Construction boom supports steel industry in Russia

Looking back to the 2006 Russian domestic steel market, we can see that the construction boom in Russia was in large part responsible for the results achieved by the domestic steel industry. Starting from the middle of the summer last year, the majority of steel producers in Russia almost completely switched to domestic sales. For instance, MMK increased its domestic longs sales by 50 percent and its flats sales by 17 percent year on year in 2006. The demand from the construction sector was so high in the early autumn that the Russian domestic producers were almost able to ignore the developments in their major export markets, maintaining their prices at an elevated level up to the end of the year. The increase in long products consumption in the Russian domestic market was very significant in 2006 - approximately 1.5 times higher than in 2005. Furthermore, the inability of the domestic producers to satisfy the growing needs of the construction sector allowed exporters from the other CIS countries to enter the market. In the middle of the autumn, the Russian construction demand for rebar was so big that it even enabled Egyptian and Turkish producers to enter the domestic market. It is worthwhile to notice that not only long products were sought after in the Russian domestic market. According to the statistics for 2006, the construction industry increased its consumption of flats by 20-25 percent year on year. In addition, the enterprises specializing in the production of metal constructions increased flats consumption by 44 percent. As a result, flats makers supplied more than one million metric tons to these two industries in 2006. Thus, the increase in domestic sales in 2006 due to the construction boom in Russia amounted to 300,000 metric tons of flat products. The increased demand for finished products in the domestic market, in turn, compelled domestic producers to increase their semis consumption. Thus, in 2006 the consumption of billets and slabs in the Russian domestic market showed a four percent positive growth compared to 2005. In 2007, the Russian domestic steel market is expected to follow a similar trend. Even now, because of relatively good weather conditions in Russia, many construction firms have already returned to the market. This has led over the last two weeks to an increase in domestic demand and consequently to a rise in prices. Up to now, these upward trends have been seen only for long products; however flats will not be too far behind.