Vitaly GNATUSH, expert with DerzhZovnishInform

UKRAINE

Production

In the 1st quarter of 2000 Ukrainian output of and trade in steel tubes featured irregularity and passive behavior of the parties involved as regards settlement of the piled up problems.

According to the figures with Metallurgprom association, the main manufacturers of steel tubes produced 102,000 tonnes of tubes in March 2000 (see table 1). Altogether, output of the 1st quarter of 2000 summed up to 95% of the respective last year’s figure.

In comparison with February 2000, tube production increased approximately 26%.

The statistics on the 1st quarter of 2000 demonstrate that only 3 companies, namely Ilyich Iron and Steel Works of Mariupol, Nizhnedneprovsk Tube Rolling Works, and Novomoskovsk Tube Works, managed to beat their 1999’ average monthly output figures.

The other enterprises, especially Dnepropetrovsk Tube Works and Khartsyzsk Tube Works, lagged behind their last year’s performance.

According to the information with Interfax agency, managers of Khartsyzsk Tube Works think the drop in output was produced by lack of adequate orders for large-diameter tubes because of heightened competition on this market in Russia and low demand on the domestic market. Khartsyzsk managers are simultaneously looking for additional spheres of business. In particular, the Works intends to become a co-founder of private joint-stock company Engineering Company European Transport Systems, which is being established to develop and introduce pipeline reliability systems. A German company (one of the founders) will lease pipeline ultrasonic testing equipment to this new undertaking.

Export

As concerns the exports, according to the latest data of the Ukrainian Customs Service, Ukraine exported about 172,900 tonnes of steel tubes and pipes worth USD 60,600,000 in the 1st quarter of 2000. Compared to the respective 1999 period, exports gained some 9%. However, comparison to the 4th quarter of 1999 reveals a 20% drop in exports (see the figure).

Growth in exports for the period under review against the respective period of 1999 was achieved due to greater exports of seamless tubes (+26%) and other welded tubes (+19%). At the same time, export of large-diameter welded tubes went down approximately twofold.

The pattern of steel tube export has changed significantly this year. The share of seamless tubes increased from 61.9% of the total in 1999 to 73.7% now, whereas the portion of welded tubes shrank. Notably, the share of large-diameter welded tubes reduced from 16.9% in 1999 to 9.6% in 2000, while the share of other welded tubes descended from 21.1% in 1999 to 16.7% now. The possibility of such changes has been actively discussed for quite a long time. Russia tries to put its best foot forward to start using Russian-made large-diameter welded tubes.

During the 1st quarter of 2000 the number of importers of Ukrainian steel tubes gradually increased to 39 countries, whereas companies from 62 countries of the world imported these commodities from Ukraine in 1999. The CIS purchased the overwhelming majority of tubes, that is 79.0% of the total. The share of East European countries made up 5.3% of the export volume, with Asia consuming 5.2%, the EU 4.2%, North and Central America 2.7%, and the Baltic states 2.1% (see table 2).Thus, considerable changes occurred in regional distribution of exports against 1999. Notably, the share of CIS member-states increased 7% and that of East European countries gained 2%, while the portion of Asian countries halved and that of the EU lowered 2.2 times.

Table 1. Output of steel tubes in Ukraine

Source: Metallurgprom assn

Among the importers of Ukrainian steel tubes, Russia holds the firm leadership with 107,200 tonnes or 61.9% of the total export during the period under review. Seamless tubes accounted for 74.4% of the total Ukrainian tube exports to this country, other welded tubes for 13.3%, and large-diameter welded tubes for 12.3%.

The big Russia, in spite of being a CIS member, has decided to curb Ukrainian appetites for the Russian market for steel tubes. According to Interfax agency, the Commission for Protective Measures in Foreign Trade and Customs and Tariff Policy of the Russian government made a decision to conduct an inquiry preceding imposition of special protective measures against iron and steel tubes and pipes. The Tube Industry Development Fund, which incorporates 9 Russian tube works, e.g. Chelyabinsk Tube Rolling Works, Volzhsk, Sinarsk, and Seversk Tube Works, and Pervouralsk Novotrubny Works, has initiated this inquiry. It is believed that, if the Commission confirms either a considerable damage done to manufacturers or a threat to the Russia’s economic interests, additional temporary import duties will be imposed. It looks like Russia really favors the EU example. These protective measures are quite possible because the Free Trade Agreement within the CIS is still on the stage of development.

At the same time, taking a closer look at the situation and proceeding from the available data including the information published in Metal Courier magazine, one can see that Russian tubes accounted for about 53% of the total tube imports to Ukraine in 1999, whereas Ukrainian-made tubes barely held 12-13% of the Russian market. The restrictions can hardly be applied to large-diameter welded tubes made by Khartsyzsk Tube Works, although Russia is doing its best pursuing the policy of import-substitution for this type of tubes. Moreover, A. Romanikhin, president of the Union of Oil-and-Gas Equipment Manufacturers, mentioned at the international conference "Metallurgy and tube industry of Russia and the CIS: the current state, prospects, and investment opportunities" (see ChermetInformatsiya Bulletin) that Gazprom spends a weighty portion of its money on imports of 1,420-mm single-weld tubes from Japan and Italy to construct and maintain gas pipelines.

Meanwhile, the Ukrainian Center for Economic and Political Research insists that Russia’s foreign trade turnover with non-CIS states reached USD 93.4 billion in 1999, 10.6% down against the 1998’ figure. Russia’s turnover with the CIS equaled USD 22 billion, 23.8% down. In 1999 trade in goods between Russia and Ukraine shrank by 20% against the 1998’ level. This looks like a stable trend.

Let us try to image what will happen if the Russian Federation imposes duties on Ukrainian steel tubes and pipes. What should we do in such a case? Are there any alternatives to the Russian market? Proceeding from the current regional distribution of Ukrainian steel tube exports, there are no such alternatives at the moment.

We believe that Ukrainian manufacturers and traders need to take several active steps in order to retain the niche on the Russian market. First of all, there is a need in setting up the national association of tube manufacturers and traders called, let’s say, the Ukrainian Tubes. Secondly, it is necessary to start negotiations with the Russian Fund for Development of Tube Industry. The world practice shows that it is the public organizations, not the governments, that are sometimes able to resolve market regulation issues. One more good old recipe is to establish direct trade contacts with regions of Russia. For instance, according to the Ukrainian Center for Economic and Political Research, Belarus successfully boosted trade in goods with 22 Russian regions, notably turnover with Moscow city skyrocketed to about USD 2.5 billion.

Besides, there still is a long pending issue of upgrades of Ukrainian tube works and transition to output of modern promising products, along with simultaneous enhancement of product quality up to the international standards.

Thus, there are several ways to resolve the problem and the only thing left is to make up our mind what way to take.

Now, let’s proceed to analysis of Ukrainian steel tube exports.

Export of steel tubes from Ukraine in 1999-2000

Seamless tubes

During January-March 2000 Russia was the main consumer of Ukrainian seamless tubes accounting for approximately 79,700 tonnes or 62.5% of the total seamless tube export. Besides to the Russian Federation, other importers included Turkmenistan with 9,200 tonnes, Mexico with 4,200 tonnes, Bulgaria with 4,600 tonnes, Belarus with 3,600 tonnes, Italy with 2,800 tonnes, Egypt with 2,500 tonnes, Iran with 2,400 tonnes, Turkey with 2,300 tonnes, Israel with 2,100 tonnes, and other countries. On the whole, 32 countries purchased seamless tubes in Ukraine. The top 3 importing regions were the CIS accounting for 78.8% of the total Ukrainian export of seamless tubes, Asia with 6.7%, and Eastern Europe with 5.5%.

For the period of 3 months of 2000, 3,600 tonnes of seamless tubes were exported to the EU, which corresponds to only 15.6% of supplies during the 1st quarter of 1999. At least, this demonstrates the collapse of the mechanism of Ukrainian seamless tube exports to the EU in compliance with resolution of the European Commission. Being behind the schedule of quota tube supplies, Ukraine has already lost at least USD 1.4 million worth of revenues.

Large-diameter welded tubes

The situation on the market for these commodities continues to remain rather unfavorable for Ukraine. Compared to respective period of 1999, exports decreased about twofold and the number of importing countries reduced from 10 to 8. CIS member-states consume 96.9% of the total large-diameter welded tubes exported from Ukraine, including Russia with 79.5%.

Other welded tubes

During the period under review, about 70.5% of these tubes were supplied to the CIS, including 49.3% to Russia. Out of the other regions, the EU consumed 12.2% and the Baltic States 7.6% of other welded tubes from Ukraine. On the whole, 23 countries of the world, with none from Africa and South America, have imported other welded tubes from Ukraine in 2000.

Imports

In January-March 2000 Ukraine imported approximately 6,000 tonnes of steel tubes and pipes worth some USD 5,800,000. Hot-rolled seamless tubes made up 89.7% of the total imported in terms of both physical supplies and costs, with other welded tubes accounting for 10.3%. Large-diameter welded tubes have not been imported this year. The bulk of seamless tubes came from Austria (3,500 tonnes) and Russia (1,600 tonnes), while other welded tubes were primarily imported from Russia (about 500 tonnes) and Poland (70 tonnes). During the 1st quarter, more countries became involved in tube exports to Ukraine and, as a result, 23 countries supplied seamless tubes and 14 countries supplied other welded tubes to Ukraine.

Summarizing the data on output, exports, and imports of steel tubes during the 1st quarter of 2000 and comparing these figures to 1999 (see table 3), one can trace a rather peculiar situation with Ukrainian steel tubes.

Taking into account the average monthly figures, analysis of the available information demonstrates that in 2000 steel tube output lags 5% behind 1999 in terms of output and about 15% behind in terms of exports.

On the contrary, imports of steel tubes have increased 1.7 times in 2000. Domestic demands have grown approximately 18%.

Russian Federation

The State Statistics Committee of the Russian Federation informs that, unlike in Ukraine, during the 2 months of 2000 Russian companies increased steel tube outputs 1.85 times compared to the respective period of 1999. Output of seamless tubes gained 88.9% and electric welded tubes +83.6% against the last year’s corresponding period. All the nine Russian tube makers have manufactured more tubes and pipes than in January-February 1999.

Table 2. Ukrainian exports of steel tubes in 1999-2000 (‘000 tonnes)

At the same time, Russian manufacturers are making efforts to execute the import-substitution program.

In particular, according to ChermetInformatsiya Bulletin, public JSC Mechel intends to finance construction of a pipe-piercing shop in Chelyabinsk Tube Rolling Works. About DM 45,000,000 is needed to complete this construction project. The workshop equipped with Germany’s Mannesman Demag machinery will make more than 300,000 tonnes of hot-rolled seamless tubes per year.

In addition, international company Europipe is studying the possibility of cooperation with JSC Volzhsk Tube Works to sell Volzhsk products on the world market because Europipe gets way too many order exceeding its capacities. According to Interfax agency, Europipe spokesman mentioned that his company jointly with Volzhsk Tube Works would be able to supply all the needed large-diameter tubes to Gazprom, one of the largest Russian consumers of tubes and pipes, in the near future.

Global market

In September-December 1999 and in January-February 2000 the American market for oil country tubular goods was upturning. During this period prices for oil well tubing increased by the average of 11.2% and prices for casing tubes gained 10.4% (see table 4). The most substantial 15.8% increase in average monthly prices was reported for electric resistance welded casing (grade 80); while the prices for seamless casing made of carbon steel increased the least, that is by 5.1%. According to ChermetInformatsiya Bulletin, in April 2000 Japan’s Sumitomo Metal Industries raised prices for seamless tubes made of corrosion-resistant steels sold on the domestic market. Prices for these tubes were increased both for long-term contractors of the company and for spot clients. The markup in prices is caused by the increase in cost of raw materials, notably, nickel. Japan manufactures 60,000-70,000 tonnes of seamless tubes made of corrosion-resistant steels per year.

Table 3. Ukrainian market for steel tubes (‘000 tonnes)

Table 4. Average monthly prices for oil country tubular goods on the US domestic market (Houston area) in 1999-2000 (USD/tonne)

Source: ChermetInformatsiya Bulletin

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