Balli Steel Warns Russian Steel Market Continuing To Face Challenging Conditions
on: July 15, 2009, 12:42 am
Balli Steel, one of the world's largest privately owned
independent commodity traders, has warned that despite the bottoming
out of the global steel market, the Russian market will continue to
face challenging conditions for the next 12 to 18 months. Speaking at
Metal Bulletin's 7th Russian Steel Summit in Moscow, Nasser Alaghband,
Director of Balli Steel, outlined that the strengthening Rouble and the
impact of the annual Iron Ore negotiations could weaken the
competitiveness of Russian producers.
According to Balli Steel, the Russian Steel market has
undergone considerable growth and wide scale transformation over the past decade
with gradual modernisation of plants and production facilities. Russia is able to
take advantage of abundant natural resources and competitive labour costs to produce
steel on the lower side of the cost curve and has established a strong position as
the 4th largest producer of steel in the world.
Balli Steel highlighted that the downturn in global steel prices has not been easy for the
majority of Russian producers to absorb, with many in the midst of extensive capital
investment initiatives on plant modernisations and new acquisitions.
Steel consumption appears to be down by 40% year-on-year, with Russia's largest
steel company, Severstal, expecting domestic demand to fall by 25% in 2009. Balli
Steel anticipates that domestic demand will remain low as the country heads towards
its first recession for 10 years.
However until very recently the decline in domestic steel demand was offset by
export growth, with the weak Rouble, which had declined by as much as 36% against
the Dollar in the previous year, making Russian Steel an attractive proposition to
importers. However, in the last month, the Rouble has undergone a substantial
appreciation which has put considerable pressure on the export prices. The profit
margins for many of the Russian Mills have begun to shrink, with most producers now
operating at close to cost. As a result, any further strengthening of the Rouble
would put increasing pressure on Russian steel exports.
Nasser Alaghband, Director of Balli Steel commented: "Global steel prices have
shown signs of recovery in recent months. However, whilst price improvements have
been promising, steel has not recovered as well as some precious metals or energy
commodities. We believe that steel prices will increase further amidst the global
economic revival, although the recovery will not be smooth or uniform and individual
markets, such as Russia, will continue to react differently to both domestic and
Balli Steel is part of Balli Holdings, is a large private, multi-national
corporation, chaired by Vahid Alaghband. The company is headquartered in
London, but has offices in Dubai and other key business hubs around the world.
Balli was established in 1982 and operates a number of affiliated companies
specialising in commodity trading, industrial, real estate and private equity with
operations in over 20 countries. Together with its affiliated companies, Balli
employs over 2,000 people worldwide.
Balli Steel is the company's principal operating subsidiary, and is one of the
largest independent traders of steel in the world. Balli Steel provides raw
materials and steel to a number of market segments including steel mills, steel
service centres, pipe and tube makers, the oil and gas industry and other designated
end-user segments such as the packaging products industry.
The company's real estate operations currently have are invested in a significant
property portfolio comprised of over 900,000 sq ft of property under development
with a Gross Development Value of some $800 million, and an additional 2 million sq
ft and a GDV of almost $2.5 billion in the pipeline.
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