In the current time of the crisis, which has touched almost all corners of the world, spreading from the US to Europe and beyond, Russia, thanks to the increasing world oil prices, remains one of the few economies showing the dynamics of positive development. Rising GDP and stable capital supplies open favorable prospects for the development of the Russian economy over the next 10 years.
With a favorable forecast in place for the Russian economy, large amounts of capital have started to be injected into the development of different segments of the economy which were long neglected. According to the government, Russia is to invest about $600 billion in the implementation of the so-called ‘National Projects', which include: development of machine building industries, including the automobile industry; construction of new roads, ports, and renovation of railway networks; further boosting of construction activities; development of the airspace industry and of the shipbuilding industry; and, last but not least, the preparations for the Sochi 2014 Olympic Games.
All the abovementioned industries will boost the demand for steel in the country, thereby stimulating the development of production capacities in the Russian steel industry. While in 2007 Russia was ranked the fourth largest steel consuming country and third largest steel producing country in the world, this ranking can only increase, taking into account Russia's ambitious national projects.
Automobile industry
Russia's automobile industry can be counted as one of the country's backward industries, with the share of foreign cars in national automobile consumption increasing every year. According to the data for 2007, in that year foreign car imports to Russia increased by 477 percent, reaching an equivalent of 3.5 million mt of imported car, while exports only went up by about 17 percent (mostly heavy vehicles).
However, in the past couple of years, the vehicle industry has started to show positive growth. In 2007, the production of vehicles in Russia increased by 44 percent while, according to the industry development program covering the period up to 2015, the production of vehicles in Russia is expected to double. Many foreign car producing giants have already entered the Russian automobile market either by installing production lines at the premises of existing Russian automobile manufacturers or via the construction of brand-new automobile producing plants.
An increase in domestic vehicle production (mostly light vehicles) and, especially helped by the attraction of foreign companies to the Russian automobile industry, will boost the country's demand for quality auto sheets. Currently there are only three car sheet producers in the Russian market, i.e. Severstal, NLMK and MMK, and their combined production is inadequate to satisfy the incoming demand. Therefore, there is a plenty of room for development in this field. Several domestic steel mills have already announced new investment programs in auto sheet capacity development and expansion projects.
Railways
With the economy on a rising slope, currently there is a flow of capital towards the modernization of railway transportation and the renewal of the existing fleet of railway carriages. These investments will require more rails and flat steel from steelmakers. Two Russian steel producers, Mechel and Evraz Group, have announced investments for the development and expansion of rail production capacities, most of which will be supplied to the Russian domestic market.
Shipbuilding industry
The Russian shipbuilding industry is also expected to give a boost to the development of flat steel production, especially in the field of plate production. According to the statistics, the Russian ship industry is in a poor situation, with most of the current Russian commercial shipping fleet having already exceeding its normal lifespan. For instance, the average age of commercial ships in Russia is 18 years while in South Korea it is 12 years. With the new investments being directed toward the revival of the shipbuilding industry and the construction of new ships, shipbuilding is expected to increase 1.5-fold by 2010 and 2.2-fold by 2015. The resulting high demand for quality shipbuilding plates will require additional investments in steel capacity expansions.
Construction
So far, the Russian construction industry has provided the largest impulse for the development of the country's steel industry. The figures show that in 2007 the construction index rose by 223 percent compared to 2000 and by 45 percent in relation to 2005. In Russia only a continuation of the construction boom seems likely. According to its national program, Russia is expected to construct one square meter of housing per person each year, constituting a total of over 140 million square meters per year. Additional demand from the construction sector will come from the preparations for the Sochi 2014 Olympic Games. According to different estimates, the south of Russia alone will require about one million metric tons of steel products in the pre-Olympics period. In addition, the hosting of the APEC 2012 summit will also boost construction activities in the region and thereby urge the necessity for new steel production capacities.
Pipe industry
With the increasing oil and gas exports from Russia, new pipeline projects require more steel pipes. According to estimates, Russian pipe consumption in 2015 will reach 12.8 million mt, a considerable increase from the 8.9 million mt registered in 2007. The production of this quantity of pipes will require the installation of additional plate capacities. Several steelmakers in Russia, such as MMK, are already investing in mill 5000 construction, while others are involved in mill 5000 reconstruction in order to increase annual plate production.
Thus, in conclusion, looking at the prospects for the development of the steel consuming industries in Russia, the conclusion may be drawn that the future looks very bright for the domestic steel industry, possessing plenty of momentum for further development. Indeed, according to the estimates of the Russian Ministry of Economy, in 2008-2010 the domestic steel output in Russia will be in a range of 50-55 million mt, rising to 60-75 million mt in the 2011-2015, and increasing further to the level of 75-85 million mt in 2016-2020. Moreover, the low level of steel consumption per capita in Russia compared to European countries and North America, confirms the belief that there is still room for steel consumption increase in Russia. In addition, the rising domestic demand for steel will also turn the domestic steel producers toward the domestic steel market, away from exports. This tendency is already slowly becoming more and more evident in the Russian domestic market, and will only escalate in the future.