

The stricter environmental requirements applied to the ferrous metals industry and the lower quality of iron ore raw materials will lead to higher margins for raw materials with high iron content.

At present, a number of industry news agencies, such as Argus, Platts, The Steel Index, Metal Bulletin, Mysteel and SteelHome provide the latest, accurate information on spot prices for iron ore raw materials using indices. The transition to pricing based on various index baskets continues as price-related information becomes more accessible. Metalloinvest monitors the physical markets closely on a daily basis, as well as commodity trading across global exchanges.

Metalloinvest’s position

Metalloinvest is the largest iron ore producer and supplier in Russia and the CIS, and one of the world’s largest producers and suppliers of pellets and merchant HBI.

The Company is a global-scale producer of beneficiated iron ore products, processing the majority of its primary iron ore concentrate into high value-added products, such as high-quality iron ore concentrate, pellets and HBI / DRI.

Pellet market

In 2016, global pellet output stood at 412 million tonnes. The largest pellet producers are those that mainly seek to meet the needs of local steelmakers, including China, USA, India, Russia, Ukraine and Mexico. In China, where production is mostly dependent on raw materials imports, pellet output reached 120 million tonnes, or 29% of global output.

Pellet output by country and region, million tonnes
2012 2013 201420152016
China 130.8 128.3 108.8107.0120.2
Russia and CIS 67.9 70.6 70.767.669.3
USA 48.0 46.8 47.940.137.8
Brazil 59.0 55.2 57.959.436.3
India 18.3 22.5
North America (excluding USA) 37.9 35.0
Sweden 22.3 21.8 21.922.923.0
Rest of EU 5.9 5.7
Australia 3.4 3.4
South America (excluding Brazil) 7.6 5.5
Others 40.6 49.2 41.839.643.6
Total 441.6 443.9 418.2418.4412.4
Pellet consumption by country and region, million tonnes
2012 2013 201420152016
China 163.5 154.4 127.8131.7134.5
Russia and CIS 51.1 51.5 47.346.449.3
EU (28 countries) 45.8 46.5 48.447.645.5
India 20.7 22.0 24.834.633.4
USA 43.5 40.8 41.235.632.4
North America (excluding USA) 25.9 35.3 26.623.924.2
Japan 13.0 13.4 13.413.115.3
Brazil 7.9 7.7
Rest of Europe 5.6 7.3
South America (excluding Brazil) 13.3 11.4
Australia 1.5 1.3
South Africa 0.7 0.5
Others 51.8 56.6 56.254.458.4
Total 444.2 438.7 412.4414.5415.7

Metalloinvest’s position

Metalloinvest focuses on the most important high-margin products, including high-quality beneficiated concentrate, HBI / DRI and pellets.

Cost of pellet production by key producers, USD / tonne

Cost of pellet production by key producers, USD / tonne Cost of pellet production by key producers, USD / tonneEnlarge

In 2016, Metalloinvest produced 25.2 million tonnes of pellets, becoming the world’s second largest producer with a 6% share of global output.

A diversified portfolio of high-quality high-margin products, a customer-centric approach and long-term partnerships with key customers around the world ensure Metalloinvest’s sustainable development and financial stability even amid market uncertainty.

Nazim Efendiev

First Deputy CEO,
Sales Director

Hot Briquetted Iron / Direct Reduced Iron market

HBI / DRI (hot briquetted iron and direct reduced iron) is an important component in the production of high-quality steel grades, which enable the Company to maximise its returns in the steel segment. HBI / DRI is a multipurpose, high-quality and effective addition to scrap metal that can be used at integrated facilities and mini plants in electric arc and basic-oxygen furnaces.

Due to its high production efficiency, HBI / DRI is one of the most high-potential iron ore products. Currently, there is a trend towards building new electrometallurgical production facilities, which are increasing steelmaking efficiency and require purer raw materials, including HBI / DRI and ferrous scrap.

Global HBI / DRI production is highly concentrated. According to CRU, HBI / DRI output decreased by 4.4 million tonnes in 2016 on the back of production cutbacks in India over the year. Amid competitive prices for scrap and a shortage of energy resources, HBI / DRI production in India fell to 14.2 million tonnes (down 23% in 2015). In 2016, Iran became the world’s largest HBI / DRI producer with an output of 16.2 million tonnes (+1.7 million tonnes y-o-y).

HBI / DRI production by country and region, million tonnes
2012 2013 201420152016
Iran 11.8 14.5 14.614.616.2
India 20.1 17.8 18.118.514.2
Russia 5.2 5.3
Saudi Arabia 5.7 6.1
Mexico 5.6 6.1
Rest of America 2.6 2.9
Egypt 2.8 3.4
Trinidad and Tobago 3.3 3.3
Venezuela 4.5 2.8
Africa (excluding Egypt) 2.1 2.4
Malaysia 2.0 1.4
Others 8.3 9.6
Total 73.5 75.5 75.872.668.2

Cost of HBI / DRI production by key producer, USD / tonne

Cost of HBI / DRI production by key producer, USD / tonne Cost of HBI / DRI production by key producer, USD / tonneEnlarge

Metalloinvest’s position

The Company’s long-term strategy is largely focused on developing its production of iron ore products with high added value, primarily HBI. Metalloinvest has at its disposal high-quality iron ore resources and access to Russia’s gas pipelines, ensuring an uninterrupted supply of natural gas, used in the direct iron reduction process. This enables the Company to produce high-quality HBI / DRI, while also keeping its environmental impact to a minimum. Metalloinvest possesses both the required resources and the necessary expertise for HBI / DRI production.

A drop in global supply of metallised products allowed Metalloinvest to reinforce its leadership on the merchant HBI market. As the world’s largest supplier of merchant HBI, Metalloinvest uses all available opportunities to meet growing demand from high-grade steel producers.

The Company enjoys a sustainable position in the HBI / DRI market, especially in Europe and North America. Over the last three years, Metalloinvest has been the world’s leading producer of commercial HBI, with a market share of over 40%, and is the only HBI / DRI producer in the CIS. The Company’s management believes that Metalloinvest’s geographical and commercial prospects will enable it to boost its share of the global merchant HBI market.

The Company is currently implementing its largest project to increase the share of high value-added products, the construction of HBI-3 Plant at Lebedinsky GOK, which will begin operations in Q2 2017. Its launch will ramp up the Company’s HBI / DRI production capacities by 1.8 million tonnes per annum.

The Company is strategically well-positioned to retain its leadership position in the global HBI / DRI landscape due to its iron ore beneficiation technologies, access to gas pipelines and implementation of strategic investment projects.

Metalloinvest and global HBI export, million tonnes

Metalloinvest and global HBI export, million tonnes Metalloinvest and global HBI export, million tonnesEnlarge

Steel market

According to CRU, global steel output declined by 0.67% in 2016 to 1,609.6 million tonnes. Stronger domestic demand for rolled steel in China and more stringent control by the Chinese authorities over rolled steel exports led to a drop in finished rolled steel exports to 108.4 million tonnes (down 4% year-on-year, according to WSA) and a certain easing of pricing pressure across regional markets.

Steel output by country and region, million tonnes
2012 2013 201420152016
China 731.0 822.0 822.8803.8808.4
Rest of Asia 295.8 301.6 316.9309.0303.2
Europe 208.5 205.0 207.7202.3198.0
North America 121.6 119.0 121.1110.9110.6
CIS 110.7 108.4 106.1101.6102.2
South America 46.4 45.8 45.043.940.2
Middle East 25.0 27.0 30.029.429.0
Africa 15.3 16.0 14.913.712.2
Oceania 5.8 5.6
Total 1,560.1 1,650.4 1,670.01,620.41,609.6
Steel consumption by country and region, million tonnes
2012 2013 201420152016
China 721.0 806.9 794.6754.9756.3
Rest of Asia and Oceania 279.6 288.9 305.0316.1325.3
Europe 172.3 177.1 182.2190.3190.5
USA, Canada and Mexico 124.3 123.5 136.5126.4123.5
CIS 58.5 58.5 57.452.249.7
Central and South America 48.7 50.5 48.745.438.3
Rest of the world 85.5 85.5 93.295.793.9
Total 1,489.8 1,591.0 1,617.51,581.01,577.5

Metalloinvest’s position

The Сompany is the leading regional producer of niche rolled steel products. According to Chermet Corporation, Metalloinvest accounted for around 7% of Russia’s steel output in 2016. The Company is the leading Russian producer of bearing steel, high-grade long steel products for the automotive and metalware industries, and heavy plate steel for bridge construction.

As the regional and domestic leader in niche rolled steel products, Metalloinvest boasts a wide product range and works in partnership with Russian and international customers from various industries.

As the Company operates in a highly competitive environment, its management focuses on improving the quality of its steel products: high-quality long steel products at OEMK, including SBQ and QWR, and heavy plate at Ural Steel.