HDG capacities outstrip demand

25th November 2010

Russia’s hot-dip galvanised sheet market may brighten up in late 2011 on steady demand from automakers; another promising area is the development of economically efficient light-frame housing. This year HDG makers, especially small-scale ones, are disconcerted by dull demand for their product coupled with growing prices for cold rolled coil, Steel Business Briefing learns from Vektron group which operates HDG lines in Russia and Ukraine.

“We have to undertake processing services to make up for shrinking profit margins on HDG sales,” Vektron’s commercial director Mikhail Mironov tells SBB. Russia’s building sector has experienced the aftermath of the recession in full this year.

“Our business is turning on orders from households. Companies are moving away from city establishments to cheaper outskirts, and associated repairs bring some orders too, but we see next to no new house developments, notes Mironov. “If demand for HDG doesn’t pick up in 2011, national capacities will remain underutilised, surpassing consumption by 2.5 times. This is likely to aggravate competition and continue depressing galv prices.”

Big steelworks NLMK, MMK and Severstal – keen to utilise capacities to the maximum – will widely practice discounts and defer payments as they compete for customers, leaving small-scale producers still more dependent on a small-scale clientele, Vektron believes.

Russia’s national capacity for HDG approaches 3.5m tonnes/year. With MMK commissioning another HDG line in 2012 and some other expansions, this will reach 5m t/y. Consumption is no more than 2m t/y and is somewhat challenged by the trend of increasing substitution by pre-painted coil in some end-uses.