1. The world steel market balance and price in 2009 SE UPE Co. Developed by UPE Co., Ukraine The DELPHICA project

2. 1. The basic assumptions for 2009 market scenario SE UPE Co. Most significant real economic stimulus plan: USA ($700 bn.), China ($586 bn.), Japan ($437 bn.), EU ($260 bn.), Russia ($200 bn.) etc.  Expected government financial aid (up to $10 trln.) aimed to stabilize credit market will exceed banking write-offs ($1 trln.) substantially. So, the policy of authorities and Central Banks will be strong enough to put the global financial turmoil under the control. But it takes at least all the next year to get recovery.  Strategically the world steel demand will remain high due to the sustainable economic growth of developing countries  The infrastructure projects backed by the state and targeted funds finance will support steel market in 2009

3. 2. Macroeconomic background for 2009  World growth will slow to 1,0% in 2009 influenced by financial crisis (3,7% in 2008)  United States and other advanced economies lead recession, with GDP fall 0,3% in 2009 (increase 1,4% in 2008)  Emerging and developing economies are likely to weather storm better, but not insulated, with growth up to 5,1% in 2009 (6,6% in 2008)  Global inflation will lower in 2009 to 3,1% comparing with 5.6% in 2008  Real estate, construction, finance, retail and automotive will be most affected by world financial crisis in 2009  Infrastructure projects in BRIC and Middle East countries would remain global steel consumption drivers next year  Annual average oil price (Brent) for 2009 – $55 per barrel SE UPE Co. Source: UPE Co., IMF, World Bank

4. 3. World steel consumption 2009 (forecast) SE UPE Co. Region200720082009 2009- 2008 % 07/06 % 08/07 % 09/08 EU27220,6205,3186,3-19,03,7%-6,9%-9,3% Europe other34,933,832,1-1,75,2%-3,2%-5,0% CIS66,563,564,00,510,0%-4,5%0,8% NAFTA157,9147,3132,9-14,4-8,8%-6,7%-9,8% Latin America46,545,042,8-2,214,0%-3,3%-4,9% Africa & Middle East 83,886,081,9-4,122,1%2,7%-4,8% Asia (w/o China)274,4271,1253,1-18,06,7%-1,2%-6,6% China434,3445,0455,010,013,0%2,5%2,2% World w/o China894,0861,0801,8-59,24,6%-3,7%-6,9% World total1328,31306,01256,8-49,27,2%-1,7%-3,8% The world steel consumption in 2009 will decrease from 1306 (2008) to 1257 mln.t. or approx. by 50 mln. t. China will show the increase up to 10 mln. t. but it will not be enough to prevent global descending trend. EU, NAFTA, Japan will demonstrate the most severe drop next year.

5. 4. Steel consumption in BRIC SE UPE Co. Among BRIC countries only China will preserve upward trend in steel consumption supported by huge government investment. But it will not be enough to prevent descending world tendency in the whole

6. 5. Steel consumption in USA, EU, Japan SE UPE Co. The downstream tendency in advanced countries will determine the falling trend in 2009 global steel consumption. The recession in construction, automotive, machinery will mostly affect steel sector

7. 6. World steel consumption in 2003-2008- 2009 forecast SE UPE Co. The decrease in 2009 will bring back world steel consumption to the level of 2006

8. 7. World crude steel production 1998-2009f SE UPE Co. To consume excessive inventories and restore world market balance it will be necessary to cut global production to 1 230 mln. t in 2009 or by 104 mln t (-8% y-to-y)

9. 8. Steelmaking capacities and production SE UPE Co. Despite market depression and cut of production, global steelmaking capacities will continue to expand by 59 mln. t. in 2009, thereby reviving the “excessive capacity” problem

10. 9. World steel capacity utilization SE UPE Co. With the 77% capacity utilization rate next year, world will see a lot of inefficient and excessive mills. Due to the lack of orders the market in 2009 should be considered as the market of buyers and the producer’s profit will be restricted by 5-10%

11. 10. The reduction of world steel trade 2008/2009 SE UPE Co. extra-regional import The steel consumption decrease combined with trade protectionism can lead to sharp fall in world trade by 35-40 mln. tonnes in 2009. It will hit first of all the leading exporters such as China, Russia, Ukraine and Turkey Source: UPE Co

12. 11. Import niche 2009 and export potential of the main market players Under conditions of import drop the most risky zone will be “inhabited” by the mills producing ordinary steel products at high production cost

13. 12. Steel cost changes for integrated mills in Ukraine 2009 SE UPE Co. In view of market reality raw materials suppliers will be forced to reduce the price, thereby cost production will drop approx. by $250 to to the level of $390 per ton in case of Ukraine ItemUnit consumption per 1 t steel % price changes per unit price changes per unit, $ cost changes, $ Iron oret1,79-55%-60-107 Coking coalt0,79-57%-170-135 Steel scrapt0,25-19%-60-15 ElectricityKWh392,60%00 Railway transport$/t20,000%00 Natural Gasm 3139,9120%0,057 Ferroalloyskg11,00-50%-0,83-9 Total-260 Price for other raw materials is expected to be unchanged in 2009

14. 13. Billet price, fob Black Sea SE UPE Co. This year price trend developed very dramatically Now the steel price are getting back to its historical orbit

15. 14. Forecast steel price in Ukraine 2009 SE UPE Co. The very smooth price trend in the first half of 2008 will be followed by some uptrend in the second half of 2009

16. The DELPHICA project tel/fax (+38044) 484-64-83 e-mailexpert@expert.kiev.ua wwwhttp://www.expert.kiev.ua/delfika/