1. Market perspectives for CIS steelmakers: order books and steel prices in 3Q-4Q 2010 Presented by Dr. V. Vlasjuk UPE Co. Research&Consulting, Ukraine 8 th Russian Steel Summit Moscow, 29-30 June 2010

2. 1. Steel prices for rebar and hot-rolled coil in 2009-2010 Steel prices grew rapidly by 150-200$/t in the 1Q-2010 on the wave of market recovery expectations and projected cost increase. This growth was largely due to the speculative component and was not supported by fundamental factors of demand, that led to a sharp drop of steel prices in the 2 quarter Source: UPE Co. ? I. Current market analysis

3. 2. Crude steel production in the world in 2006-2010 Crude steel production in 2010 will exceed the record of 2007 by 44Mt. China remains the leader with steel production approx. 630Mt (by 66Mt more than in 2009) Source: WSA, UPE Co. forecast UPE Co. forecast 1230Mt UPE Co. current forecast I. Current market analysis

4. 3. Crude steel production in China and the rest of World World crude steel production in Jan-May 2010 have exceeded pre-crisis level Jan-May 2008 by 13.5 Mt Source: WSA I. Current market analysis

5. 4. Crude steel production in January-May 2007-2010 For the first 5 months 2010 China has increased steel production by 52Mt, while the rest of World - by 88 Mt versus 5 months 2009. Nevertheless, the steel production in the rest of World remains lower than in the pre-crisis 2008 (less by 40 Mt 5months2010-to-5months 2008) Source: WSA I. Current market analysis

6. 5. Prices for raw materials (iron ore) Substantial steel production increase and enhancing demand have resulted in the iron ore price raise by 93% in 2Q-2010 Source: UPE Co. Itabira fines, 64.2% Fe $/t fob Brazil (to Asian market) Ore fines price (63,5% Fe) in Chinese spot market, $/т CIF I. Current market analysis

7. 6. Prices for raw materials (coking coal, scrap) Similar to iron ore price, substantial steel production increase and enhancing demand have resulted in the coking coal price raise by 55%, scrap price by 38% Source: UPE Co. $/t fob Australia, Peak Downs $/t fob Rotterdam, HMS -1&2 80:20 I. Current market analysis

8. 7. Steel consumption and macroeconomic indicators in leading economies Fundamental factors (such as industrial production) remains weak in developed countries, meanwhile Asia including China and India demonstrates strong performance Source: WSA, Bloomberg, Eurostat, UPE Co. est. Industrial production, % (y/y) finished steel, Mt I. Current market analysis

9. 8. Steel capacity input and utilization in 2003-2010 Input of new steel capacities has continued despite crisis in 2008-2009. Presently more than 475 Mt of steel capacities stay idle. Intensive capacity increase (up to 600Mt) in 2003-2009 combined with the market shrinking creates the basis for the permanent market imbalance in future, especially if growth rate of Chinese steel consumption will slow down Source: WSA, OECD, UPE Co. est. Mt Ukraine utilization, % World 475 Mt I. Current market analysis

10. Source: ECB, Bloomberg IndicatorsJul 08Jan 09Jun 10 3 month USD LIBOR/OIS spread, b.p.7012033* Commercial bank deposits at ЕCB, $ bn0,6360214 Price per share JP Morgan Chase on NYSE, $412339 * Correspond to pre-crisis level which made up 10-15 (June 2007) 9. Some macroeconomic and financial indicators Recent deepening of some financial indicators was the result of sovereign debt problems in Eurozone to be happened in April-May 2010. In turn, these problems caused the significant degree of economic uncertainty, particularly in banking and finance sector of European countries. II. Background for market development in 3Q-4Q 2010

11. 10. Industrial production growth and global finished steel consumption in 3Q-4Q 2010, Mt We expect that global finished steel consumption in 3Q 2010 will demonstrate slight decrease and in 4Q 2010 only a slight increase – by 1% or 3,4 Mt due to decreasing rate of economic growth in key steel-consuming countries. Source: UPE Co. est. II. Background for market development in 3Q-4Q 2010 Forecast Source: JP Morgan Chase, Bloomberg Industrial production, % (q/q) Consumption, Mt

12. 11. Forecast of raw material prices in 3Q-4Q 2010 Prices for iron ore and coking coal will rise by 23% and 12.5% correspondingly in 3Q-2010. It should be expected that price will increase by 5% in 4Q-2010 Source: UPE Co. est. $/t fob Australia, Peak Downs Itabira fines, 64.2% Fe $/t fob Brazil (to Asian market) Forecast II. Background for market development in 3Q-4Q 2010

13. 12. Steel cost in Ukraine in 1Q-3Q 2010 Steel cost will increase by 20$/t in 3Q-2010, mainly due to growing iron ore prices. Source: UPE Co. est. 399 472 493 $/t II. Background for market development in 3Q-4Q 2010

14. 13. Billet cost for main exporters in 3Q-4Q 2010 Billet cost will increase by 12-25$/t for main exporters of China, Russia and Ukraine in 3Q-2010 Source: UPE Co. est. $/t II. Background for market development in 3Q-4Q 2010

15. 14. Current State of Rebar market During the 5M 2010 world rebar output exceeded consumption by 5 mln tonnes (5%surplus). Consequently, the price of rebar has fallen far below the cost at the end of 2Q 2010, as well as under the influence of speculative factors. Source: UPE Co. est. III. Forecast & scenarios

16. 15. Rebar Market in 3Q 2010 In spite of seasonal lull in construction, rebar consumption in 3Q 2010 will fall just by 154 thou tons (1,1%) in regions-main importers of Ukrainian rebar. That will cause a 1% decrease of Ukrainian rebar stock of export orders to 0.65 mln tons in 3Q. Source: UPE Co. est. III. Forecast & scenarios

17. 16. Forecast of Rebar Price in 3Q-4Q 2010 Source: UPE Co. est. III. Forecast & scenarios Lowering inventories in main consuming regions will allow producers to raise the price for rebar in 3-4Q 2010 to offset current negative producers` margins.

18. 17. Current state of hot-rolled coil market During first half of 2010 production over paced consumption by 15 mln tones. Speculative price hike, which took place in March, together with increased stocks resulted a dramatic price fall in May - June. Currently stock inventories have decreased to low levels. Source: UPE Co. est. III. Forecast & scenarios

19. 18.Expected consumption and production cost in 3Q-4Q In 2 nd half of 2010 stable growth of consumption is expected. Consumption of HRC in 3 rd quarter is estimated at 152 mln t, in 4 th quarter – 154 mln. tones. Export order books of Ukrainian producers will increase by 1% to 0.9 mln tones in Q3. Production cost will increase also. CIS slab estimated production cost is $508mt in 3 rd quarter Source: UPE Co. est. III. Forecast & scenarios

20. 19. Forecast of hot-rolled coil price in 3Q-4Q 2010 The price will go up and will reach $650 in October. After that a correction expected during which the price will go down to $620 in December. The annual average price will stay at $600. The producer’s order books will grow up till the end of the year. Source: UPE Co. est. III. Forecast & scenarios

21. DELPHICA Steel market: ●Analytics ● Forecast ● Scenario tel/fax (+38044) 484-64-83 e-mail admin@delphicasteel.com wwwhttp://www.delphicasteel.com