In the first half of 1999, Ukrainian steel producers failed to catch up with the corresponding level of 1998.

STEEL TUBES

STEEL TUBES

Vitaliy GNATUSH, expert with “DerzhZovnishInform”

In the first half of 1999, Ukrainian steel producers failed to catch up
with the corresponding level of 1998.

PRODUCTION

In the 6 months of the present year, production of steel tubes by eight
major plants of Ukraine accounted for about 560 ths. tons, which is 72% against the
respective period of 1998. Average monthly output settled at roughly 93.3 ths. tons, down
from 126.1 ths. tons in 1998 (see table 1). In June 1999, production of tubes recovered to
a rather encouraging level of 104 ths. tons (about 130% against the May’s volume).

Table 1. Production of steel tubes by Ukrainian plants in 1997-1999

Nizhnedneprovsk Tube Rolling Plant holds the leadership among the
manufacturers with 34.6% of the total output in Ukraine, subsequently followed by Yuzhnyi
Tube Plant (a 19.5%) and Khartsyzsk Tube Plant (a 18.2%).

FORECAST

Taking into consideration the current economic situation in Ukraine and in
the importing countries, production of steel tubes in 1999 is estimated at 1,120-1,222
ths. tons, which corresponds to 74-81% of the 1998’ level.

EXPORT OF STEEL TUBES

In January-June 1999, Ukrainian export of steel tubes accounted for 300.1
ths. tons. During the period under review, seamless tubes contributed 63.5% to the total
export turnover of tubes (a 57.8% in 1998). Correspondingly, large-diameter welded tubes
contributed 16.3% (a 18.5%); and other welded tubes – 20.2% (a 23.7%). It is obvious
that demand for welded tubes has weakened, which occurred for a variety of reasons.

Analysis of the monthly steel tube export in 1998 and at the beginning of
1999 evidences that tube export has a tendency for stability, although on the lower level
as compared to 1998 (see fig. 1). While in January-July 1998, average monthly export
equaled approximately 78.9 ths. tons and, in August-December – 51.9 ths. tons, in the
first half-year of 1999, this indicator settled at 50 ths. tons. It should be mentioned
that, in August-December 1998, export of steel tubes ranged within 41.8-62.3 ths. tons.
Throughout the six months of the present year, this range did expand – from 34.3 up to
57.9 ths. tons.

The largest export supplies were forwarded to the CIS countries – a
62.9%, Asia – a 15.2%, the EU – a 13.9%, Eastern Europe – a 4.1%, and the Baltic
States – a 2.4%. Compared to the year expired, tube export to Russia plunged from nearly
50% to 40.6% of the total turnover (see table 2).

Table 2. Ukrainian export of steel tubes in 1997-1999

In January-June 1999, Ukrainian tubes were exported to the tune of about
USD 119.3 mln. Taking into account the existing flow tempos of currency earnings, the
total annual value of earnings is estimated at some 52-53% as against the 1998’ level.
Export of seamless tubes yields the largest incomes (a 63.5% of the total), large-diameter
welded tubes contribute 23.5%, and other welded tubes – 13.0%.

SEAMLESS TUBES

Russia is the leading importing country for these tubes (77.9 ths. tons),
consuming about 40.9% of all the seamless tubes exported from Ukraine, although this
amount accounts for about 64% as against the corresponding period of 1998 (see fig. 2).

The RF is followed by the EU countries: Germany with 13.2 ths. tons and
Italy with 18.9 ths. tons. Other importers are Turkey (21.2 ths. tons) and Israel (10.9
ths. tons). In the present year, if the existing tempos retain, supplies of seamless tubes
to the EU countries may reach 74% of the 1998’ turnover. It should be mentioned that
there occurred a significant increase in export of tubes to Turkey since, during the six
months of 1999, export turnover increased as high as 1.9 times against the last year.
Export supplies to Israel also feature advancing tempos; in the first half of the present
year, export accounted for about 77% as against the overall 1998’ turnover. Supplies of
seamless tubes to Turkmenistan and Uzbekistan have plummeted almost threefold against
1998.

LARGE-DIAMETER WELDED TUBES

The situation on this market still differs from that of last year.
Uzbekistan-bound export supplies made up 56.4% of the total Ukrainian tubes exported (48.8
ths. tons). Russia purchased only 13.8 ths. tons, which is 26.8% as against the respective
figure of last year (see fig. 2). Export low was registered in January (0.2 ths. tons) and
high – in March (6.1 ths. tons). Such a situation originates from the financial standing
of Russian consumers and their willingness to lower dependence on imports from Ukraine.
Moreover, the Russia’s need in large-diameter tubes will be satisfied at the expense of
local production and imports from Germany.

OTHER WELDED TUBES

Out of the total export of these tubes (60.6 ths. tons), about 73.8% was
destined to the CIS countries, including 49.7% supplied to Russia. However, compared to
the last year, the 1999’ turnover accounts for only 44.3%. In the present year, monthly
turnovers ranged from 1.6 to 8.3 ths. tons (see fig. 2). Other regions consuming Ukrainian
welded tubes include the EU countries – a 12.6% and the countries of Eastern Europe –
a 3.9%. Greece was the largest EU consumer (3.6 ths. tons), while our supplies to this
country within 1997-98 were purely token. Also, Ukraine started launching the markets of
Belgium, Spain and Ireland. Other Ukrainian welded tubes are shipped neither to the
African nor South American markets, and nominally entered the Asian market (2.9 ths. tons)
and North America (0.3 ths. tons). Exports of welded tubes to Belarus and Uzbekistan have
shrunk twofold.

IMPORT

In January-June 1999, Ukraine imported approximately 8.1 ths. tons of tubes
for a total of over USD 4.1 mln. A 76.0% out of these are HR cold-finished seamless tubes,
a 17.7% – other welded tubes, and a 6.3% – large-diameter welded tubes.

Table 3. Import of steel tubes to Ukraine in January-June 1999

CONCLUSIONS AND OUTLOOKS

Summarizing the data on output, export and import of steel tubes in the
period of January-June 1999 and in 1997-1998 (see table 4), one can conclude that the
Ukrainian market for steel tubes features rather stable negative tendency.

Seamless tubes were primarily shipped to Ukraine from Russia (a 63.5%),
Austria (a 11.7%), and Poland (a 11.8%). Large-diameter welded tubes were mainly imported
from Russia (a 72.1%) and other welded tubes – from Russia (a 87.5%) and Germany (a
2.9%).

Table 4. Ukrainian market for steel tubes in 1997-99

Results of the first half of 1999 evidence that, with the current
production rates, in 1999, Ukrainian tube plants will manufacture about 1.1-1.2 mln. tons
of tubes, which is 73-79% of the 1998’ production. Export of steel tubes has a tendency
for stabilization, although on the lower mark than in the previous year. Taking into
account the current economic situation in Ukraine and the CIS countries, as well as
tendencies of the world economy, we estimate the situation will not change significantly
up to the end of 1999. However, probably, Russia’s market will see some recovery.

In the long run, one should expect the world market to recover and demand
to rise. The grounds are the changes in this market for steel tubes.

According to the information provided by “STAHL und EISEN“ magazine, in
late 1998, the works to shut down “Csepel Tube Co Ltd.”, the only Hungarian plant
manufacturing steel tubes, were commenced. In the 80s, this enterprise manufactured
150-160 ths. tons of steel tubes annually. At the present, capacity of the Hungarian
market for steel seamless tubes accounts for about 50 ths. tons.

During the last two years, “Ovako Steel AB” company (Sweden) invested
about 500 mln. of Swiss krona with aim of constructing new tube rolling mill in Khofors.
It is expected that annual production of the three rolling mills be at 130 ths. tons. One
of the rolling mills will produce HR tubes, 25-205 mm in the outer diameter and 3-42 mm in
wall thickness.

Thus, the market for steel tubes still gives an immediate response to
numerous changes in the world economy. American market can well confirm this statement.

AMERICAN MARKET

In 1998, according to the data with “World Metals” magazine, demand for
steel tubes on the largest world market – that is the American one – increased by 4%
against the previous year up to 13.7 mln. tons. On the whole, it can be summarized that
the consumption of steel tubes by the USA has seen stable growth for the six years now.
Nevertheless, decrease in oil prices in late 1998 – early 1999 resulted in the weakened
demand for the corresponding tubes, surplus supply on the market with tube products, and
increase in customers’ stocks. Therefore, in 1999, on the average, a 3-5% decrease in
prices for steel tubes is expected.

The American market for steel tubes is highly structured and diversified
(see table 5).

Table 5. American market for steel tubes

The core problem of the market for mechanical tubes is the high level of
stocks accumulated by producers and traders, which initiated decrease in flow of new
orders in the first quarter of 1999. According to the estimates, the situation will not
change till autumn, at least.

The decrease in demand of at least 5% is expected on the market for
standard tubes (down to 2.16 mln. tons), due to cut construction of apartment buildings.

The US market for structural tubes and hollow sections appears rather
attractive, due to current construction of new roads and bridges. It is expected that, in
1999, consumption of these tubes will increase up to 1.94 mln. tons. However, due to
commissioning of new capacities for 1.3 mln. tons, overproduction of hollow sections in
the present year can reach a dangerously high level and prices on the American market
might fall.

The situation on the market for large-diameter tubes and tubes for oil
& gas industry does depend on the pricing policy on the oil market and on the
political situation in the world. Should the latter be enough stable until the end of the
year, one should expect definite price stability on the level suitable for producers.

Demand for tubes made of stainless steel is estimated on the level of last
year due to reduced capital investments into the pulp and paper and petrochemical
industries.

Thus, the American market for steel tubes is respectively stable. This
gives hopes that the world market for these products will not suffer abrupt changes as
well.