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Russia Steel Demand May Fall in 2012 as Growth Slows, Fitch Says

Russian steel consumption may fall in 2012 as world economic growth slows, while the longer-term outlook remains “strong,” Fitch Ratings Ltd. said.

After performing strongly in the first nine months of 2011, next year will be challenging “because of the adverse shift in global economic conditions,” Alexei Fadyushin and Peter Archbold, Fitch analysts, wrote in a report today. “We already saw a 2 percent decline in the second half of this year compared with the first half,” Fadyushin said by phone from Moscow.

Fitch also has “concerns” about a possible drop in demand for budget cars after government stimulus programs end, while Russia’s agreement to bring Ukraine into a regional customs union in 2012 will remove duties on imports of its steel pipes.

Russian steelmakers typically sell about half of their production within the country, according to Deutsche Bank AG.

In the longer-term, the Russian market will be strong, said Fadyushin. In the first nine months of 2011, passenger car output rose 54 percent to 1.27 million vehicles and steel pipes gained 18 percent to 7.7 million metric tons, Fitch said.

Residential construction expanded 3 percent to about 33.8 million square meters from a trough in January following three years of stagnation, according to the ratings company.

“Demand for steel pipes is likely to be quite strong due to Russia’s intention to geographically diversify oil and gas exports and the need for renovation of existing trunk pipeline systems,” the analysts wrote in the report.

Demand for residential housing is backed by an increase in real disposable income for households of more than 50 percent in the past five years, and the development of mortgage lending, leaving “good potential for further growth,” Fitch said.

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