In June 1999, London became the place for the third International Conference on Ferrous and Nonferrous Metallurgy in the CIS, named «Road to the XXI century». The conference’s organizers comprised British company «LVA Ltd» and Adam Smith Institute, while the UNCTAD supported the meeting. The organizers aimed at analyzing the last two years’ economical and political events in the world, which caused considerable influence upon the CIS metal industry. Besides, it was scheduled to discuss economic situation in the CIS member-countries and analyze the effect, caused by CIS-based metal manufacturers on the world metal market. Furthermore, the scope of discussed problems embraced issues on pricing, marketing, directions of export-import metal flows. As well, the organizers planned to study practical approaches for running sales of metal products, as well as to search for sources of working capital needed to finance manufacturers.

REDUNDANT CAPACITIES CAUSE TROUBLE

Overview of the conference compiled by Vladimir PIKOVSKY and Alexey
SHAPOVAL, experts with the National Research and Information Center for Monitoring of
International Commodity Markets "DerzhZovnishInform".

In June 1999, London became the place for the third International
Conference on Ferrous and Nonferrous Metallurgy in the CIS, named "Road to the XXI
century". The conference’s organizers comprised British company "LVA Ltd"
and Adam Smith Institute, while the UNCTAD supported the meeting. The organizers aimed at
analyzing the last two years’ economical and political events in the world, which caused
considerable influence upon the CIS metal industry. Besides, it was scheduled to discuss
economic situation in the CIS member-countries and analyze the effect, caused by CIS-based
metal manufacturers on the world metal market. Furthermore, the scope of discussed
problems embraced issues on pricing, marketing, directions of export-import metal flows.
As well, the organizers planned to study practical approaches for running sales of metal
products, as well as to search for sources of working capital needed to finance
manufacturers.

Back in 1998, steel output in the CIS reduced by 9.0%, while in Russia
manufacturing of finished rolled metal dropped by 9.8% (3.7 mln. tons) down to 34.1 mln.
tons. It should be mentioned that Russia and Ukraine together manufacture about 90.0% of
the total steel output in the CIS. Ukrainian mills also curtailed production of rolled
metal by 1.7 mln. tons all the way down to 17.8 mln. tons, which is the worst recession in
output volumes since 1995. In 1998, neither one of the two countries carried out profound
adjustment reforms in the metal sector. Even after the aggravation of the economic and
political situations in early June 1998, Russian enterprises lingered with reaching
strategic decisions, while the Ukrainian and Russian Governments failed to take weighty
steps in industrial policy under the tough situation of budget and currency crises. Unlike
in the preceding years, rolled metal manufacturers were unable to nullify the effect of
recession in demand by boosting export supplies. Sales of the seven largest Russian
manufacturers dropped by 30.0-60.0% due to downward trend in prices and in exchange rate
of the national currencies. In accordance with the Russian Accounting Standards, only
three out of the eight largest Russian manufacturers gained profit. Yet, even the most
profit-making one reported a reduction in turnover profitability from 13.0% down to 7.0%.
Furthermore, even this “lucky” manufacturer suffered losses in accordance with the
Western accounting standards, since financial statements filed in the CIS member-countries
do not account for at least 15.0-20.0% of the total costs. Financial health of Ukrainian
enterprises keeps on worsening as well. In 1997, the metal sector suffered USD 270.0 mln.
losses in compliance with the Ukrainian Accounting Standards. Taking into consideration
strong dependence of Ukraine’s ferrous metallurgy on Russia-bound exports, one can well
suppose that the 1998′ financial results were even worse.

In the short run, one should not count on a somewhat considerable increase
in demand on the main sale markets for Russian and Ukrainian steel, since export has
rather poor expansion opportunities. At present, the Governments are introducing measures
to execute control over foreign trade, which will further narrow the opportunities for
steel mills. Besides, due to the crisis effect, solvency of the manufacturing companies
lowered.

Nonetheless, the world ferrous metallurgy permanently undergoes
technological and strategic readjustments aimed at improving competitiveness. Despite the
crisis, the sector has retained a tendency for constant growth in output volumes and in
consumption of end products. The list of the six major steel-manufacturing countries still
remains unaltered and comprises China with 111.6 mln. tons of steel produced; Japan with
94.5 mln. tons; USA with 93.8 mln. tons; Russia with 45.7 mln. tons; Germany with 45.2
mln. tons; and South Korea with 37.8 mln. tons. It is forecast that demand should recover
in 2000. World steel output may increase by 32.0 mln. tons (a 4.2%) as compared to the
1998 level, thus indicating the record high. The forecast for the year of 2005 is even
more comforting since it estimates an increase in steel smelting up by 45.0 mln. tons (a
5.7%) as against the 2000 figure.

According to U. Kumm from "Roland Burger and Partners", it will
be impossible to achieve stable improvement in the Russia’s and Ukraine’s ferrous
metallurgy without settling the structural problems. Both countries possess large
excessive capacities in ferrous metal industry, whereas unsuccessful attempts to phase out
the redundant capacities have led to nothing but an extremely low utilization level of
60.0% in Russia and 50.0% in Ukraine. Over the previous years, ferrous industries of the
two countries desperately lacked investments, which accounted for only USD 7-15 per ton of
steel. This number is way below the international level of approximately USD 40-55 per a
ton. In its turn, this leads to advanced deterioration of equipment, low output, idle
times, and expenses.

Since the early 90s, no long-term modernization projects have been
implemented. In 1998, the situation with execution of such projects took a turn for the
worse some more. Thus, deficiencies of the existing production programs, especially in
high-quality steel and rolled metal, will not be remedied in the near future. Both Russian
and Ukrainian manufacturers are trapped on the markets for cheap standard steel products.
These markets currently indicate a reduction in prices below the production cost level due
to a considerable surplus of supply over demand.

Russia ranks the first in the world by exports of steel products. Under
conditions of the world crisis, the country became more exposed to foreign trade with the
prevailing 40%-export of ingots, billets, and HR metal, which all highly depend on market
fluctuations. At the same time, Russian CR shapes and coated metal with high added value
make up a small portion in the total exports.

A vast majority of the developed countries strives to increase the export
ratio of commodities with high value added. The Russian share of the EU market equals to
only 1.8% of the total finished rolled metal, while the share of Eastern European
countries on the same market exceeds 5.0%. Shortcoming of commercial entities, poor
diversification of assortment in respect to products with high value added, along with
fruitless domestic competition, are all typical for the Russia’s ferrous metal industry.

The manufacturers endeavored to couterbalance the plummeted internal demand
by increasing export supplies. In 1998, 64.0% of Russian steel output and 84.0% of
Ukraine’s were destined to export. Implementation of this strategy allowed the ferrous
metallurgy somewhat alleviating the setback in production compared to the other industrial
sectors. Yet, both Ukrainian and Russian steel exports have a narrow distribution pattern.
In 1998, Asian countries and the USA consumed approximately 70.0% of Russian export of
rolled metal, while a 66.0% of Ukrainian export was destined to the CIS and Asian states.
Due to strong dependence of Russian and Ukrainian manufacturers on the Asian markets and
owing to impact of the Southeast Asian crisis in 1997, which further facilitated reduction
in sales, prices for principal types of steel products on the world markets started
commenced decreasing simultaneously. In August 1998, Russia devalued its ruble, thus
enabling Russian manufacturers to temporarily ameliorate their competitiveness without
making steps to solve the cardinal problems.

Needless to say that blind orientation to exports only does not solve
strategic and structural problems. Consequently, competition among Ukrainian and Russian
manufacturers escalated, thus leading to a further deterioration of ferrous metal sectors
in the two countries.

The current Russian legislation allows initiating import-limiting measures,
including imposition of quotas or antidumping duties, if local production is threatened by
increased volumes or delivery terms of products imported. Analyzing the situation on the
Russia’s metal markets over the past few years, one may notice that the ever-growing
imports from abroad, including from the developed countries and the CIS, gradually
supplant Russian companies on the markets for tubes, rebars, stainless steel, and some
other types of products.

The world prices for Russian and Ukrainian-made steel products settled
below the level of production costs, thus making export unprofitable. Antidumping
inquiries have been initiated and access to the principal markets has been limited.
Furthermore, companies have poorer opportunities to purchase the required equipment for
hard currency.

According to the available data, approximately 45 antidumping and other
restrictive measures were applied against Russian exporters of ferrous and non-ferrous
metals as of the beginning of June 1999. Companies, which are subject to these measures,
practically refused to negotiate on the tete-a-tete basis and left this problem to the
Government. The latter chose the easiest way by signing agreements for voluntary
limitation of supplies and persuaded the companies that it is better to get a small
portion of the market than to lose it all.

Only by joining the World Trade Organization (WTO) as a member, the issue
with export limitations can be solved, though membership itself does not guarantee the
change in status. The WTO Regulations provide for adjustment of antidumping procedure on
the basis of exporters’ obligations. In a number of cases, this is the only way to avoid
restrictive measures. Such an approach has its obvious advantages because, should the
market situation stabilize, export is free from execution of obligations.

All the above-mentioned evidence that the forecast for development in the
Russia’s and Ukraine’s ferrous metallurgy is rather pessimistic. Under the current
situation, even the largest ferrous manufacturers are unable to finance reorganization and
modernization without assistance of the well-to-do foreign partners. At the same time, the
current negative state of affairs in the industry makes the latter unattractive to foreign
investors, since there are no markets for stable sales at prices exceeding production
costs. Besides, pending reduction in excessive capacities, along with pending political
and legal uncertainties, generates negative environment for long-term foreign investments.

To restructure the industry, local enterprises have to modernize the
selected equipment in order to improve quality and raise output. Besides, these companies
have to target their efforts at the domestic market, refusing from export at prices below
the export costs. Simultaneously, within the frames of development concepts for the
sector, the Government should take measures to develop the internal steel market, to
curtail redundant capacities, and to gradually suppress excessive productions. At the same
time, there is a definite need in steps to reduce social tension in the regions, suffered
as a result of capacity curtailment, and to create incentives for local manufacturers and
foreign investors to modernize and restructure the metallurgic sector. The remaining
manufacturers should have their capacities balanced with the domestic demand because
foreign investors will judge on attractiveness of Russian and Ukrainian ferrous metal
enterprises mainly by assessing the companies’ standings on domestic markets.

Russian and Ukrainian experts frequently treat the proposal to discontinue
suicidal exports as a method of protectionism employed by Western consultants.
"Roland Burger and Partners" believes that this is not correct. The current
exports are economically disadvantageous for both parties, since surplus supply leads to
drop in prices, while cheap steel products are sensitive to transportation costs thus
making export unprofitable due to remoteness from main consumers.

At the moment, Ukraine is in the better situation to introduce the
aforementioned measures. In Ukraine, most enterprises are State-owned and the Government
has direct instruments to carry out development strategy for the sector, which should be
worked out and should contain measures to reduce redundant production capacities.
Moreover, special privatization conditions can be offered to attract foreign investors.
Unlike in Russia, the case of "privatization after reorganization" is still
possible in Ukraine.

In the medium run, reorganization of the Russian ferrous metallurgy should
aim at domestic demand of 20.0-25.0 mln. tons and export of 5.0 mln. tons. These numbers
are quite realistic, provided gradual economic stabilization in the forthcoming years.
Respectively, the total needed sales are estimated at 14-16 mln. tons for Ukraine,
provided reduction in capacities from the current level of 40.0 mln. tons down to 20 mln.
tons.

Investments in ferrous metallurgy require large capitals and have a long
term of return. Hence, we have a stronger need in political and economic stability,
political will, and talent to carry out comprehensive reorganization of the Russian and
Ukrainian ferrous metal industries.

Searching for markets

The guaranteed result of trade litigations is reduction in import of
particular commodities or commodity groups from the defendant country. In case when this
country is the net exporter of products under restriction, there are only two ways out.
Firstly, the country may find alternative export markets or, secondly, she can depress
manufacturing activity. In the recent years, the CIS member-states have become subject to
such persecutions. Steelmaking is the primary objective for metallurgy, while
manufacturing of ferroalloys comes second. At least 18 countries commenced inquiries as
for trade in steel with the CIS countries, whereas the EU member-states imposed import
quotas on certain commodity groups. The main targets are Russia, Ukraine, and Kazakhstan,
which are the chief steel manufacturers in the region.

There should be no problem in transferring commodities to other countries
if the main consumers do not domestically manufacture these particular products. In 1994,
the EU introduced trade sanctions against Russian-made ferrosilicon. As a result, export
of this commodity was redirected to other countries, especially to Japan and South Korea.
Meanwhile, the EU continued import of ferrosilicon from countries free from such
restrictions. In this case, Norway, which is the main non-EU-member manufacturer in
Europe, imported ferrosilicon from Russia in order to export it to the EU countries.

Steel manufacturing has its definite peculiarities because each consuming
country produces enough steel to cover a lion’s share of its requirements. Some countries,
such as the USA, are more import-oriented, while the others, like Japan and the EU
member-states, are more export-oriented. When a country is a net importer of certain
commodities and net exporter of other products, the situation becomes even more complex.
The developed countries manufacture a greater portion of products with high value added,
such as coated plate and stainless steel, and a smaller portion of basic HR carbon steel.
The CIS countries do exactly the opposite, when HR steel coils are the most significant,
if not the sole, product exported in large amounts. Therefore, out the 18 plaintiff
countries in litigation on trade with steel, 13 charged this very product (all of them
against Russia) and 9 additionally charged Ukraine and Kazakhstan.

Countries, which took measures against Russian-made hot-rolled steel
coils

In 1998, the world output of HR steel coils, including those destined for
re-rolling, amounted to approximately 380.0 mln. tons, most of which were manufactured for
sale. In 1997, the 17 countries, which control 67.0% of the world trade in steel, exported
some 32.0 mln. tons of HR steel coils, whereas the quantity of products made from these
coils was even greater. In 1998, the 15 EU member-states, together with the USA, Japan,
South Korea, Taiwan, and China, jointly imported 30.5 mln. tons, of which EU states
imported 9.5 mln. tons; USA and Canada – 0.5 mln. tons. Thereby, approximately 20.0 mln.
tons were distributed beyond the existing legal trade blocs. Russia contributed 5.0 mln.
tons to this number, Ukraine – 343.0 ths. tons, and Kazakhstan – 462.0 ths. tons.
Thus, Russia’s export portion accounted for 20.0%, while Ukraine and Kazakhstan supplied
some more 4.0%. The USA imported 3.5 mln. tons of HR steel coils from Russia, whereas
Canada – some 667.0 ths. tons. By the way, Russian export has been growing annually ever
since the year of 1992. Both North American countries imported much less steel from
Ukraine and Kazakhstan. The USA offered a yearly line of 750.0 ths. tons within the frames
of agreement to defer duties, while Canada enforced antidumping duties. Thus, up to 4.0
mln. tons of Russian HR steel coils will have to find their markets, which will be a hard
thing to do.

Since the quota system allows for import of only 664.0 ths. tons of
products in 1999, the EU has very limited opportunities for additional exports from the
CIS. In 1998, when the quota was somewhat lower, Russia exported products for only 77.0%
of the quota. Thus, it is possible that the EU member-states will consume some more 150.0
ths. tons of Russian-made HR steel coils.

In 1998, the sum total imports by Japan, South Korea, Taiwan, and China
amounted to 4.8 mln. tons (as against almost 8.0 mln. tons in 1997), whereas most of this
tonnage was inter-exported among these countries. In the year 1998, products from South
Korea and Taiwan accounted for some 83.0% of the total Japanese imports, while commodities
from Japan and South Korea made up almost 91.0% of the Taiwanese imports. China imported
700.0 ths. tons of steel from the CIS countries and 1.0 mln. tons from other countries
worldwide.

In theory, these countries may intensify imports of Russian metal. To do
this, Russia should either boost steel export or reduce import originated in its neighbor
countries. This is virtually impossible to do because local-made materials always have an
advantage over those imported due to higher reliability, trustworthy frequency of
deliveries, predictable quality, and better client service. Products made by well-known
neighbors are also in a preferential position compared those of unknown quality coming
from remote countries. Hence, if Russia endeavors to fill the Far Eastern market with
Russian-made steel, she will have to slash domestic prices down to the level, when
manufacturers will make profit by selling steel anywhere. Yet, such steps will cause
protective measures from the Governments with the Far Eastern countries. Taiwan is already
among the states, which carry out antidumping inquiries on Russian HR steel coils, while
South Korea expressed an intention to levy additional duties on Russian-made joists.

Markets, capable of consuming a large portion of Russian products, are
extremely difficult to find elsewhere. For instance, in 1997, the ASEAN member-countries
imported 2.3 mln. tons of HR steel coils, while the import volume was much lower in 1998.
Even prior to the recession, import was going down since new capacities for hot rolling
were constructed in the region. Furthermore, Thailand and Indonesia are about to introduce
antidumping sanctions. After all this, not much is left. India is a vast market, however,
she has a powerful steelmaking industry, which is well protected by antidumping duties.
The markets in Middle East and Africa have small capacity. The Middle East is quite
attractive due to its geographical location and due to the fact that neither Egypt nor
Iran possess considerable capacities for hot rolling. Turkey has already imposed
antidumping duties on HR steel coils. Being close to Russia, Eastern Europe is a more
capacious market. Yet, the steel industry of this region is a net exporter and faces about
the same problems as those in the CIS countries. Latin America and Australia are too
remote and have small market capacity. Besides, Brazil and Argentina are net exporters,
while Chile, Columbia, Venezuela, and Argentina currently conduct antidumping inquiries.

Since most of Russian-made metal is not specially processed into higher
quality products (which is reflected in prices), Russian HR steel coils have additional
problems compared to those from the other countries. In 1998, the average price for
Russian steel was USD/MT 257.0 CIF in the USA, while the average import price was USD/MT
300.0. The price for Japanese-made steel was USD/MT 315.0, while products from the EU
countries were even more expensive. Overall, out of all the countries, which exported more
than 10.0 ths. tons of HR steel coils to the USA in 1998, Ukraine was the only one to
offer products at prices lower than those bid by the Russians. Thus, there is no easy way
out. Rolling mills may be reconstructed in order to increase the quality of steel coils.
Yet, even in this case, Russia will be confronted with problems of restricted markets.

Sales of additional number of slabs could be a partial solution. The world
market for slabs expanded rapidly since rollers found it more profitable to purchase this
product than to manufacture it. This is the market for low-quality products. Even Brazil
and Mexico, which are the renowned slab manufacturers, started building their own hot
rolling capacities to increase potential. This may give Russia a chance. It is quite
unlikely that antidumping sanctions will be imposed because the companies, willing to
purchase slabs, are the ones to initiate inquiries on HR steel coils. By increasing slab
exports, Russian companies would reduce capacity utilization ratio and will fire some of
the workers, yet, this step will ensure survival of the industry in the long run.

The analysis above concentrated on one product only, however, the similar
conclusions are true for other products as well, including some of ferroalloys. P. Simon
from British "CRU International Ltd" believes that in any case technical
backwardness of CIS-made products will remain the main obstacle for large-scale
redirection of exports. Only a few world manufacturers produce technically advanced
products, such as stainless steel; thus, many countries are forced to import these
products without taking antidumping measures. If the CIS member-states manufactured such
products, it could be much easier to find alternative export markets. However, taking into
consideration the situation with steel production in the CIS, the industry is doomed to
compete for markets of low-technology products, which have the highest probability for
imposed antidumping sanctions.

Distribution of metal products as an integrator

Since commodity markets are extremely price-sensitive, the cheaper
commodities have substantial advantages. However, at the moment, exporters are practically
trapped within the limits of regulations by the WTO, EU and the US federal government. In
this situation, prices lose the role of chief market instrument, while the role of
logistics, including aggressive marketing, enhances. Many consumers are quite surprised
that there is no response to their enquiries, while they do not even have a clue how to
approach the CIS steel manufacturers. It is likely that the enquiries were never
transferred from manufacturer to his trader for two reasons: due to the existing purchase
volumes and personal interest of an intermediary.

At present, direct trade can not be conducted due to the difference between
the volume of products, destined for sale by manufacturer, and the quantity of one
shipment, needed by a client. Neither consumers, nor most distributors are interested in
small consignments of products, which require the same administrative routine as a large
shipment. A railroad car loaded with particular product is the widely used lowest
consignment within the CIS. By setting up trading companies, which offer ad libitum small
consignments and do not depend on a limited number of large clients, one can successfully
overcome this obstacle.

Unfortunately, the higher managers with steel mills do not understand the
correlation between sales and their salaries and do not evaluate profitability of deals
struck. Even if the evaluation is made, it does not become an individual business
activity. At the same time, personnel with a specialized trading company is much more
interested in higher rates of return.

As a rule, domestic clients order commodities only when they are ready to
transact payments immediately. Thus, extensive experience in trade on the domestic market
mostly turns out to be insufficient for trade in Europe. The CIS has no contemporary
integrated network for distribution of metal products; thus, even within a particular
region, competing groups manage local warehouses. This is unprofitable for clients and,
besides, manufacturers rarely recognize clients as their customers. Since many companies
go out of business and trade relations break down, the advantages of long-term work with
traders are not used. Because the offered price guarantees demand, no one wants to know
his clients. The clients themselves are more worried about the price and type of barter,
than about quality, delivery term, or package. Besides, the CIS specialists frequently
treat quality as a performance attribute of a product and do not consider service,
information, delivery, or logistics as essential parts of quality, although several
enterprises already implement the integrated "quality systems". Working
conditions are another factor, which is not the most crucial, yet affecting on efficiency
and quality of operations performed. However, high-tech warehouse systems, equipped with
remote-controlled cranes, timely transport arrival, efficient and user-friendly
information systems, especially those based on the Internet technologies, rarely provide
for working environment.

Specialists with "Chernyavskiy and Partners" Consulting Group
have a similar viewpoint. They believe that the main rules, needed today in search for
market solutions in ferrous metallurgy, embrace the following:

• restructuring aimed at increasing flexibility of the sector and
  reorganization via segregation of structural subdivisions, along with restructuring of
  accounts payable and receivable;

• market organization based on integration of manufacturing methods and
  product diversification, combination of industrial structure with manufacturing line
  comprising complex and mini-size devices;

• uniform rules for quality control system all the way from suppliers of
  raw materials to manufacturing methods and client service, including provision of timely
  delivery, which is of cardinal importance in market relations; ecological aspects such as
  waste utilization and recycling;

• adjustment of distribution marketing to complex and individual clients’
  requirements; selection of products, which require particular niches; creative competition
  targeted at making an image of steel products.

Will the CIS manufacturers be able to work without intermediaries directly
selling their products to Western consumers and, at the same time, ensuring high service
quality? If one steel manufacturer works directly with clients in the automobile industry,
while another supplies products to construction companies via an intermediary, it does not
imply that change of trading method will be effective for either one of them. It is more
likely that establishment of own trade agencies and vertical integration will prove more
effective. By having a high number of own distribution networks, Western European steel
manufacturers gain all the advantages of vertical integration, especially when a few large
manufacturers, traders, and distributors dominate the market. In Germany, the five largest
steel traders control about 41.0% of the market, in Netherlands – a 57.0%, in Great
Britain – a 62.0%, in France – a 68.0%, and in Spain – a 78.0%.

To increase their market share, producers strive to intensify control over
flows through distributors. There is a tendency to place such trading joints with the
leading owners of consignment depots, which leads to progressive integration of the
market, better penetration into the market, better organization and logistics. It becomes
harder for outsiders to enter the market if the latter is organized vertically. In this
case, outsiders have to overcome a number of hindrances, such as duties, quotas,
differences in standards, high transport costs. It looks like, by eliminating weak and
uni-client professional traders, enterprises will benefit from establishing direct
relations with large foreign service networks, which protect their markets.

Segmentation of products and specialization of the market will further
enhance the role of such network centers on the CIS markets. Thus, possession of own
distribution entities is a strategic issue for owners of steel manufacturing enterprises.
A relatively small number of producers view distribution as "their" business,
while they do not consider value added in the service centers as attainable. Therefore,
there is an opportunity to set up independent distribution and service network for metal
products under private or joint ownership. In the future, it may be purchased by
representatives of the whole industry and not by the rival distribution networks of
companies.

The CIS steel manufacturers have a definite opportunity for elimination of
intermediaries. Most steel enterprises own trading entities not to distribute products,
but to gain all sorts of benefits in financial services, guarantees, barter alternatives
and other types of services, which can not be ensured by a bank or end consumer. The time
is coming to organize trading houses with fair clientele and with experience in work
within the CIS. Simultaneously, as the shadow economy disappears, the trading companies,
based on offshore accounts, semi-legal trade, and captive contacts, will either go out of
business or become 100%-legal.

Hence, to strengthen their positions on the steel market, the CIS
manufacturers should concentrate on enlargement of traders, search for competitive
advantages (specialization), and on ownership over distribution network, which is of
strategic importance. It looks like all the aforementioned is considered by the Russian
Metal Traders Association (including creation of own dealers network, establishment of
service centers and consignment warehouses) and is practically not viewed by the managers
with the main manufacturing companies. Is there a way for dealers networks among
manufacturers and traders to expand and agglomerate to reach more effective sales? As
specialization enhances, market becomes segmented, mini-factories are constructed, new
technologies appear, and changes in trade with home clients take place, the steel industry
will step by step adjust its trading network to meet market requirements. Owing to large
size and inflexibility of the CIS steel manufacturers, there is an opportunity to set up
transformer companies and service centers. Yet, there is a chance to realize this
opportunity in a non-barter economy only.