The two major industrial sectors of Ukraine, namely metalmaking and mining, have been originally designed as a single industrial complex.
SIAMESE TWINS TRY TO TAKE DIFFERENT ROADS
The two major industrial sectors of Ukraine, namely metalmaking and mining, have been originally designed as a single industrial complex.
A decade ago, during the era state planning, no one could have ever imagined that the Ukrainian ore mining and processing works (with extensive mineral inventories and their huge productive capacities) would fail to supply enough raw materials to cover the needs of domestic metallurgical mills. Yet, this is precisely how the things are now.
Particularly these new realities spurred directors of the Ukrainian Association of Ferrous Metallurgical Enterprises to get representatives of both parties together at one round table in order to take advantage of the business ambience and discuss the existing shortage of iron ore products on the domestic market of Ukraine. In fact, this shortage is big enough.
During January-February 2000 several large metallurgical mills received 449,000 metric tons of ore concentrate less than n the first two months in 1999. Specifically, these were Yenakievo Metallurgical Works (with shortage of 35,000 mt), Azovstal (81,000 mt), Alchevsk Iron and Steel Works (182,000 mt), Dzerzhinsky Metallurgical Works (63,000 mt), and Zaporozhstal (185,000 mt). Azovstal and Petrovsky Iron and Steel Works suffered the largest shortage of sinter, 123,000 mt and 34,000 mt respectively. As concerns pellets, Yenakievo Metallurgical Works indicated the greatest deficit of this product amounting to 152,000 mt, while this figure came to 144,000 mt for Krivorozhstal.
Naturally enough, more precise calculations illustrating the overall dynamics of iron ore supplies were presented at the meeting. Nevertheless, representatives of ore mining enterprises did not try to call these figures in question. Failure to meet the commitments was mainly explained with frequent power cuts, shortage of diesel fuel, and frequent repairs of manufacturing equipment. These reasons were quite clear and did not rouse the opponents’ criticism. Nevertheless, a different issue led to quite an emotional discussion.
Anatoly Golubchenko, the chairman of the meeting and president with the Association, read aloud the letter of director-general with Ilyich Iron and Steel Works (ISW) of Mariupol to the Ukrainian State Committee for Industrial Policy. Top managers of Ilyich ISW are alarmed with the fact that state-owned JSC UkrRudProm insists that shortage of iron ore concentrate will amount to 7 million mt in 2000 (with exports taken in the calculation), though the annual balance of supplies agreed for with the Ministry of Economy mentions the figure of 3.5 million mt. Thus, even the compilation of monthly balances of supply envisions that metallurgical mills will not receive enough domestically-mined ore. In this light, Ilyich ISW has to import more and more ore concentrate from Russia.
Digressing from the issue of the letter, it should be pointed out that throughout the first 2 months of 2000 five metallurgical mills of Ukraine, namely Yenakievo Metallurgical Works, Azovstal, Krivorozhstal, Ilyich ISW, and Alchevsk ISW, imported 1,133,000 mt of ore concentrate and 495,000 mt of pellets from Russia. This means that imports from Russia cover nearly the whole amount of shortage on the domestic market. For the sake of objectivity, it ought to be mentioned that Ukrainian mills do business with Russian traders not solely in anticipation of shortage of feedstock, but also owing to better quality of Russian iron ore products.
Nonetheless, it still looks a bit odd that Ukraine exports raw materials to the West and at once purchases the same raw materials from Russia. On the other hand, one should certainly agree with Sergei Grishchenko, deputy chairman with the State Committee for Industrial Policy, who opened the debates at the meeting. He admitted that the issue of feedstock shortage has become a vital one and should be compromised by all the parties involved. Yet, he also accentuated that the mining companies will not work solely for the domestic market because exports serve the state interests and obligations. Producers themselves are anxious about yielding hard currency from exports. All the above-mentioned is true. Still, there are circumstances compelling to follow other objectives and precisely these circumstances were discussed at the meeting.
To start with, if the question of export “appetites” of mining companies had arouse some time ago when the domestic market was barter-ridden, no one would ever think about blaming the miners. At present, the situation is quite different and metallurgical mills pay in national currency for all the raw materials supplied. The metallurgists themselves insisted that barter transactions are only employed if the supplier wants them. Besides, the meeting has revealed that not all ore mining enterprises are worried about exports when domestic consumers duly pay in money.
Secondly, while exporters earn foreign currency, imports consume the very same foreign currency. What kind of balance is this? Anatoly Golubchenko broached this issue at least twice, though fully understanding that the participants had no answer to this. Yet, the question remains open.
Thirdly, these business activities of both exporters and importers undermine an important sector of the domestic market. In case this trend continues, what would happen in two to three years, when exports of feedstock would possibly become inexpedient for a number of reasons? How are ore mining companies intend to restore their positions on the domestic market in this case? This is particularly the case when it is easy to lose and extremely hard to get back. It follows as a logical consequence that these “centrifugal” trends are barely compatible with the actual development goals of the Ukraine’s domestic market. Citing Ilia Shapiro, commerce director with Azovstal, “it is pity that situation is so tense, it would be much better if our money was working in our country”. In this, he is 100 percent correct.
Finally, this whole situation seems to put off the tempting goal of upgrading metalmaking facilities and launching the global markets not solely with semi-finished products, but with high-quality competitive metal products. Is it not??
So far, metallurgical mills have to import feedstock and incur enormous expenditures. The cause is to be sought in the order of the Ukrainian Ministry for Transport dated February 18, 2000 (registered by the Ministry of Justice on February 21, 2000), which introduced new adjustment coefficients to the “Tariffs for cargo transportation by Ukrainian railways”. Needless to mention that the tariffs were put up, though not everything is so clear and definite. A good example is the case of the mentioned Ilyich ISW. When doing imports of Russian ore concentrate, Ilyich ISW has to pay UAH 4.609 to transport a metric ton of cargo over the reference distance of 100 km in Ukraine, while domestic raw materials are charged UAH/mt 2.252. At the same time, ore mining companies convey export supplies at UAH/mt 1.14. It is a big problem because, on the one hand, it comes to shortage of raw materials; and, on the other hand, importers are charged for transportation four times as much as exporters. All these costs, not mentioning some other things, become part of production costs and have to be finally reimbursed by consumers.
Increased import and export freight rates are probably aimed at protecting domestic manufacturers, but in this case everything is exactly the opposite and all the whips go to the ones who have already been punished. Therefore, it is rather logical that the Ukrainian Association of Ferrous Metallurgical Enterprises decided to address the appropriate authorities with a proposal to reconsider tariffs for transportation of imported iron ore products. Hopes on triumph of justice still remain because on March 15, 2000 the Association signed an agreement on cooperation with the State Committee for Industrial Policy stating in the very preamble that the aim of the agreement is “to improve management of the mining-metallurgical complex”. Let us hope for the better.
the Metal