Pipe Output Accelerates.

Growth in output of pipes accelerated to 10.7% yoy in April-July from 7.2% yoy in the first quarter, putting 7M06 output up 9.3% yoy. Dnipropetrovsk Pipe (DTRZ: BUY) and Novomoskovsk Pipe (NVTR: BUY) were growth leaders, while Khartsyzsk Pipe (HRTR: SELL) sharply decreased production (10.5% yoy) in April-July. Andriy Gostik: While the market has been favorable for most pipe makers this year, demand for the large diameter pipes produced by HRTR is determined by pipeline construction projects in Russia and Central Asia and is much more volatile.

(in ths mt)

Company                            Jan-Jul 2006    Chg, yoy     Apr-Jul 2006  Chg, yoy   Jan-Mar 2006  Chg, yoy

Nyzhnyodniprovsky Pipe Rolling (NITR: BUY)

                                              335.1              6.0%       203.1            9.5%         132.0                  1.0%

Dnipropetrovsk Pipe (DTRZ: BUY)

                                         142.4                 20.9%        83.6           25.3%        58.8                15.1%

Novomoskovsk Pipe (NVTR: BUY)

                                            128.4            19.6%        79.0            18.7%       49.4                 21.0%

Khartsyzk Tube (HRTR: BUY)

                                           311.5               -5.6%     199.6         -10.5%        111.9                4.7%

Ukraine total                       1,459.2              9.3%       907.5         10.7%        551.8                7.2%

Coke Output Bottoms Out. Coke output recovered by 5% yoy in April-July after shrinking by 12.6% yoy in the first quarter, leaving 7M06 output down 3.1%. Donetsk Coke (DKOK: HOLD) and Avdiyivka Coke (AVDK: BUY) had the biggest declines, while ZaporizhCoke (ZACO: BUY) posted impressive 7.3% yoy growth. Andriy Gostik: The recovery is being led by coke plants that are linked to particular steel mills including Yasynivsky Coke (YASK: HOLD) which has leased capacity to Mariupol Illicha (MMKI: HOLD). Our HOLD recommendation on YASK reflects the lack of transparency in the lease arrangement which could weaken YASK’s financials due to transfer pricing or tolling.

(in ths mt)

Company    Jan-Jul 2006   Chg, yoy   Apr-Jul 2006     Chg, yoy    Jan-Mar 2006      Chg, yoy

Avdiyivka Coke (AVDK: BUY)

                1,778.0             -17.6%      994.5             -14.4%        783.5             -21.4%

Donetsk Coke (DKOK: HOLD)

                    417.0            -34.9%    225.0              -31.7%        192.0             -38.4%

Alchevsk Coke (ALKZ: SELL)

                 1,547.0             0.5%     893.9                1.0%          653.1               -0.3%

Yasynivsky Coke (YASK: HOLD)

                799.0            -0.6%       509.2                  26.3%        289.8            -27.7%

Bagliy Coke (BKOK: SELL)

              472.0            -9.4%       276.0                     4.9%       196.0             -24.0%

ZaporizhCoke (ZACO: BUY)

              1,155.0         7.3%        662.7                   9.2%         492.3                 4.9%

Ukraine total

            10,911.0          -3.1%   6,375.5                    5.0%     4,535.5               -12.6%