More Details of IUD-CVRD Contract Revealed
6 February 2008
The Industrial Union of Donbass (IUD) will import iron ore sinter fines in 1Q07 from the Brazilian company MBR (a subsidiary of CVRD) for Alchevsk Iron & Steel (ALMK: BUY) and DMK Dzerzhynskogo Steel in Ukraine, according to the Chairman of the Board of IUD, Serhiy Taruta. According to Ukrainian daily Economicheskye Izvestya, the price after customs for the ore is USD 82/mt, which exceeds the cost of domestic iron ore by 1.5 times. On February 1, Taruta said that IUD intended to sign a long-term 3-5 year deal with the Brazilian company CVRD to import iron ore. Eugene Cherviachenko: We continue to argue that the threat of imports for Ukrainian iron ore makers is low in the mid-term (see our iron ore report of November 2006). Although Brazilian ore is of a higher quality, it is more economical for domestic producers to consume Ukrainian ore due to technology specifics as well as the sophisticated logistics and sky-high global prices for iron ore. We believe further diversification of iron ore deliveries to IUD-related steel plants is possible if an agreement with domestic iron ore suppliers will not be reached, which is not very likely. Notably, this is the second attempt by Ukrainian smelters to test supplies from global iron ore majors. In 2005, Azovstal (AZST: BUY) received a pilot delivery from Rio Tinto. However, after testing, the steel maker turned down further imports.
