1. EUROPE & THE CIS:
What does the future
hold?
SBB European Steel Conference Global reach; local impact
ANTON BAZULEV
DIRECTOR OF EXTERNAL RELATIONS
NLMK
Barcelona, May 2011

2. CIS steel sector at a glance
12 mt
CIS crude steel production CIS steel consumption
10
8
6
4
2
0
Source: Word Steel Association (WSA). State statistics organizations
o Surplus of steel is exported from Russia and the CIS countries mostly as semi-
finished products
o There is a huge potential for the CIS steel consumption
2

3. Steel exports: CIS is a largest player
LARGEST STEEL EXPORTERS CIS EXPORTS BY PRODUCT
mt %
Slabs
EU HRC
CRC
Coated
Longs
Japan
Source: Statistic services (2005-2009)
CIS EXPORTS BY DESTINATION
China %
EU
MENA
CIS Asia
NAFTA
Other
0 50 100
Source: WSA
Source: WSA, Statistic services (2005-2009) 3

4. Crude steel production costs
CIS STEEL PRODUCTION ADVANTAGE
Energy
$/t
250
Other
200
Labor
Labor 150
Scrap
100
Iron ore
Scrap 50
Coal
0
Iron ore Cost advantage
Coke o Cost advantage mainly lies in the
access to low-cost raw materials
Coal
$/t o Ongoing assets rewamp in CIS to eat
into EU advantages – energy
0 100 200 300
efficiency and labor productivity
CIS W.Europe
Source: WSD, Company estimates
4

5. CIS: further productivity growth
STEEL SECTOR PRODUCTIVITY
3
Per.hours/t
Productivity index, 1993=100
2.5 EU
2
Japan
1.5
USA
1
0.5
Russia
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
0 5 10
Source: WSA Russia USA Japan EU
Source: McKinsey researc
o Modernization and business processes optimization significantly
improved productivity of the CIS steel sector
o Still remain further room for improvement
5

6. Raw material access favors
production growth
TOP 3 IMPORTERS
%
o CIS has the largest raw materials
reserves: 11% 23%
EU
o #1 in iron ore 19% 7% EU
o Top 3 – coking coal Asia LatAm
o CIS Steel sector is vertically integrated 49% China
61% Asia
in captive raw materials supply
o >65% - coal self-sufficiency Iron ore imports C/coal imports
Source: WSA
o >70% - iron self-sufficiency PRICES: COKING COAL AND IRON ORE
o This leaves the sector shielded from $/t
500
the raw materials market fluctuations
400
300
200
100
0
Jan 02
Jan 01
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jul 01
Jul 02
Jul 03
Jul 04
Jul 05
Jul 06
Jul 07
Jul 08
Jul 09
Jul 10
Iron ore C/coal 6
Source: SBB, Bloomberg

7. BF production steadily becomes less and
less efficient in Europe
95%
%
90%
85%
80%
75%
70%
65%
60%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
BOF (EU15) run rate BOF (CIS) run rate
Source: WSA, Company estimates
o During the last decade BOF steel production in EU was steadily declining
o During the downturn the BOF operations become less efficient…
o Available low cost semis allow EU steel sector to reduce costs at the trough of the
cycle
7

8. CIS & EU – natural trading partners in steel
RUSSIAN EXPORTS OF SEMIS CIS EXPORTS TO EU BY PRODUCT
25.000 ,000 t %
20.000
25%
15.000
10.000
75%
5.000
4.430 5.623 4.418 5.764
3.678
0.000 Semis & other Finished steel
2006 2007 2008 2009 2010
EU 27 ROW
Source: Russia’s Federal Statistics Agency Source: Eurostat
o 35% of semis exported to EU
o 75% of CIS exports to EU are semis
o … demonstrates an excellent cross border value chain integration of low cost semis
producers in CIS offering competitive pricing (as compared to EU marginal cost of
8
steel production) and short lead times due to geographic proximity of the regions

9. Russian quotas to the EU
IMPORT QUOTAS COVERED
4000 Exports are sustainably lower %
,000 t than quotas envisage 80%
3500
3000
2500
2000
1500 20%
1000
500 Flat imports (CIS) Longs imports
(CIS)
0
2005 2006 2007 2008 2009 2010
Remaining volumes available for imports based on import
quotas
Source: Russian Union of Metal Exporters Source: Russian Union of Metal Exporters
o 80% of quotas for flat steel and 20% for long steel are covered
o Imported flat steel feedstock is used for further processing and value creation by EU
re-rollers and manufacturing businesses
o Possibility to add value to long steel is limited, so local production is more
competitive in the regional markets

10. EU: market position supported by CIS
240
supply STEEL FLOWS: CIS TO EU
mt - Slab supply
220 - Finished steel from EU
CIS: 6.7 mt
200
ROW: 1.2 mt Russia
180 Ukraine
Kazakhstan
160
140
120
ROW: 15.3 mt
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
CIS: 1 mt
ASU EU27 Steel production EU27
Source: WSA
o Crude steel becomes economically 25
Source: Eurostat
justified only when steel prices are high mt
20 Value added
o EU is one of the largest exporters and in
order to maintain its market position in 15
the global steel market it requires a HRC
10
substantial imports of semi-finished steel
as the level of ASU is matching steel 5
Semis
production 0
EU Exports EU Imports 10
Source: Eurostat

11. EU is efficient in steel–intensive industries
EU EXPORT OF MACHINERY PRODUCTS EU: VALUE ADDED BUSINESS MODEL
2500 ,000 t €/t
€ 955 € 1,455
2000
1500
1000
€ 500
500
0
2006 2007 2008 2009 2010
1 imported Value added 1 exported
Mech'l engineering Locomotives & railcars
ton ton
Vehicles Ships, etc Source: Eurostat
Source: Eurostat
o Developed manufacturing sector in EU (auto, engineering) shapes the steel sector
business model favoring
o … efficient high-value tailor made products manufacturers offering
o … intensive service which requires significant technical collaboration
11

12. RUSSIA & EU: further development trends
Trend 1: Upstream integration Trend 2: Downstream development
Strengthening Russia’s and Developing EU processing
CIS’s role as supplier of semi- outlets closer to Russian steel
finished and finished steel for suppliers and consumers in
the EU the CIS
• Quality improvement • Automotive
• Expanding product range • Mechanical engineering
• Captive downstream assets in
the EU (NLMK, Mechel, Evraz,
others)
BOTH TRENDS ARE BENEFICIAL FOR THE EU AND RUSSIA! 12

13. NLMK: Unique and competetive business model
Plate BU : 1,750,000 t capacity
Annual production
capacity
(end of 2011 forecast)
12,400,000 t
of steel
Available slabs
7,000,000 t
Strip Product BU : 2,600,000 t capacity
A fully integrated supply chain with own raw material sources,
conversion and logistics system
13

14. Conclusion: CIS and EU - partners in steel
o CIS position in low cost crude steel production perfectly fits massive sustainable
market in EU which make us natural partners in steel value chain
o Last decade Russia completely overhauled its crude steel facilities making it one of
the modern in the world. Around $32 bn were invested in 2000-2010
o Finished steel exports from Russia are not always able to meet local demand in EU
o EU-based rolling facilities can offer an extension to Russian steelmakers that
match the demand from European customers
o Finished steel imported from EU saturates growing demand in innovative steel
solution in Russia. We are an excellent example of a win-win cooperation in the
global economy!
14

15. THANK YOU
SBB European Steel Conference Global reach; local impact