2Q Rolled Steel Output Up 11.7%.

Ukrainian steel makers increased rolled steel output by 11.7% yoy in 2Q06. The increase was a sharp reversal from 1Q06 when output was down 4% yoy and put 1H06 output up 3.6% yoy. Andriy Gostik: Most Ukrainian steel makers increased their production in 2Q06 both on a yoy and qoq basis. Mittal Steel Kryvy Rig (KSTL: BUY) continued to lead the industry, and we think its third quarter will be as strong as its second. Among traded companies, only Azsovstal (AZST: Susp), Alchevsk Iron & Steel (ALMK: HOLD) and Dniprospetsstal (DNSS: BUY) reported a yoy decline in 2Q06 output. AZST has been renovating equipment, ALMK reduced rolled steel due to its shift to slab, while DNSS’s production decline was slight. We expect DNSS to finish the year with about the same production volume as last year.

                                                       1H06         Chg, yoy        2Q06       Chg, yoy       1Q06      Chg, yoy

Mittal Steel Kryvy Rig (KSTL: BUY)  3,400.0         15.7%       1,831.0       32.8%       1,569.0      0.6%

Mariupol Illicha (MMKI: HOLD)      2,927.7          2.3%          1,529.5       7.3%        1,398.2      -2.7%

Azovstal (AZST: Susp)                2,436.2          -32.1%        1,250.2      -30.5%      1,186.0   -33.7%

Zaporizhstal (ZPST: Susp)           1,836.0         4.3%            931.9        9.2%           904.1       -0.3%

Alchevsk Iron & Steel (ALMK: HOLD)818.0      -43.0%          421.6      -40.5%          396.4     -45.4%

Dniprospetsstal (DNSS: BUY)      160.6         -6.9%             85.0        -3.4%             75.6     -10.5%

Donetsk Metal Rolling (DMPZ: HOLD)69.4       -5.3%           34.3        2.4%             35.1       -11.8%

Donetsk Metal (DOMZ)              344.3          -0.8%            188.0        8.5%            156.3     -10.1%

Ukraine Total                        17,019.2           3.6%          8,880.1       11.7%        8,139.1       -4.0%