afghanistan resource corridor development …...and in particular to assess the viability and...

P R I V A T E & C O N F I D E N T I A L

AFGHANISTAN RESOURCE CORRIDOR DEVELOPMENT

regarding

ASSESSMENT OF DOWNSTREAM MINERALS MARKET

made for

Inception report

Cordellt BV

Van Ogtropweg 55

1948BA Wijk aan Zee

The Netherlands

Tel +31 653170943

Email: [email protected] 14/04/2012

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mailto:[email protected]

wb420137

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WB456288

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WB456288

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79684

ASSESMENT OF DOWNSTREAM MINERALS MARKET

Inception report 2


Table of Contents

1. Introduction ............................................................................................................................ 3

2. Objective and methodology ................................................................................................... 4

3. Executive summary and conclusions ..................................................................................... 6

4. Quantitative Market Evolution ............................................................................................... 8

4.1 Understanding the Steel Industry ..................................................................................... 8

4.1.1 Structure .................................................................................................................... 8

4.1.2 Recycling ................................................................................................................. 11

4.1.3 Growth factors ......................................................................................................... 14

4.1.4 Investment Criteria .................................................................................................. 16

4.2 General overview of the current situation (snapshot 2010) .......................................... 18

4.3 Projected evolution of supply and demand .................................................................... 19

4.3.1 China .................................................................................................................. 19

4.3.2 India .................................................................................................................... 23

4.3.3 Iran ..................................................................................................................... 27

4.3.4 Saudi Arabia ....................................................................................................... 30

4.3.5 Kazakhstan ......................................................................................................... 34

4.3.6 UAE ................................................................................................................... 37

4.3.7 Other Central Asia (Afghanistan, Pakistan, Uzbekistan, Turkmenistan,

Tajikistan, Kirghizstan) .................................................................................................... 40

4.3.8 other Gulf States (Oman, Qatar, Bahrain, Kuwait, Iraq) .................................... 44

4.4 Preliminary conclusions on the quantitative market evolution ...................................... 47

5. Key issues with regard to the assessment of the projected steel mill potential .................... 49

6. Prospects for further investments in steel production facilities in Afghanistan ................... 50

7. Discussion topics for addressing the question regarding alternative scenario’s ................. 51

8. Project schedule .................................................................................................................... 53


Inception report 3


1. Introduction The World Bank (WB) is helping the Government of the Islamic Republic of Afghanistan to

prepare a Resource Growth Corridor Strategy anchored to upcoming large mining

investments.

The latest large scale mining tender in Afghanistan concerned the Hajigak iron ore deposit.

In this tender three out of four blocks, containing some 1.5 – 1.8 billion tons of iron ore (grade

62 – 63%), were awarded to the AFISCO consortium. The proposal of the consortium

included the commitment to build a 7 million ton per annum steel mill in Afghanistan. Within

this commitment it is assumed that proximate coking coal deposits will be developed for

utilization in the steel plant.

In order to further the assistance for the Resource Growth Corridor strategy development,

and in particular to assess the viability and potential of these AFISCO consortium plans and

to consider possible alternative scenario’s against the objectives of the strategy, an

assessment of downstream mineral markets is to be made. The focus of this assessment is

on the steel market in the wider region.

This inception report presents

the initial result of the analyses of the quantitative market evolution

and

identification of the key issues with regard to the assessment of the projected steel

mill potential,

the initial view on prospects for further investments in steel production facilities in

Afghanistan

discussion topics for addressing the question regarding alternative scenario’s.

The inception report is first of four reports. Next reports will address:

first overview of steel mill potential

final report of the evaluation of the steel mill potential; and first results of the

assessment of further investment potential in steel making capacity as well as

alternative scenario’s.

Draft final report comprising: a) quantitative market evolution; b) evaluation of

AFISCO proposed steel mill potential; c) evaluation of further potential steel making

projects; d) alternative scenario’s.


Inception report 4


2. Objective and methodology Objective:

The objective of this report is threefold:

Provide a quantitative market evolution in the geographical areas of interest as

defined in the ToR of this project. This should enable the Resource Corridor Strategy

team of WB to understand the general steel market dynamics in perspective of the

strategy to develop a steel industry in Afghanistan.

Raising the key issues to be addressed, coming forth of an initial review of the

proposed AFISCO steel mill project, with regard to the steel mill potential. And raising

key issues with regard to the potential of further downstream development and

alternative scenario’s. These should enable the WB team to participate in solving

these issues with local knowledge and consistently with other specialist projects.

Providing a work plan to deliver.

Methodology:

The report is based on desk research. In order to meet the objectives several steps have

been taken:

I. Quantitative Market evolution:

a. Identification of the relevant geographical market. Guided with the ToR, the market

arena is identified as:

We added a view on Kazakhstan to the analyses because of its geographical position

and some similarity / analogy with Afghanistan mineral resource position and

development strategy. And we added Kyrgyzstan because it is present in the same

geographical area.

China is an obvious dominant factor in the World market, and as such certainly also in

this region. For the quantitative evolution we will elaborate in depth on China before

using the same methodology, in some cases a bit more shallow, on the other


Inception report 5


countries.

b. Definition of products. For the current state of development, the steel market is

segmented in the “flat product” and “long product” market for carbon steel qualities.

c. Analysis of production and trade statistics (a.o. World Steel Statistics, UN trade

statistics, specific import export data a.o. from ISBB, literature search) as well as

market study data and analyses of SteelConsult International. Deeper research is in

progress, and in the final report the numbers will be updated if needed. Only minor

differences, with no impact on main conclusions, may be expected.

Market assessment is made in terms of “finished steel”. For India, Pakistan,

Uzbekistan, Kazakhstan and Iran, this term refers to the equivalent of production and

demand of “Hot Rolled flat steel” and “Hot rolled long steel”. For all other countries

reviewed the term refers to the pure finished products (cold rolled, coated etc.)

leaving the steel mill. These differences in definition have no impact on the analyses.

Minor quantities of special steels (e.g. stainless) could not be excluded. Also these

have no material impact on the analyses and conclusions.

d. Analyses of relevant economic and demographic data (source UN, OECD and CIA

fact book statistics): such as population, employment, literacy, GDP, energy

consumption. Growth forecasts of EIU (WB).

e. Reference group for the historic analyses to reference long term growth scenario’s:

France; Greece; Brazil; Colombia; South Africa; Angola; Vietnam; Korea S, (each

continent 2); EU-27 and USA.

f. Literature search on steel industry in neighboring countries and Gulf States.

g. Defining plausible growth scenario’s.

II. Raising issues to be addressed

a. Reviewing database of the WB Resource Strategy team.

b. Set out issues regarding concept and cost using Cordellt and SteelConsult

International database as a reference.

c. Analyzing trends and technologies in steel making projects

III. Setting schedule.

a. Starting point of ToR and Technical Proposal

.

b. Review of available information (quantity / quality check)

c. Discussions with WB project leader (& team).


Inception report 6


3. Executive summary and conclusions

Initial quantitative analyses:

At current, within the total area observed, supply and demand of finished steel in total

is in equilibrium.

There is substantial growth perspective, both in demand and in supply

China is, in the evaluation, a dominating factor. Changes in China will change the

balance in the steel industry. Effects are unpredictable, but likely play out more in the

raw material market than in the finished steel products market. We see China not as

a market opportunity for Afghanistan future steel industry. It is a, temporarily, thread.

India is a net importer of finished steel products. Though the country strives for self

sufficiency, and the potential is there, the industry will not likely be able to follow the

demand growth in the same pace. For Afghanistan future steel industry, India is to be

regarded as “oversea international market” given the location of the demand.

As a market for an integrated steel plant in Afghanistan can be considered:

a. The regional market of Central Asia (the Stan countries), for which competitors

face similar or even higher logistical cost.

These markets, except for Pakistan, have hardly any rerolling capacity, so the

plant should market finished products. Long products, eg reinforcement steel and

sections, should be considered key in the product mix (from a demand

perspective). Given a wide spread -due to many uncertainties- the total market

gap that opens through growth till 2025 could range from 5 mio ton (conservative)

to 25 mio ton (optimistic). Excluding Pakistan this gap is 3 – 14 mio ton.

b. Iran, considering a specialized product mix (likely flat products)

c. The international world market in case products, including the logistical cost, can

be cost competitive FOB the nearest international sea port. Bench mark prices are

Turkey’s export

Pictographic result of the analyses:

Net exporter or unattractive self

sufficient market

Potential trade partner with strong

domestic steel industry

Net importer, with no or minor

steel industry

Likely net importer, but with risk

to turn to self sufficiency


Inception report 7


Key issues with regard to the projected steel mill potential:

To date no specifics are known of the steel mill plan.

Key issue is to define the scope and to soundly meet investment criteria

Transport cost and “time to market” is to be considered a priority concern

determining the market potential and thus the scale and product mix of the

investment

Prospects for further investment in steel production facilities:

The proposed steel mill project is ,as such, not a blockade for further investments in

steel production facilities. The issue here is specialization and market.

Alternative scenario’s:

Alternative scenario’s are to consider breaking up the various phases of the total

production line from raw material processing to finished products. Each phase could

be considered a separate investment with separate market opportunities. These

range from refining/sorting DRI quality ore to pelletizing to rerolling activities and

several steps in between.


Inception report 8


4. Quantitative Market Evolution

4.1 Understanding the Steel Industry

In this section we explain in general terms the main mechanisms and trends in supply and

demand in the steel industry. It is the objective to provide an understanding that enables

appreciation for the growth scenario’s that are provided in section 4.3.

4.1.1 Structure

In rough lines the steel industry as a whole can be modeled as follows:

source WSA Looking one step deeper in the steel production process one can distinguish the source of

metallic content (iron ore and scrap) and the basic steps in the process:

source WSA

In the above schedule the step to convert iron ore to iron is pictured through a blast furnace

operation which feeds hot metal (liquid iron) to the next phase, the Basic Oxigen Furnace


Inception report 9


where steel is made. It must be noted that there are alternative technologies for the reduction

process in the Blast Furnace. These technologies are often referred to as DRI (Direct

Reduced Iron). Key difference is that for DRI no coking coal is required, but a gas. An other

difference is that the DRI process depends on high grade iron ore, which is less commonly

available and thus sells at a premium. The next pictures show the main principles of both

processes. Left the Blast Furnace, right the DRI:

,

The output of a DRI process is in general fed to an Electric Arc Furnace (EAF).

It is important to note the liquid steel undergoes a metallurgical process before it is fed into

the next phase. The metallurgy fixes the exact metallurgical properties of the steel by adding

alloy metals or by degassing. These properties are required for the end product application.

In other words, even though steel is referred to as a commodity, it is already early in the

production process that it gets specific customer or application properties.

The crude (liquid) steel is the bases for the production of semi finished and finished steel

products.

Basic choices have to be made by casting the metal into

billets (for long products):

Or casting the metal into slabs (for flat products):

There is also a technology to cast direct into sheet. In such process

casting and rolling are integrated in the same process step from

liquid to solid product.


Inception report 10


Billets and slabs are defined as semi finished products. These products are traded in the

market. Customers are traders; integrated steel mills who are (temporarily) short in metal

production; and re-rollers, companies that do not produce metal but specialize in rolling semi

finished to finished products.

Semi finished products are rolled and may be coated to be converted to finished products.

The rolling operation (and sometimes an annealing operation) provide for the final product

properties. Finished products have to meet the exact requirements for the end application of

the steel.

Finished products are distinguished in:

- Long products: wire rod, bars, reinforcement bars, construction profiles.

- Flat products: hot rolled, cold rolled; and as a next step coated (zinc coated, paint

coated, tinplate etc.)

Finished products are the end product of the steel industry. The process from crude steel to

finished products incurs yield losses (some 10% - 15%, but this differs subject to product and

process). This means that care should be taken in the expression of capacity, often in terms

of crude steel, and market, in general finished products.

The finished products are traded, sold to steel service centers, sold to semi product

producers (first transformation such as tube making, beams from plate etc.) or directly sold to

processors who make end products / applications.


Inception report 11


4.1.2 Recycling

“Old steel”, or recycled steel as we showed in the steelmaking model in 4.1.1 serves as an

important secondary raw material in steelmaking. It is one of the key characteristics of steel

that eventually much, almost all, of what has been put in the market will be recycled.

Recycled steel, or scrap, is used in all steelmaking processes. The following schedule shows

the main steelmaking processes as used today, and marks in red the entry of scrap.

Obviously the full scrap based EAF process (on the right) is, from a CO2 and energy

consumption point of view regarded as the most sustainable.

Source WSA, Cordellt

In the past the fully recycled steel

could only be applied in basic

construction applications. New

technologies have shifted the

limitations, and today’s recycled steel

is an equal substitute in the majority of

markets. The illustration, here left,

indicates the technology trend.

As a consequence the competitive position of integrated steel mills (iron ore based) and

scrap based mini mills has shifted.


Inception report 12


The average lead time of steel returning from the market in the form of scrap in the

steelmaking process is more than 15 years1. This means that with a 5 - 6% growth in steel

demand, there is a steady and growing ratio of scrap content in crude steel production. The

strong acceleration of steel demand and production as of 2002, to a very large extend due to

China market development, has changed this ratio negatively:

The graph shows that the scrap content in global crude steelmaking has reduced from over

40% to 35% at current. This is entirely due to the strong growth and the time lag before scrap

returns to the steelmaking process.

Mature markets distinguish from growth markets on this aspect. In the USA, a clear mature

steel market, the scrap content in crude steelmaking is 70% The EU following closely.

Comparing the emerging market of China with the mature, but still growing, EU market

shows as follows:

Source: WSA,

CAMU,

EUROFER,

Bureau of

International

Recycling

1 Rule of thumb is that after 15 years more than two third of the metal that has hit the market 15 years before

turns to scrap.

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Source: WSA, SteelConsult analysis

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STEEL SCRAP FOR STEELMAKING IN THE EU (MILLION TONS)

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Inception report 13


Turkey, just outside the geographical scope of this report (but with significant market

positions in the Gulf states), is a good example

how the scrap trend works out in the industry.

Turkey is emerging as a major steel producing

country, using a.o. the mature EU market as a

scrap source.

The EAF furnace is primarily used for scrap

processing, while the OH/BOF furnaces are part

of integrated mill processes (iron ore based)

The graph illustrates the increasing importance of

recycled steel Source: MetalMiner

The relevance of these trends is that in maturing markets there is growing overcapacity in the

integrated steel mills (for iron and steel making) even if demand for steel consumption is not

declining. Examples are found in the steel crises in USA and EU in which this factor played a

(in general reviews under estimated) role.


Inception report 14


4.1.3 Growth factors

As a common rule, consumption growth is driven by economic growth and population growth.

However, for steel demand, two important factors influencing this rule must be considered:

- Infrastructure

- Trade oriented industrialization

- GDP breakdown (agriculture, industry, services)

The next graph shows some major economies and their development in steel consumption.

This graph clearly shows the growing demand for steel due to the reconstruction of

infrastructure in Germany and Japan after World War 2. The USA, less affected by the war

peaked its industrialisation in the 60ties after which the economy shifted rapidly more

towards services, while increasingly importing fabricated goods from amongst others Japan,

Germany and later Korea and now China.

South Korean steel consumption started to take off after the Korean war, and specialized its

industry in heavy machines and shipbuilding for export. Because of the relative small size of

the country this continues to show clearly in the growth of apparent consumption per capita

(steel is consumed, ships are exported) correlating strongly with the growth of the world

economy. Japan consumption is relatively high because of its quite export oriented industry.

China’s investments in infrastructure and industrialization took off when the country opened

to integrate in the world economy.

Research2 to the correlation between GDP, GDP / capita and steel use, confirm a relation,

without offering a simple formula to predict steel use. This is, because several dimensions

2 A.o. Trends and Developments in the Intensity of Steel Use, an econometric analyses

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'45 '47 '49 '51 '53 '55 '57 '59 '61 '63 '65 '67 '69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09

China Germany Japan USA South Korea

Consumption of finished steel per capita (kg/head)

Source: WSA, SteelConsult analysis

South Korean peak

1,211kg/head (2007)

Japanese peak

751kg/head (1973)US peak 700kg/head

(1968)German peak

662kg/head (1970)


Inception report 15


play a role and after a certain peak, steel consumption start to decline. With the graph in

mind we show some key variables for the same countries in 2011:

Source: CIA World Factbook, UN, Cordellt analyses, 2011

Where South Korea stands out in its high steel consumption / capita, it is compared to

Germany, Japan and USA also highly industrialized. The USA, with its relatively low steel

consumption / capita has a low industry ratio in its GDP.

Looking to China it is likely that further growth will change the ratio

agriculture/industry/services in the GDP. In growth expectations for the steel consumption

many factors have to be taken into account, like innovations changing steel intensity in many

applications and a different approach to the development of infrastructure. Another aspect is

the difference in aging of the Chinese population with at current 74% of the people in the

productive age of 16 – 65. (Germany 66% , USA 67%).

With these considerations it is plausible that Chinese steel consumption will peak somewhat

lower than the level of 700 kg/capita as it did in Germany, Japan and USA. And following the

patterns of Germany and Japan, and taking into account GDP growth predictions (8 – 9%,

WB), this peak is likely to be achieved in or (well) before 2025.

In section 4.3 we will build consumption growth scenario’s following the same analyses,

starting with the current position on the growth curve.

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agriculture industry services


Inception report 16


4.1.4 Investment Criteria

Until mid 20th century it was quite common that investments in Greenfield iron making and

iron making steel industry were located in proximity of iron ore and coal deposits. Around

these steel plants other industries and urban centers arose. Since than many things

changed:

- The markets for iron ore and coal globalised, and these competitively priced traded

raw materials out priced many expensive captive mining operations of existing steel

mills. Very Large vessels reduced transportation cost of ore and coal.

- Steel industry, in many countries till than state owned, is largely privatized.

- Environment protection cost went up, increasing the cost of many mining operations,

and of many steel works.

- Industry globalised. Steel processing plants (automotive, packaging, construction,

tubes etc.) were founded near their markets rather than near a steel plant.

- Steel companies first withdraw their investments in mining(80íe and 90ies), the

mining industry is concentrating in large global companies and than in the last decade

steel industry is strategically investing in mining again.

- Slight concentration of the steel industry, the emerging of global leader Acelor Mittal

and other large multinational steel companies.

- The rise of China as mega producer/consumer.

- Technology developed.

o In the front end: Scrap based mini mills became competitive with large scale

integrated mills. New iron making technologies (a.o. direct reduction) lowered

the investment threshold for iron based mini mills. New metallurgy

technologies, steel qualities became more sophisticated. Continuous casting

replaced block casting. Strip casting was introduced.

o At the back end: Increased shape and surface control. Thinner gauges in flat.

Metallurgy and heat treatment methods improved creating a wider range of

qualities. Integrated cast-roll operations. Coating operations (metallic and

paint). New logistical technologies, just-in-time like scheduling. Customization.

o Labor intensity reduced, while required education level increased.

Given fairly good functioning international markets for raw materials and “commodity end

products” (construction steel), the main -economic- differentiator in the steel industry is in the

logistics of raw materials and finished goods.

Today, against this background, investment decisions for the location of greenfield iron and

steel plant investment will be evaluated against the following key criteria:

- access to competitively priced raw materials (subsets of: iron ore, coal, gas, electric

energy, scrap) against low transportation cost.

o for bulk goods (coal, iron ore) this translates to direct access to water,

preferably deep water ports (> 16 meter)

o for scrap inland waterways and rail & road

o electricity, a strong grid that can take peaks created by EAF batch processing

o gas, uninterrupted gas supply

o (process water)


Inception report 17


o (flexibility of supply)

- access to the market for by-products (gas, slag, etc.)

- access to consumers of semis [billets, blooms, slabs] (other steel industry and re-

rollers) against low transportation cost

o waterway; rail; road (with minimal modal change)

- access to developed end product markets against low transportation cost and short

lead times (the latter subject to the target market segment)

o a home market, so limiting the dependency on export markets somewhat

o market segmentation for product mix with sufficient volume

o low transportation cost in comparison to competition

waterway; rail; road (with minimal modal change)

o swift adaptation to market demand

- environmental conditions / restrictions (possibly including CO2 rights)

- proximity of human resources, both

o technically skilled, experienced, disciplined

o low middle cost (not very critical)

- investment climate

o proximity of a service industry (this is also operational critical)

o investment cost

o licensing / permits

o security

o financial aspects (tax, levies, duties, import/export tariffs, capital restrictions

etc.)

The first 4 “-“ are economically structural for the lifetime of the plant. Therewith these are

dominant over the others. Decision makers with a short term view might see it different,

leading to white elephants and economic disaster on the long run. Eye catching examples

are the Delta Steel (running under capacity) and especially the integrated Ajaokuta Steel

Company, Nigeria, in which billions of dollars have been wasted.


Inception report 18


4.2 General overview of the current situation (snapshot 2010)

Positioning Afghanistan central in the regional map, one can see it surrounded with six

countries that can be characterized as major steel producers3. In finished steel quantities:

China (604 million tons, dwarfing all

others), India (61 million tons), Iran (12

million tons), Saudi Arabia (8 million tons),

Kazakhstan (4 million tons) and UAE (3

million tons).

Of these countries three are at current net

importers, India (5 million tons), Iran ( 5

million tons) Saudi Arabia ( 3 million tons)

and UAE (3 million tons). The export

excess of China (15 million tons) and

Kazakhstan (2 million tons) almost entirely

compensates these import deficits.

Source: Cordellt analyses

The other central Asian countries, Afghanistan, Pakistan, Uzbekistan, Turkmenistan,

Tajikistan, Kirghizstan, have produced all together less than 2 million tons against a joint

consumption a little more than 4 million tons.

The other Gulf states, Oman, Qatar, Bahrain, Kuwait, and Iraq, produced some 2 million tons

of finished steel against an aggregate consumption of 5 million tons.

sources:

WSA; UN

Trade

Statistics;

SteelConsult

International

Obviously in terms of steel volume, China dwarfs India. But India dwarfs all others as well.

The conclusion is that for finished steel products there is an almost equilibrium in the total of

the observed area. The current production deficit of the observed area is < 1%.

(since China doubled its export excess in 2011, the deficit of the region flipped to an excess)

3 See yellow stars. Major is > 3 million tons. Figures source: WSA, UN Trade statistics, SteelConsult

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Inception report 19


4.3 Projected evolution of supply and demand

Before concluding on scenario’s for the period 2014 – 2025 in the area, we will briefly

discuss likely scenario’s for each of the countries. For the basic understanding of some key

factors driving the growth we refer to section 4.1.3. Growth scenario’s, certainly when they

are specific like for steel demand / supply, are speculative and serve a strategic

understanding, not a prediction.

4.3.1 China

The development of China’s steel market reflects in the next graphs:

sources: WSA; UN Trade Statistics; SteelConsult International Watch scale differences !

China has been able to meet the growing domestic demand with

an almost similar development of effective production capacity in

both, flat products and long products.

China tends to be self sufficient in this “strategic” material, and

imports & exports are marginal compared to the market (2010

import total 18.000.000 tons being 3% of demand).

The origin of imports make logistically and quality wise sense, with

Japan and South Korea as main sources (related to Japanese &

Korean car manufacturing in China, high quality, low cost logistical

connections).

The future of China is subject to many analyses and elaborations. There is general

consensus that China’s economy maintains a significant growth for the years to come. Likely

to and beyond 2025. But consensus fails with regard to the pace of development and its

consequences for the steel industry.

At current China’s steel consumption of 427 kg per capita is at level with mature

industrialized countries like Germany, Japan and substantially above that of the USA, France

and e.g. Brazil, Colombia, South Africa.

However these countries are in different phases of their development, and as indicated in

section 4.1.3 the economic sector breakdown of China is quite different compared to the

industrialized countries.

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300.000

350.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

ChinaProduction finished steel

flat

long

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

ChinaImport of finished steel

flat

long

01.0002.0003.0004.0005.0006.0007.0008.000

Japan South Korea

Taiwan EU Kazakhstan Russia

x 1

.00

0 t

on

s

main countries of origin

Imports of finished steel into China 2010


Inception report 20


Comparing the recent development of China’s steel consumption per capita with a reference

group, shows as follows:

Sources: WSA, UN Trade Statistics, SteelConsult International, Cordellt

Like all other major economies did in the past, it is likely that China’s consumption is to peak,

before it will settle eventually at a point comparable to that of the leading industrialized

countries. And that settling point is close to where the consumption / capita is roughly

speaking now.

We define 3 scenario’s:

Taking into account the changes in technology and material use (e.g. thin gauge high

strength steel, substituting traditional steels in various applications, more steel applications,

the aging population etc.) that took place since the consumption of the industrialized

countries peaked in the period 1965 – 1975 ( see 4.1.3), we estimate peak demand at 85%

(scenario 1), 90% (scenario 2) and 95% (scenario 3) of the 700 kg / capita reference. With

these scenario’s a gradual shift towards a higher service content and a relatively lower

industry content in GDP is assumed.

We assume the population to continue to grow at the current rate of 0,48%/a. (approx UN

estimate)

For the growth to 2014, we take preliminary steel consumption figures for 2011 (9%) and

follow the analyses of Moody’s, who conclude growth will slow down for various short term

reasons, such as finishing some major projects, to 5%.

0

100

200

300

400

500

600

700

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

kg /

cap

tita

finished steel consumption

China

Germany

Japan

USA

EU-27

France

Greece

Brazil

Colombia

Kazakhstan

South Africa

Angola

Vietnam


Inception report 21


The timing of the peak is resulting from extrapolated growth, and the peak scenario’s as

described here above.


And then there is the question of product composition in terms of flat and long products.

Where in China the ratio “flat / long” at current is 53 / 47, it is in general that the more

economically mature an economy is, the more the ratio shifts from dominant long to

dominant flat.

The concrete intensive “building or construction” industry is the major driver in the long

products market. Key drivers for the flat products are next to the same in the production of

consumption and investment goods.

Sources: WSA, UN Trade Statistics, SteelConsult International

The relevance is that flat steel is in general produced in large integrated steel mills. As

shown in section 4.1.2 there is a growing capability of scrap based flat producers (Nucor

Steel, Louisiana, USA leading the way), but for the high end applications the technology of

0

200.000

400.000

600.000

800.000

1.000.000

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

20

19

20

21

20

23

20

25

x 1

.00

0to

ns

Consumption scenario'sfinished products in China

scen 1

scen 2

scen 3

actual

0%10%20%30%40%50%60%70%80%

Finished steel consumptionRatio flat products / total products

427 kg / cap

560 kg / cap

595 kg / cap

630 kg / cap

China


Inception report 22


these mini mills is still limited. In China with limited scrap availability the capacity investments

for flat products are entirely in integrated mills.

When the availability of scrap in China will start to grow rapidly in the next decade, this will

putt (price) pressure on the long product producers, specifically on construction steel. This

will certainly help the (so far failing) Chinese industrial policy4 to push small, rather polluting

and old equipment based, steel plants for these construction steels out of business. New

capacity in long products will take advantage of the changing scrap market and turn to

electric (EAF) mini mills.

Chinese crude steel production capacity utilization is reported at 78% by OECD for 2010

while the Chinese iron & steel association reports at 80%. In 2011 less than 50 mio tons of

new capacity came on stream while output increased with 60 mio tons, so improving the

utilization rate slightly.

It is not possible to predict steel capacity developments in China in the period 2014 – 2025

other than following the Chinese official policy to aim for lower overcapacity, to cut down on

inefficient dated capacity and strive for self sufficiency. So even with more aggressive growth

curves than we took into account, it is most likely that investments are made to meet the

demand. With regard to raw materials China has secured imports of iron ore (60% of the

demand is imported) with strategic overseas investments. For coking coal the country has

been 90% self sufficient, but with exhausting reserves, new reserves in Mongolia are under

development. The major question is what happens when trend changes occur: Domestic

scrap is becoming available, steel demand growth diminishing or even eventually turning into

decline.

conclusion

In the period 2014 – 2025, the Chinese market will inevitably undergo significant changes.

Demand might peak, like other major economies experienced in the past, or rapidly reduce

growth. Resulting changes relevant for the market area observed are the following potential

consequences:

growing availability of domestic scrap

gradual market mix shift towards more flat products

risk that China, during the change towards sustainable demand levels, will increase

export of long products because of overcapacity and scrap availability

China will gradually take out 100 mio ton of dated, inefficient capacity, reducing but

not escaping the problems of overcapacity.

China is not likely an interesting export market for an Afghanistan steel producer if

such steel producer is not world-class-quality-low-cost (CIF Chinese ports). Only in

such situation a niche trading position replacing Japan or Korea is thinkable.

4 In 2009 China announced to stop new steel capacity investments for 3 years and to close 25 mio tons out of

almost 100 mio tons outdated capacity. The new steel investments have been reduced (not stopped) and the

outdated capacity remains running.


Inception report 23


4.3.2 India

The development of India’s steel market reflects in the next graphs:


India is at current a net importer of finished steel, specifically in flat

products.

This imbalance is believed to be temporarily, and just a phase in

which new steel capacity projects run behind the rapid

development of demand.

Projects in India tend to materialize slower than plan, amongst

others because of bureaucratic procedures and availability

problems with suited sites. Indian private steel companies have

expanded by investing abroad, pending their domestic projects.

The origin of imports make logistical sense and are likely

predominantly cost driven. Most of India’s industry is located in shore areas.

Analysts are in consensus about the growth phase of the Indian economy. Though clearly

more in the beginning of the growth curve than China, there is not much doubt about the

sustainability of current growth. The GDP and composition of GDP compares as follows.


Growth of GDP will push the relative position of agriculture down, the growth of a product

industry and the growth of the building sector might go hand in hand, it is likely that India is

entering a phase in which the building sector (long products) will outpace the products

industry.

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

IndiaConsumption of finished steel

flat

long

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

IndiaProduction finished steel

flat

long

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

India Import of finished steel

flat

long

-5.000

-4.000

-3.000

-2.000

-1.000

0

1.000

2.000

3.000

4.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x. 1

.00

0 t

on

India trade balance

flat

long

0

500

1.000

1.500

2.000

2.500

China South Korea

EU Ukraine Japan Russia

x 1

.00

0 t

on

Main countries of origin

Imports of finished steel into India2010

$ 0

$ 10.000

$ 20.000

$ 30.000

$ 40.000

$ 50.000

$ 60.000

South Korea Germany Japan USA China India


US$ / capita

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

70,00%

80,00%

90,00%

South Korea Germany Japan USA China India

Break down of GDP



Inception report 24


With 55 kg / capita the steel consumption of India is low compared to industrialized countries,

but in the past 7 years the growth accelerated.

Comparing India’s steel consumption per capita with a reference group, shows as follows:


The “peak of consumption” comparable to what industrialized countries experienced, as we

discussed in section 4.1.3 is obviously not in sight for India in the next 15 years. But

continuing, slightly accelerating growth comparable to the pattern we see in Vietnam, is

plausible.

Like China, India is consuming

slightly more flat than long

products. It is more likely that in

India this ratio will first sink

because of the expected

dominance of the building sector

in this phase of the growth curve,

after which eventually the ratio of

the industrial countries will be

reached.


0

100

200

300

400

500

600

700

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

kg /

cap

tita


India

Germany

Japan

USA

EU-27

France

Greece

Brazil

Colombia

Kazakhstan

South Africa

Angola

Vietnam

0%10%20%30%40%50%60%70%80%


India


Inception report 25


We make two scenario’s, one with continued growth of consumption in the current pace of

8.1% for both products, and one in which demand for long products will outperform with an

additional 2 %/a, so that the ratio flat / total consumption shifts to 45%.

We assume the population to grow with an average of 1% /a (currently 1,3%, but analysts

expect a slow down even though the population is relatively young).

In these scenario’s the consumption per capita will grow from the current 55 kg/cap to 153

kg/cap respective 176 kg/cap.


With growth continuing in this pace scrap will remain relatively scars, and most capacity

investments will be in integrated mills and/or DRI based mini mills.

With a reported capacity utilization of 89% (ministry of external affairs, 2011), the India steel

industry requires investments to expand. Even though we believe that this figure is

overstated, it is clear that the India steel industry operates above the world average

utilization rate of 70% (OECD). Rising imports proof that growth of demand cannot be met by

domestic supply. The structure of the industry includes a substantial state owned sector (

SAIL, producing 18% of total India output of crude steel).

Current expansion plans of the steel industry, underpinned with well defined projects, make

that the above mentioned demand forecast in 2015 / 2016 can be met with domestic

production. The current capacity growth is 5 years ahead of the plans of the Ministry of Steel.

Still, in India plans have a tendency to delay. And as below table shows that a substantial

part of the expansion is with SAIL, there is reason to be careful:

0

50.000

100.000

150.000

200.000

250.000

300.000

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

20

19

20

21

20

23

20

25

x 1

.00

0 t

on

Consumption scenario's finished products in India

scen 1

scen 2

actual

55 kg / cap

176 kg / cap

153 kg / cap


Inception report 26


India is among the 5 largest iron ore producers in the world, and its 28 billion tons of (mostly

medium grade) iron ore reserves ranks it as the sixth nation in the world. Exploration is

running behind the growth of the steel industry. Within India the Ministry of Steel and Ministry

of mining fight over the strategic meaning of export. With increased duties on export, in order

to favour the national steel industry, export went down with 25% or more. Most of the iron ore

export goes to China. In any case the reserves of iron ore is not the biggest worry of India’s

steel industry, it is the pace in which exploration can grow. Imports are expensive due to lack

of deep water ports.

With coking coal the picture is quite different. The metallurgical coal is estimated to be less

than 17% of India’s coal reserves, and is therewith in short supply. India imports most of the

coking coal requirements. This situation has also driven India to become the largest DRI

(direct reduced iron, not needing coking coal) producer in the world. India produces at

current with 26 mio ton 35% of total world output of DRI.

Conclusion

In the period 2014 – 2025, the market of India will likely continue its current growth path. For

the market area observed, the following issues can be considered relevant:

Lack of coking coal puts pressure on the development of new integrated steel mill

capacity. Slow expansion of iron ore exploration adds to this problem.

On short and medium term, imports volumes might rise as production capacity

growth is likely to stay behind growth of demand.

If China’s market is indeed maturing, India might see consequences in slowing iron

ore exports and increasing import opportunities for scrap, such improving long term

conditions for domestic steel making.

India might for the short and medium term be an attractive export market for an

Afghanistan steel producer if the products can be shipped competitively priced to the

ports of India. Since the basic conditions in India are favourable to produce

domestically, and even to become net exporter, the development of India’s steel

industry needs to be monitored closely and questions are justified on a long term

export to India position.

India Crude steel capacity (million tons)

x million ton

2010 2015F

TATA Steel (India) 6,8 12,7

Essar Steel 4,6 9,2

Ispat 3,6 3,6

JSW steel 7,8 11

RINL 3,5 6,3

JSPL 2,9 6,9

SAIL 13,8 24,7

Bushan Steel 0,3 5,1

Bushan P&S 1,4 1,4

other 28 31,6

72,7 112,5

Source: BNP Paribas, Ministry of Steel


Inception report 27


4.3.3 Iran

The steel market statistics of Iran are more problematic than is the case in other countries.

But we believe that overview gives a good impression of the market situation:


Iran is net importer of both, flat and long products. In addition Iran

imports semis to make up for the shortfall of crude steel, to utilize

its rolling and finishing capacity.

Problematic international relationships and boycotts have impacted

the Iran economy. Amongst others slowing down the development

of domestic steelmaking capacity. Recently major new capacity

came on stream after various delays. The origin of imports does

not necessarily show economical rational, because of the impact of

politics.

It is the outspoken official policy of Iran to become self sufficient in

steel. Crude steelmaking capacity is to grow from the current 17

mio tons to exceed 45 mio tons in the next 10 years.

Where many fundamentals characterize Iran as a growth economy, it is for several reasons

not clear what direction it will take. There is a clear demographic imbalance, with a wave of

young people coming in the labour market. But infrastructure is mature compared to many of

its neighbours.


Growth of GDP is expected, but many factors contribute to uncertainty on how and in what

pace. Taking into account the more mature infrastructure, the steel consumption of Iran can

take a more modest road than China’s. The influx of the young population into the economic

$ 0

$ 10.000

$ 20.000

$ 30.000

$ 40.000

$ 50.000

$ 60.000

South Korea Germany Japan USA China Iran


US$ / capita

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

70,00%

80,00%

90,00%

South Korea Germany Japan USA China Iran

Break down of GDP


0

200

400

600

800

1.000

1.200

x 1

.00

0 t

on

main countries og origin

Import of finished steel into Iran 2010

0

2.000

4.000

6.000

8.000

10.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

Iran Consumption finished steel

flat

long

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

Iran Production finished steel

flat

long

-4.000

-3.500

-3.000

-2.500

-2.000

-1.500

-1.000

-500

0

500

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

Iran trade balance

flat

long

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

IranImport of finished steel

flat

long


Inception report 28


activities might motivate an equal growth pattern for both, long and flat products to continue

for a while.

The Iran consumption of 216 kg / capita in 2010 is almost equal to that of France.


What growth path Iran steel consumption will take from here is highly uncertain.


The relatively high proportion of infrastructural development and housing in the economy

shows in the ratio flat products / all products. In a accelerating growth scenario the initial

demand increase will be with long products, reducing this ratio. Longer term the fabrication

sector will drive a higher proportion of flat products.

We define two scenario’s:

0

100

200

300

400

500

600

700

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

kg /

cap

tita


Iran

Germany

Japan

USA

EU-27

France

Greece

Brazil

Colombia

Kazakhstan

South Africa

Angola

Vietnam

0%10%20%30%40%50%60%70%80%


Iran


Inception report 29


One where Iran continues in a kind of isolation and the economy will develop more and more

autarkic like. Consumption will slowly grow (2%), mainly related to the growth of the

population.

The other one where Iran slowly returns as full participant in the international markets,

growing a trade balance. Setting growth at 7%.

We assume the population to continue at the current 1,2% growth rate.


The more aggressive growth path of scenario 2 meets in 2025 the 45.000.000 ton target, that

the Iran administration set as target for the capacity of the steel industry in the next decade.

The Iran steelmaking capacity will continue to grow in near future since 8 steelworks are

currently under construction. Each project (DRI based mini mills) is located in less developed

regions and has capacity of over 1 mio ton. These additions, all geared at long products, will

bring Iran steelmaking capacity close to 25 mio ton.

Conclusion

Iran is currently net importer of steel.

Iran strives hard for self sufficiency in steelmaking and current capacity with taking

the projects under construction into account will meet demand to the end of this

decade under low growth scenario’s.

Strategic planning of government sets capacity targets that meet demand in more

aggressive growth scenario’s before 2025. No concrete projects yet.

For Afghanistan Iran might become a trading partner when the Afghan steel industry

would specialize, e.g. on high quality flat products.

0

10.000

20.000

30.000

40.000

50.000

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

20

19

20

21

20

23

20

25

x 1

.00

0 t

on

Consumption scenario's finished products in Iran

scen 1

scen 2

actual

300 kg / cap

600 kg / cap

216 kg / cap


Inception report 30


4.3.4 Saudi Arabia

The development of the steel market of Saudi Arabia shows as follows:


Saudi steel industry emerged in the eighties to curb the rising

import deficit and to industrialize the country.

Embarking on the DRI technology, the location advantage of

abundant natural gas reserves, power generation, ports to access

the world market for iron ore and scrap and in due time export steel

products.

The industry is now producing both, long and flat products. Though

in Saudi Arabia many projects are undertaken which drive

domestic demand and, which are sensitive to oil price changes.

The origin of imports show a logical logistical pattern for the mix of

construction steels and quality steels required.

Most economic activities in Saoudi Arabia are related to the oil industry and construction

industry. A substantial contingent of foreign workers (counted as inhabitants) makes it hard

to compare the Saoudi situation based on statistics.


The economic growth perspective of Saoudi Arabia depends very much on the oil market.

However industrial developments in refining petrochemicals, aluminum, steel and other base

materials have created a sustainable economic position. Social changes in the Arabic world,

and the demographic situation with a growing young population drives a wave of new mega

projects, such as a row of 5 new cities to be created in the next decade.

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

9.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

Saudi Arabia Consumption of finished steel

flat

long

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

Saudi Arabia Production of finished steel

flat

long

0

500

1.000

1.500

2.000

2.500

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

Saoudi Arabia Import of finished steel

flat

long

0

100

200

300

400

500

600

700

800

Turkey Japan Egypt EU UAE South Korea

x 1

.00

0 t

on

Astitel

Imports of finished steel into Saoudi Arabia 2010

-2.500

-2.000

-1.500

-1.000

-500

0

500

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

Saudi Arabia Trade balance

flat

long

$ 0

$ 10.000

$ 20.000

$ 30.000

$ 40.000

$ 50.000

$ 60.000

South Korea Germany Japan USA China Saudi Arabia


US$ / capita

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

70,00%

80,00%

90,00%

South Korea Germany Japan USA China Saudi Arabia

Break down of GDP



Inception report 31


The current oil price level and the upcoming projects and the general housing and

infrastructural requirements drive steel demand to new peaks. Eventually a gradual shift

away from industry and building up a service industry will take place. But such might happen

slow because of the political and cultural setting of the country.

Sources: WSA, UN Trade Statistics, SteelConsult International, Cordellt There is no good growth scenario for Saoudi Arabia finished steel consumption. Taking into

account the upcoming projects (budgets add up to $ 400 billion in the next 5 years) and the

expected continuation of high or rising oil prices a continued growth to a peak level of 595 kg

/ capita is not unrealistic. Given the project dominance, demand might spike.

We consider 2 scenario’s, both with a peak of 550 kg / capita:

One peaking in 2020 and one peaking in 2025.

We assume population to grow with the current pace of 1,5% (when a downturn in the oil

market takes place, a decline of population is a risk)

0

100

200

300

400

500

600

700

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

kg /

cap

tita


Saudi Arabia

Germany

Japan

USA

EU-27

France

Greece

Brazil

Colombia

Kazakhstan

South Africa

Angola

Vietnam


Inception report 32



After the peak, as long as population remains growing and the oil industry in Saoudi Arabia

continues to flourish steel consumption might stabilize at 400 kg / capita, with a relatively

high level of construction projects. When one of these factors fail, this level would more likely

sink to below 300 kg / capita.


The construction dominance reflects in the low ratio of flat products in the total product mix.

The manufacturing of welded tubes is one of the main flat products consuming industries. Of

course flat products are also used in the construction industry.

The Steel producing industry in Saoudi Arabia did rapidly develop. Healthy starting points

include a strong domestic demand, abundant gas reserves and industrial sites with direct

port access. Hadeed, the first and largest steel mill, has developed to a fully integrated mill

based on DRI iron making and EAF smelting (defined as super mini mill) with a capacity of

more than 7 mio t/a. It is producing long and flat products. Other steel mills developed, Al-

Tuwairqi steel is another DRI based mini mill with recently expanded capacity of 3 mio ton

long products. Countries third producer in the making is Rajhi steel, aiming for 2 mio ton

0

5.000

10.000

15.000

20.000

25.0001

99

5

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

20

19

20

21

20

23

20

25

x 1

.00

0 t

on

Consumption scenario's finished products in Saoudi Arabia

scen 1

scen 2

actual

0%10%20%30%40%50%60%70%80%


595 kg / cap

595 kg / cap

Saoudi Arabia


Inception report 33


capacity. When these current projects produce at capacity, the current domestic demand can

be met. In addition there are several expansion plans worked out.

There is nothing against further expansion, to meet future domestic demand and to

eventually position as exporter. Nothing, except that the available gas assigned to industrial

use is limited, due to large gas export obligations and high prices. This is a complex matter,

not easily resolved.

Conclusion

Saoudi Arabia has a healthy outlook for growing demand based on concrete mega

projects in the country and a growing population.

There are clear question marks with regard to the production capacity expansion

projects that should meet the growing demand

Within the next 5 – 10 years large import needs should be expected ( potentially

peaking at 5 – 10 million ton / a), after which decline of import volume is inevitable.

Saoudi Arabia has the potential to become a net steel exporter on the long run.


Inception report 34


4.3.5 Kazakhstan

sources: WSA; UN Trade Statistics; SteelConsult International Watch scale differences ! Kazakhstan has been assigned the role of steel producer in the

central planning that took place 1950 in the Soviet era. The

investment is based on low grade iron ore reserves and coal

reserves. Kazakhstan is amongst the 10 largest coal producers in

the world, and underground mining in the Karaganda region

supplies the integrated Temirtau steel mill, which is now owned

by world leading steel maker Arcelor Mittal.

In 2007 the KSP steel mill in Aktauwas inaugurated. The plant is

designed for tube making, based on EAF melted steel (scrap and

iron input). Casting ltd In Pavlodar is another steel mill producing

billets and rebar.

Kazakhstan has a positive trade balance. Imports are mainly long construction steels, using

back haul transport capacity.

The Kazakhstan is the largest economy in Central Asia. The economy has undergone

tremendous development, and although there is significant energy and minerals reserve, the

administration strives for a diversified modern economy.


Kazakhstan is, like Afghanistan, land locked. However, good rail connections with Iran, China

and Russia support the export of steel and raw materials.

Consumption of steel is at 160 kg / capita closing in on mature industrialized countries

0

500

1.000

1.500

2.000

2.500

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

Kazakhstan Consumption of finished steel

flat

long

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

Kazakhstan Production of finished steel

flat

long

0

500

1.000

1.500

2.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

Kazakhstan Imports of finished steel

flat

long

-2.000

-1.000

0

1.000

2.000

3.000

4.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x1.0

00

to

n

Kazakhstan trade balance

flat

long

0

50

100

150

200

250

300

350

400

450

500

Russia China Uzbekistanx

1.0

00

to

nmain countries of origin

Imports of finished steel 2010

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

70,00%

80,00%

90,00%

South Korea Germany Japan USA China Kazakhstan

Break down of GDP


$ 0

$ 10.000

$ 20.000

$ 30.000

$ 40.000

$ 50.000

$ 60.000

South Korea Germany Japan USA China Kazakhstan


US$ / capita


Inception report 35



With continuation of current economic policies a gradual growth of steel consumption is to be

expected. The growth rate of the population is low (0,4%), and there is no imbalanced

contingent of young people coming to the labor market.

We define two scenario’s:

One of modest growth towards a consumption level of 300 kg / capita in 2025. And one

assuming large projects to take place to expand exploration and restructuring infrastructure

and housing.

The population is assumed to grow at 0,4%.


0

100

200

300

400

500

600

700

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

kg /

capt

itafinished steel consumption

Kazakhstan

Germany

Japan

USA

EU-27

France

Greece

Brazil

Colombia

South Africa

Angola

Vietnam

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

x 1

.00

0 t

on

Consumption scenario's finished products in Kazakhstan

450 kg / cap

300 kg / cap

160 kg / cap


Inception report 36


In 2010, the ratio of flat products consumption was disturbed by reduction in construction

activity. Looking forward, the consumption of long products will dominate, and the ratio will

be closer to 30%


The Kazakhstan steel industry is export oriented. The Temirtau integrated mill has a current

capacity of 5.5 mio ton. Arcelor Mittal announced investments to expand the capacity to 7

mio ton. The KSP steel mill is scheduled to double capacity to 0,55 mio ton. Rebar capacity

of Casting ltd in Pavlodar is scheduled to double to 0,5 mio ton, to consume half of its 1 mio

ton billet output. (the president of Kazakhstan has announced a national target of 11 mio ton

capacity by 2015, but this will not materialize)

In all scenario’s the steelmaking capacity can meet domestic demand. But there is an export

position in flat products that will be maintained or regained. Because of sanctions (boycott)

the market of Iran is down for Temirtau. (normal level is 1.2 mio ton export to Iran). Increased

exports take place to China and CIS (a.o. Russia).

Another aspect is that the capacity for long products is short, and would need new

investments to meet demand.

Conclusion

There is growth perspective for steel consumption, but Kazakhstan will remain a net

exporter.

A discrepancy between long production and growing demand will require new

investments.

Since Mittal, now Arcelor Mittal, took over Temirtau integrated steel plant, it has not

been aggressively expanding (in fact not expanding at all), which raises questions on

the competitive position of the plant in the “World market”. Export is limited to Iran,

CIS and China and the central Asian region.

Kazakhstan has a lot in common with Afghanistan in terms of availability of raw

materials, and logistical positioning in Central Asia. But it has a developed steel

industry and a fairly sized home market.

0%10%20%30%40%50%60%70%80%


Kazakhstan

normalized


Inception report 37


4.3.6 UAE

The United Arab Emirates steel market for finished products shows as follows:


The UAE as a assembly of city states, is importing steel to meet its

high demand for steel. This high demand is driven by construction

projects.

Like in Saoudi Arabia, also the UAE created a steel industry based

on DRI technology, the location advantage of abundant natural

gas reserves, power generation, ports to access the world market

for iron ore and scrap and perhaps in due time export steel

products.

The industry is producing primarily long products, including

recently large (mega) beams to supply to the regional market.

The main supplier in the region for rebar is Turkey.

The economy of the UAE relates strongly with the oil industry. As city states, the economy is

not comparable to the large industrialized or emerging countries.


A significant part of the population registered in the UAE are foreign workers. As a result, the

population can change quite rapidly when the economy changes. Where estimates of

economic growth see the nominal GDP of the UAE quadruple before 2030, it is in any case

hard to believe such would be the case for the steel consumption as well.

0

2.000

4.000

6.000

8.000

10.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

UAE Consumption of finished steel

flat

long

0

500

1.000

1.500

2.000

2.500

3.000

3.500

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

UAE Production of finished steel

flat

long

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

9.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

UAEImports of finished steel

flat

long

-9.000

-8.000

-7.000

-6.000

-5.000

-4.000

-3.000

-2.000

-1.000

0

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

UAE trade balance

flat

long

0

200

400

600

800

1.000

1.200

1.400

Turkey China South Korea

India EU Ukraine

x 1

.00

0 t

on

main countries of origin

Imports of finished steel into UAE

$ 0

$ 10.000

$ 20.000

$ 30.000

$ 40.000

$ 50.000

$ 60.000

South Korea Germany Japan USA China UAE


US$ / capita

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

70,00%

80,00%

90,00%

South Korea Germany Japan USA China UAE

Break down of GDP



Inception report 38



The comparison with industrialized or emerging economies is meaningless. But it shows that

the consumption in UAE is high against all standards. Failing a significant product industry,

almost all of the consumption is for construction of projects and houses.

There I no doubt that new waves of projects might take place, but eventually the level of steel

consumption will stabilize. Perhaps on a high level, like 700 kg / capita.

We define 2 scenario’s

One with two booming periods and one with one prolonged boom.

We keep population growth at the current 3%


0

500

1000

1500

2000

2500

3000

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

kg /

capt

ita


UAE

Germany

Japan

USA

EU-27

France

Greece

Brazil

Colombia

Kazakhstan

South Africa

Angola

Vietnam

0

5.000

10.000

15.000

20.000

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

20

19

20

21

20

23

20

25

x 1

.00

0 t

on

Consumption scenario'sfinished products UAE

scen 1

scen 2

actual700 kg / cap

2500 kg / cap

2500 kg / cap

2425 kg / cap


Inception report 39


Total steelmaking capacity in the UAE, in terms of finished steel, is exceeding 3.5 mio ton.

The concrete expansion plans of the largest steel mill, Emirates Steel, is to add another 3

mio ton in the next 4 years. And there are other plans on the drawing board for at least

another 3 mio tons, bringing the total potentially close to 10 mio ton.

But, these are plans. Emirates steel has a strong record of realization, but even this company

is confronted with the problems the authorities have to deliver on the energy contracts. Gas

is scars now it is in heavy demand on the LNG market. And in view of the prices

commitments were made exceeding the possibilities to supply all.

Conclusion:

UAE has rapidly developed a domestic steel industry, and there are realistic

expectations for growth in the medium turn, subject to gas supply.

During “construction boom” periods, UAE will remain dependent on imports for

construction steel

Under normalized circumstances UAE is capable of balancing production and

demand, and might even obtain a net export position.

If Afghanistan is to compete for this market, the leading competitor is Turkey.


Inception report 40


4.3.7 Other Central Asia (Afghanistan, Pakistan, Uzbekistan, Turkmenistan, Tajikistan, Kirghizstan)

The combination of the other central Asian states characterizes as a small but growing market


Statistical coverage of these countries is limited and cross trade

within the area is hardly recorded. With reversed search in trade

statistics, and reported volumes of production the market as a

whole can be covered in a reasonable reliable way. Small

production units in who produce subject to scrap and power

availability are not included in the figures we used. These

productions are substantially less than 0,5 mio ton/a and are

consumed within the area. Total market size is therewith slightly

understated.

Including estimates for local production of the small, not

recorded, companies, the following breakdown of consumption

per country can be made:

sources: WSA; UN Trade Statistics; SteelConsult International; Cordellt estimate

These countries are quite diverse in their development, but in all cases the steel

consumption / capita is low.

0

500

1.000

1.500

2.000

2.500

3.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

Other Central Asia Consumption of finshed steel

flat

long

0

200

400

600

800

1.000

1.200

1.400

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

Other Central Asia Production of finished steel

flat

long

0

500

1.000

1.500

2.000

2.500

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

Other Central Asia Imports of finished steel

flat

long

-2.500

-2.000

-1.500

-1.000

-500

0

500

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

Other Central Asia trade balance

flat

long

0

100

200

300

400

500

600

700

x 1

.00

0 t

on

Imports of finished steel in OCA2010

0

500

1000

1500

2000

2500

x 1

.00

0 t

on

Consumption finished steel 2010

020406080

100120140160180200

x m

illio

n

population

0

1000

2000

3000

4000

5000

6000

7000

8000

US

$

GDP / capita (PPP)

0

10

20

30

40

50

60

70

Afghanistan Pakistan Uzbekistan Turkmenistan Tajikistan Kirghiztan

Kg/

cap

ita

Consumption of finished steel / capita

Scources WSA; UN Trade statistics; SteelConsult International; CIA factbook; Cordellt


Inception report 41


Obviously there is substantial growth potential, but at this level of development growth

scenario’s are the more highly speculative.

The economies on average are predominantly rural (urbanization 36%), with agriculture

taking a large part of GDP.


We define 3 scenario’s:

We assume the current population growth of 1,5%/a to continue.

Scenario 3 assumes 6% growth rate, the growth rate of the past 15 years; scenario 1

assumes 10% annual growth and scenario 2 takes 15% annual growth of consumption for

arguments sake.


The major question is whether the region is ready for accelerated growth. Dominant factor in

the region is Pakistan because of its large, and growing population. The state owned

Pakistan steel industry is performing substantially under capacity, and private investments

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

20

19

20

21

20

23

20

25

x 1

.00

0 t

on

other Central Asian States

scen 1

scen 2

scen 3

actual

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

70,00%

80,00%

90,00%

South Korea Germany Japan USA China other Central Asia

Break down of GDP


105 kg / cap

55 kg / cap

30 kg / cap

16 kg / cap


Inception report 42


take place (a.o. Tuwairqi) to enhance iron (not steel) production for export purposes.

Pakistan is the largest net importer of steel in this region. Total rated capacity in Pakistan is

1.100.000 ton of national Pakistan Steel Mills, and 10 others adding up to 400.000 ton of

crude capacity. There are concrete plans to expand PSM to a capacity of 1.500.000 ton, and

less concrete plans to double that number.

Taking Pakistan out of the equation, the same growth scenario for the remaining group of

countries (Afghanistan, Uzbekistan, Turkmenistan, Tajikistan, Kirghizstan) result in the

following:


In these countries the current steel production is 730.000 ton reported (in addition of which

an estimated maximum of 200.000 unreported production takes place. Equally the

consumption of this volume is not included in the statistics). 29% of the consumption is flat

products.

Afghanistan: 2 non reporting mini mills, producing low grade rebar on the basis of scrap.

Availability of scrap is limited and random. Production estimated at 35.000 ton,

capacity at 120.000 ton

Uzbekistan: Uzmetkombinat is the largest steel mill in the region (excluding Pakistan). The

scrap

based mini mill has a capacity of 750.000 ton crude steel, and produced

717.000 tons of finished long products in 2010. The finishing capacity is

1.200.000 ton. There are concrete plans to expand steelmaking capacity, and

to invest in addition in a 30.000 ton seamless pipe mill, before 2015.

Turkmenistan: With the assistance of Turkish Erenco (subsidiary of Erdimir), a green field

mini mill

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

18.000

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

20

19

20

21

20

23

20

25

x 1

.00

0 t

on

other Central Asian Statesexcluding Pakistan

scen 1

scen 2

scen 3

actual

170 kg / cap

90 kg / cap

50 kg / cap

26 kg / cap


Inception report 43


for rebar (100.000 ton capacity) and sections (60.000 ton capacity) was

commissioned in 2009. Scrap based crude steel capacity is 135.000 ton.

Production is not reported.

Tajikistan: Faroz, a trading company, announced plans to join forces with Chinese Yu

Liang Fu

to build a 200.000 ton capacity mini mill for structural steel. The plans seem

still in the air. The country reports no steel production.

Kirghizstan: There is no reported steelmaking in Kirghizstan. (an iron ore processing plan

and

some scrap trading are the nearest activities)

Conclusion:

Pakistan is a big question mark. The country has steel making potential and at

current substantial overcapacity that seems undermanaged. But capacity is short of

demand, fragmented and dated. When development picks up, the demand for steel

can rapidly develop from the current extremely low level. Pakistan is a net importer of

steel, and there are currently no realistic investment plans to meet future demand

with domestic production.

The other Central Asian States have, jointly, also a negative trade balance, covering

50% of demand with production. Main producer is Uzbekistan.

The economies of these countries are quite different, but they have in common that

current steel consumption per capita is low, if not very low. The trend over the past 15

year is upward.

With relatively fast growing, young, populations an important factor for growing steel

production is present. With the exception of Turkmenistan, the GDP’s are low, posing

questions the ability to create investments and development to trigger the demand

growth.


Inception report 44


4.3.8 other Gulf States (Oman, Qatar, Bahrain, Kuwait, Iraq)


We have discussed Iran, Saoudi Arabia and United Arab Emirates

separately because these have clearly defined policies of self

sufficiency in steel, aim for regional export positions, but are

currently the major importers in the region.

The remaining states are grouped because the overall steel market

is relatively small. They are distinct though. Iraq stands out with a

large population and the largest trade deficit in steel.

sources: WSA; UN Trade Statistics; SteelConsult International There is big difference in the situation of these countries, and the steel use / capita ranges

from very low to very high.

In Oman production will rapidly grow, from the current 250.000 ton, since Indian Jindal took

over the Shadeed project at the deep sea port of Sohar. Jindal Shadeed is finishing the

0

1.000

2.000

3.000

4.000

5.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

other Gulf States Consumption of finished steel

Reeks1

Reeks2

0

500

1.000

1.500

2.000

2.500

3.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

other Gulf States production of finished steel

flat

long

0

500

1.000

1.500

2.000

2.500

3.000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

other Gulf States Imports of finished steel

flat

long

-2.500

-2.000

-1.500

-1.000

-500

0

500

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

x 1

.00

0 t

on

other Gulf Statestrade balance

flat

long

0

100

200

300

400

500

600

700

800

900

Turkey Ukraine

x 1

.00

0 t

on

main countries of origib

Imports of finished steel into Iraq

0

200

400

600

800

1000

1200

1400

1600

1800

Oman Qatar Bahrain Kuwait Iraq

x 1

.00

0 t

on

Consumption finished steel 2010

0

5

10

15

20

25

30

35


x m

illio

n

Population

0

20000

40000

60000

80000

100000

120000


US

$

GDP / capita (ppp)

0

100

200

300

400

500

600

700

800


KG

/ c

apit

a

Consumption of finished steel / capita

Scources WSA; UN Trade statistics; SteelConsult International; CIA factbook; Cordellt


Inception report 45


integrated steel works (based on DRI) and its initial capacity of 2 mio ton of semi finished

products (billets& blooms) will be expanded to 5 mio ton, with a large content of finished

products (rebar & light profiles) for export in the region.

Qatar Steel expanded its facilities and produced 1,6 mio ton of finished long products in

2010. Therewith Qatar became a net exporter.

Bahrain operates a rerolling mill for rebar, based on imported billets. But the countries steel

sector is expanding rapidly.

Steelmaking takes place at newly invested USCO, with a capacity of 100.000 ton stainless

steel, with expansion plans for 500.000 ton.

Foulath owned GIIC operates a pellet plant (shipped in iron ore is pelletized for export in the

region to DRI facilities), after the expansion in 2010, the plant has a capacity of 11 mio ton

pellets /a.

Japanese Yamato Kogyo and GIIC have joint forces to set up a DRI based integrated steel

mill in Bahrain for the production of billets, blooms and sections. The capacity of this project

in progress will be 1.2 mio ton.

Bahrain will become a net exporter.

Kuwait Unisteel started in 2001 as a rebar rolling mill importing billets. It now has its own

steel shop with an EAF furnace and billet casting capacity of over 1 mio ton. However, the

production is limited by power availability (and scrap). Production in 2010 was 535.000 ton of

finished products covering almost half of the domestic steel demand.

Iraq covers the largest population of this group, and for the potential steel demand we make

2 (highly speculative) scenario’s:

We assume the population to continue current growth at 2,3%

Scenario 1, assumes a 5%/a growth and scenario 2 a 15%/a growth in steel consumption.


Inception report 46



After in 1980 the, already problematic, production of the 1.2 mio ton rated capacity “State

Company for Iron and Steel” stopped because of the Iran – Iraq war, the country depended

fully on imports. There will have been some unrecorded steel imports, but consumption

remained low and is at current estimated at 50 kg / capita. Obviously the factors for growth in

steel demand are favourable. A young and growing population, clear requirement of

reconstruction of infrastructure and an oil industry with potential to raise the national income.

A mini mill investment, with 250.000 ton capacity is planned in Erbil under the name G.K.

Steel.

The Industry and Minerals Ministry has issued several invitations for foreign investors to

upgrade and repair its iron and steel industries, triggering some interest from Korean

Daewoo. But no firm plans yet.

Iraq will, in the period to 2025 likely remain a net importer of steel. Possibly a substantial

importer.

Conclusions

Oman will change to a net exporter of steel within the coming 5 years

Qatar will continue to be a net exporter of steel

Bahrain will become a net exporter of steel

Kuwait will maintain a modest net import position

Iraq is net importer of steel. Iraq has the potential to develop substantial demand that

can’t easily be met with domestic investments in new capacity.

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.0001

99

5

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

20

19

20

21

20

23

20

25

x 1

.00

0 t

on

Consumption scenario's finished products Iraq

scen 1

scen 2

actual

50 kg / cap

80 kg / cap

310 kg / cap


Inception report 47


4.4 Preliminary conclusions on the quantitative market evolution

Afghanistan is surrounded with countries with a good potential demand growth for steel, and

having only minor steel production capability. Exception is Iran, which is expected to grow

rapidly to self sufficiency. The next ring of countries develop as steel producers with no net

demand, or even net export positions. Exceptions are Iraq and India. Iraq has not much

alternative but to import to satisfy most of its steel demand. The pace of demand growth in

India is likely to exceed the growth of steel capacity for quite a while, although the policy of

the Ministry of steel is to create self sufficiency or even a net export position.

The China factor:

Changes in China will be significant. Demand will peak and start a gradual decline. Slowly

but steadily a growing stream of scrap will become available, changing the raw material mix

and the cost structure. During this change, which might take a decade, China can be a

significant net exporter of steel. However, net export of steel is eventually not a sustainable

situation for China.

The India factor:

India is in the beginning of its steel demand growth curve. Though it is the strategy of the

Ministry of steel to become at least a self sufficient steel producer, there are doubts if

capacity expansion, for various reasons, can keep up with the pace required. Short in coking

coal, investments partly turn to DRI technologies.

The Gulf States phasing out of the equation:

The Middle East is at current the worlds’ largest net importer of finished steel. Steel demand

in the Gulf countries, with the exception of Iraq, is on a high level. Driven by mega

infrastructural projects this demand is expected to peak. Steel production capacity is swiftly

closing the current import excess and will partly fill in further demand growth. At long term

Net exporter or unattractive self

sufficient market

Potential trade partner with strong

domestic steel industry

Net importer, with no or minor

steel industry

Likely net importer, but with risk

to turn to self sufficiency


Inception report 48


sustainable demand levels the area will become net exporting. Iraq, with a growing steel

demand, will remain net importer.

The main exporter to the Gulf region is Turkey.

Iran, the neutral neighbor:

With current demand approaching the (bottom) range of mature industrialized countries Iran

is swiftly closing the steel deficit by bringing new capacity on line. Demand growth scenario’s

are uncertain, but Government policies aim for self sufficiency with moderate - aggressive

growth scenario’s.

Kazakhstan, the role model?:

With a number of situational similarities with Afghanistan to consider, Kazakhstan has a well

developed, export oriented, steel industry. The major steel plant is owned by Worlds leading

steel producer Arcelor Mittal, giving access to its gigantic international sales network. This

has not led to expansions, in spite of strong growth of the world market, and current slowing

exports are primarily regional (Iran, Russia, China).

Central Asia, a potential growth market:

Afghanistan and its neighboring countries have at current low, but steadily rising, steel

demand. Even excluding the growth potential of Pakistan, there remains a realistic growth

potential that cannot be met with the current few steel producers in the area. There are no

substantial and realistic capacity expansion plans and the area faces a growing steel trade

deficit.

Preliminary conclusion:

As a market for an integrated steel plant in Afghanistan must be considered:

a. The regional market of Central Asia (the Stan countries), for which competitors

face similar or even higher logistical cost.

These markets, except for Pakistan, have hardly any rerolling capacity, so the

plant should market finished products. Long products, e.g. reinforcement steel

and sections, should be considered key in the product mix (from a demand

perspective). Given a wide spread due to many uncertainties, the total market gap

could range from 5 mio ton (conservative) to 25 mio ton (optimistic).

b. Iran, considering a specialized product mix (likely flat products)

c. The international world market in case products, including the logistical cost, can

be cost competitive FOB the nearest international sea port. Bench mark prices are

Turkey’s export.


Inception report 49


5. Key issues with regard to the assessment of the projected steel mill potential

In this stage no specific information is known about the “steel mill project”, other than that it

would be:

- an integrated steelworks

- capacity 7 million ton crude steel

- it could be constructed in phases

Having no further knowledge we consider:

Integrated steel works roughly comprises at least:

- coke ovens

- pellet and/or sinter plants

- Blast furnace(s)

- BOF converter(s)

- metallurgy facilities

- cast house

- rolling plants

- (coating plants)

- supporting facilities (energy, water etc.)

- by-product facilities

- internal transport infrastructure

- ware houses

Issues key in assessing (a rough) feasibility of such project include:

- Investment

- Phasing of investment and capacity (schedule and curves)

- By-products to market, or integrated processing plants (e.g. fertilizer, cement, power

generation,), net income from theseproducts

- Product mix, volumes & prices

- Cost price per phase, cast iron, at least liquid steel or casted steel (slab / billet),

including break down of key cost components; and cost hot rolled coil / rebar / wire

rod (mesh quality)

- Environmental and other regulatory limitations (of which cost included in the above)

- Internal logistics

- External logistics (raw materials and finished products)

- Transportation cost to key markets

- Transportation cost to sea port


Inception report 50


6. Prospects for further investments in steel production facilities in Afghanistan

The question is whether next to the proposed 7 mio ton integrated steel mill there will be

potential for additional investments in steelmaking capacity.

With reference to the “example” of Kazakhstan, the answer is yes. Considerations should be

made with regard to differentiating specialization.

Subject to market one could consider mini (integrated) mill operations with focus on:

- Seamless tube making

- Sections

- Stainless steel

- Engineering (special) steel

The starting point should be to take advantage of the “pure iron” base in differentiation of

scrap based operations. Besides cost considerations, the pure iron base gives a certain

control over the metallurgy which cannot be met entirely with scrap based operations. This

has advantage with some advanced products, though this difference is getting smaller due to

new technologies (see section 4.1.2). The availability in Afghanistan of alloying metals is to

be considered a potential advantage.

With regard to cost it should be considered that the scrap operations get some alloying

elements often at a low cost.

Of course the “subject to market” poses the main question marks.


Inception report 51


7. Discussion topics for addressing the question regarding alternative scenario’s

This section is written broadly and for discussion purposes only.

Alternative scenario’s can relate to:

- Downstream / upstream strategies

- Size and phasing

Ad) Downstream / upstream strategies

- Starting point is the raw material strategy, specifically with regard to the iron ore and

coking coal.

- When exporting iron ore and or coking coal is an viable option, any steelmaking

operation should add value and profit on top of that base scenario to have a feasible

project.

- Pelletizing for export purposes

- Separating and exporting DRI quality iron ore (high grade) to middle east and India

- Iron making for sales optimizes the raw materials in terms of transportation cost and

allows for production of key by-products (cement, fertilizer, tar)

o Consider by-product strategy

o Consider pig iron market

Regional (trucking distance)

Overseas

- Steelmaking, semi’s only

o Consider the market for semi’s

o Consider the product mix

o Consider special steels (see section 6)

- Rolling operations

o Consider the market for semi’s

o Consider the product mix

- Coating operations

o Consider zinc coating

o Consider tinplate

o Consider paint coating

- Transformation

o Consider processing operations

Tube making

Roofing, siding

Bending


Inception report 52


b) size and phasing

- Starting downstream (e.g. rerolling operation; tube making etc.) to capture the market in

advance of backward integration

- Optimized / maximized iron making for (world) commodity market [1 or 2 blast furnaces]

- Iron making for regional mini mills [mini blast furnace 0,5 – 1 mio ton]

- Starting with EAF scrap based steel making to build up experience and market


Inception report 53


8. Project schedule

Key delivery dates:

- April 14: Inception report

- April 24: report on the proposed steel mill potential

- May 1: report on the evolution of the proposed steel mill and assessment of

Alternatives

- May 9: draft final report

APRIL MAY

3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 1 2 3 4 5 6 7 8 9

Start of project

Datamining

statistical analyses

building scenario's

writing report incl basic info

inception report

Review of documents

benchmarking cost (obtaining cost from team)

scenario analyses

writing report

report on steel mill potential

review documents

discuss alternatives

analize business merits

benchmark

writing report

report on evaluation of steel mill potential and assessment of alt.

replough findings and evaluations

revisit statistics

write report

Draft final report

afghanistan resource corridor development …...and in particular to assess the viability and...

Documents