Annual Report 2007 - Severstal

Pipe industry
In 2007, the steel consumption in the pipe market was some
5.6 million tonnes – without seamless pipes – which is 15–18%
larger than it was in 2006.
The pipe industry is divided into two segments: producers
of pipes for the oil and gas industry and producers of pipes for
the public utilities and housing sector.
The oil and gas industry pipe market saw strong demand,
with a large number of announced projects for construction of
oil and gas pipelines, and by growing competition among the
pipe producers.
The public utilities and housing sector pipe market shows
demand growth tied to more residential construction. The
principal risk for the steel producers is in the growing consumption
of plastic pipes.
Machinery building
In 2007 the size of the market for metal products for machinery
building was approximately 6.7 million tonnes, which is 7–9%
larger than in 2006. The market is characterised by stable
consumption growth, especially in railway machinery, handling
machinery, agricultural equipment, extracting and metallurgical
equipment.
Construction and Steel Service Centres
In 2007, this segment consumed almost 18 million tonnes.
The segment grew by 13–14% in comparison with 2006, while
construction industry growth was just over 10%. One important
growth factor was the implementation of a top priority national
project called “Accessible and Comfortable Housing for the
Citizens of Russia”.
Outlook for 2008
The outlook for 2008 is positive for the steel and mining
industries, particularly for the emerging markets and integrated
steel producers.
The global steel market is expected to be robust in most
regions. Despite recent problems in the financial sector, the US
market will benefit from reduced steel inventories, the weaker
US dollar and increased ocean freight rates causing reduction
of imports, while rising infrastructure spending and demand for
durable goods from the emerging economies will sustain global
steel demand growth.
It is likely that European economic expansion will decelerate
compared to 2007 given the higher euro exchange rate and the
overall slowdown in the global financial sector.
The global steel supply-demand balance is likely to
remain tight given the few capacity additions planned for 2008
outside China.
A significant increase in raw materials prices will lead to a
sharp rise in steel costs for non-integrated steelmakers. We expect
these to rise by more than US$100/tonne compared to 2006.
In this environment, global steel prices are expected to rise
substantially in 2008.
The key question is whether steel companies will be able to
pass all the cost increases on to customers and sustain their own
margins. Upstream-integrated steel producers from emerging
regions are particularly well placed for 2008 given higher raw
materials prices and strong demand from domestic economies.
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