The year 1999 on the whole saw poor performance of the Ukrainian mining, iron & steel industries. On February 2, 2000, participants of the general meeting of founders and members with the Ukrainian Association of Ferrous Metallurgic Enterprises arrived to

Association gets ready to play rough

The year 1999 on the whole saw poor performance of the Ukrainian mining, iron & steel industries. On February 2, 2000, participants of the general meeting of founders and members with the Ukrainian Association of Ferrous Metallurgic Enterprises arrived to the conclusion that it is impossible to bear with this situation in the year 2000. During the meeting, participants heard and discussed three extensive reports. Vladimir Tereshchenko, CEO of the Association, discussed performance of iron and steel mills in 1999 and shared his vision on priority steps, which should change the situation for the better this year. Valentin Kulichenko, president with the Ukrainian Association of Scrap Metal, spoke on the issue of procurement of raw materials to ferrous metal mills. Finally, Vladimir Pikovsky, department head with Metal markets research & information department of DerzhZovnishInform, presented his opinion on the behavior and future price trends on foreign metal markets.

After discussion of the delivered reports, participants of the meeting approved an overall decision. Particularly, the participants agreed to that Dnepropetrovsk city will become the place for monthly joint coordination meetings of representatives from iron & steel mills and scrap suppliers. The Board of Directors with the Ukrainian Association of Ferrous Metallurgic Enterprises, together with Metallurgprom association, was authorized to agree measures on revision of metalmaking and steelmaking standards and technical specifications with the State Committee on Metrology and Certification. Owing to changes brought in by the President’s Decree "On changes in the structure of central executive bodies", there was made a decision to sign a cooperation agreement with the State Committee for Industrial Policy. Cooperation areas will embrace:

• generation and execution of state and regional programs for development of mining, iron & steel industries;

• compilation of standard consumption figures on material resources and power, as well as development and compilation of balances of raw material demands;

• nourishment of the necessary conditions for expansion of industrial and internal cooperation;

• activation of foreign trade efforts, namely expansion of markets, enlargement of quotas on metal exports to the EU and USA, distribution of quotas among iron and steel mills, consideration of opportunities for initiation of antidumping inquiries on supplies of stainless sheets, tubes, metal products and refractory materials to Ukraine.

Below you can find summary of the main reports delivered at the meeting.

Vladimir TERESHCHENKO

The year expired was a hard one. Management of iron & steel mills made tremendous efforts to keep their enterprises aloof, to retain work teams, to make the necessary payments and allocations to the state budget, to make all the settlements with business partners and to pay due salaries and wages. On the whole, their efforts turned to be successful. Most iron and steel mills managed to increase output and improved technical and financial performance.

In 1999 Ukrainian companies mined 47,139 ths. metric tons of iron ore (95% against the 1998 figure owing to closing down of several mills in compliance with government’s decisions), produced 35,771 ths. metric tons of iron ore concentrate (93% against the 1998 level due to considerable backwardness in strip-mining operations and in development of mining areas) and manufactured 45,149 ths. metric tons of treated raw materials (102% against 1998). Besides, in 1999 Ukrainian companies mined 1,980 ths. metric tons of manganese ore (89% against 1998), 17,812 ths. metric tons of 6%-moist gross coke (106% against 1998). Iron & steel mills of Ukraine manufactured 21,837 ths. metric tons of iron (109% against 1998), 26,894 ths. metric tons of steel (112% against 1998), 19,249 ths. metric tons of finished rolled metal (108% against 1998), 1,158 ths. metric tons of tubes (70% against 1998) and 223 ths. metric tons of metal products and metalwork (74% against 1998).

Yenakievo Iron & Steel Works, Azovstal, Ilyich Iron & Steel Works, Alchevsk Iron & Steel Works, Krivorozhstal, Dzerzhinskiy Iron & Steel Works, Zaporozhstal and Yuzhny Ore Mining and Concentrating Works boosted output of sintered ore. Almost all iron and steel mills, save for Donetsk Metallurgic Works, Petrovskiy Iron & Steel Works and K. Liebknecht Metallurgic Works, increased steel output. At the same time, Donetsk Metallurgic Works, Kramatorsk Iron & Steel Works, Constantinovka Metallurgic Works, Azovstal, Petrovskiy Iron & Steel Works and DneproSpetsStal lowered output of finished rolled metal.

Mining companies mined enough iron ore to completely satisfy all the demands of iron and steel mills. However, iron and steel mills experience certain difficulties with settlement for the purchased raw materials (which was especially evident at the beginning of the year), while mining companies had to continue executing the previously signed contracts. Owing to all this, iron and steel companies had to import raw materials from Russia. During 1999 Ukraine imported 3,588 ths. metric tons of raw materials, including 304 ths. metric tons of sintered ore, 3,463 ths. metric tons of ore concentrate and 809.5 ths. tons of iron pellets. It should be pointed out that quite a few iron and steel mills (e.g. Kramatorsk ISW, Constantinovka and Donetsk Metallurgic Works, Azovstal, etc.) could have manufactured more metal if they had received enough raw materials.

At the same time, owing to many reasons, mining companies also suffered weighty manufacturing losses. Enterprises subordinate to state JSC UkrRudProm lost 285 ths. metric tons of commercial iron ore, 90 ths. metric ton of deep-mined ore, 194.9 ths. metric tons of ore concentrate and 220 ths. metric tons of commercial limestone. Flux companies failed to perform 207 ths. cu. m and iron ore companies – 287 ths. cu. m of the planned strip-mining operations.

Mining companies lost quite a lot due to limited supply of electric power and shortage of diesel fuel. Even now, mining and concentrating works are frequently disconnected from electric power grids even if they manage to make all the current settlements for the consumed power. This should not take place because such a situation threatens activities of the whole metallurgic industry.

It is alarming that strip-mining operations have been advancing at very low tempos (79.6%), which can be fatal for mining companies in the upcoming years.

Flux manufacturers have found themselves in even more critical situation. Only some 33% of the planned strip-mining were performed. Flux companies failed to remove 7,540 ths. cu. m of rocks, which threatens future supplies of flux to iron and steel mills.

On the whole, coke companies have managed to supply all the necessary coke to iron & steel mills, though certain periods of the year saw idle time of metallurgic equipment due to lack of coke (mainly lack of coking coals). Unfortunately, tolling schemes in coal trade are still a widespread practice, which lowers the opportunities to control quality of furnace charge and coke. Naturally, this affects consumption of coke and increases ironmaking costs. At the same time, it should be mentioned that more than a half of coke companies exceeded the planned annual output figures and improved their financial health. Yasinovatoye Coke Plant put into operation a reconstructed coke battery, while Avdeyevka and Krivoy Rog Coke Plants have commenced stowage of coke batteries.

In 1999 refractory manufacturers stabilized output figures and managed to get over the recession of the first half-year. During last year, ZaporozhOgneupor, Chasov-Yarsk and Panteleymonovka Refractory Plants showed stable functioning. Mining companies of the refractory sector had a firm performance and even stepped the mining volumes up considerably.

At the same time, Nikitovka Dolomite Plant practically set idle and Constantinovka Refractory Plant had to discontinue manufacturing activities quite a few times in 1999 due to insufficient supplies of raw materials, such as magnesite powders and chromite ore.

Mining, iron and steel mills received virtually all the required amounts of refractory materials, save for magnesia ones.

Reciprocal settlements are still a big problem. Though, money payments have started prevailing recently.

Unfortunately as it is, but tube plants are still in the recession and keep on lowering the output volumes. The only lucky exception is Khartsyzsk Tube Works, which managed to gain some 27 ths. metric tons of output.

Scarce solvent demand in Ukraine and in CIS member-states is the main reason for recession in tube-making. In turn, tube plants have not a chance to purchase conversion metal. In 1999 only 44.2% of the agreed-upon amount of hollow sections and 44.1% of strips were supplied to tube manufacturers. During monthly meetings on reconciliation of mutual supplies, held in Dnepropetrovsk, companies lay mutual claims for prices of conversion metal and for delivery terms, although in the long run everything depends on where tube companies will sell their commodities, what the prices will be and when the money will be transferred. In this situation, the main objective is to increase domestic consumption of tubes, because power engineering companies still have to maintain, overhaul and repair their equipment, public utility companies and other firms have to do the necessary repairs, etc.

Drop in output of metal products originates from the same things. In 1999 metalwork companies manufactured 259.7 ths. metric tons of metal products, i.e. 83.2% compared to the 1998 output. At the same time, certain companies have already started importing metal products to Ukraine. This is way beyond comprehension. Therefore, our Association and Ukrmetiz association have to take joint steps to supply Ukrainian-made metalwork to all the domestic consumers. We will take all the necessary efforts, including initiation of antidumping inquiries.

The overall financial performance of Ukrainian companies is still not too impressive. In the 9 months of 1999, the aggregate rate of return amounted to 4.47%, which is some 3.8% up against the respective period of 1998. 29 iron & steel mills suffered negative returns (financial losses).

At the same time, Makeyevka, Yenakievo, Alchevsk, Petrovskiy, Krivorozhstal, Dzerzhinskiy Iron & Steel Works and some other mills managed to lower the amount of losses during the 9 months of 1999. It is also worth pointing out that the six highly profitable mills manufactured 80% of the total metal output in Ukraine.

Ore-mining companies have improved their economic performance. The overall rate of return totaled some 8.4%, which is nonetheless not enough to back reconstruction costs. The mining sector needs a special program guaranteeing reproduction of the necessary quantities of iron ore.

The need in generation of the Program for enhancement of iron ore quality deserves a separate meeting. For instance, in December 1999, contents of small fraction fines, 0-5 mm, in sintered ore of Yuzhny Mining and Concentrating Works amounted to 17.9%. Meanwhile, a 10% reduction in this ratio could allow saving 20 kg of coke per tonne of iron, which would boost output and lower production costs in ironmaking and in other metal-making sectors.

Metals still contribute the bulk to Ukrainian exports. However, it is a matter of special interest that, though the 1999 iron and steel exports were worth some USD 4.7 bln. (80% compared to the 1998 export revenues), the physical exports amounted to more than 26 mln. metric tons of various iron and steel commodities, which is 22% up against 1998.

Therefore, once again the pattern of exports becomes a paramount issue. It is quite understandable that iron & steel mills try to keep up production and sales to earn some money, but this undermines the strength of Ukrainian rolling companies, tube plants and hardware manufacturers.

Exports of billets and semis amounted to 7.2 mln. metric tons in 1999, more than 40% up against 1998. This figure says it all. Most manufactured commodities are exported beyond Ukraine and domestic consumption has to stagger on. It turns out that the wealth of the Ukrainian nation completely depends on the situation on foreign markets, which are neither regulated nor controlled by Ukrainian mills.

Following the request of Zaporozhstal Iron & Steel Works, we have checked the reports on stainless sheet imports to Ukraine. Ukraine imported stainless sheets worth USD 9.965 mln. in 1996, USD 5.337 mln. in 1997, USD 5.804 mln. in 1998 and USD 1.660 mln. in the 9 months of 1999, which means that not only local output, but also imports of stainless steel are going down.

Quite often, prices for similar exported commodities differ a great deal. This also brings in certain financial losses to Ukrainian companies. We believe that it is time to make corporate agreements within the framework of our Association to coordinate export policy as regards physical volume of exports and prices.

Unfortunately, we are not allowed to partake in European or international meetings, which give shape to policy on the global metal markets. To get into these meetings, we have to access to the European Steelworks Union and have some other means, which we don’t own at the moment.

Nevertheless, we have to make more efforts in searching for markets and in expanding markets of Ukrainian iron and steel, although this will take some money. Yet, the primary problem is the domestic market. If the current ratio of domestic and export supplies keeps on, we will fail retaining quite a few work teams.

As far as possible, the Board of Directors with the Association does its best to help iron and steel mills. We monthly participate in compilation and execution of industrial procurement balances and occasionally settle the current disputes among companies.

We have participated in generation and consultations on documents regulating scrap exports and scrap supplies to iron and steel mills. We have started and we will continue the work on initiation of antidumping inquiries under allegations of Zaporozhstal and UkrOgneupor association. On the regular basis, the Board of Directors receives numerous requests to arrange supplies of various materials to different companies, as well as to arrange metal supplies to consumers. Jointly with upper management of iron and steel mills, we will try to find the available opportunities and will assist in implementation of these requests.

There is a lot to do to resuscitate the standardization and certification systems in iron & steel industry. At the moment, there is a need in revision and approval of most standards and technical specifications for their terms of validity have expired long ago.

Vladimir PIKOVSKY

To survive on the global market for ferrous metals, very company has to constantly take and monitor the pulse of the metal markets, make the appropriate conclusions and take the necessary steps.

What is the present situation? New developing market economies have recently entered the global steel market offering large quantities of iron and steel. As a consequence, traditional metal traders constantly accuse Ukraine and Russia of dumping, unfair trade and illegal subsidizing.

In other words, Ukraine’s aspiration to make exports to the conventional and to new markets, that are just taking shape, causes grave problems. One should recall the reaction to Russian and Ukrainian contacts with Iran and Iraq in cases when these contacts interfered with the international plans. Even today, the international community adheres to the opinion that Ukrainian metal manufacturers are inert, that they neither carry out any efficient programs of adjustment to the market economy nor pursue a balanced marketing policy. It looks like certain foreign agencies (as well as someone within Ukraine) deliberately exaggerate the information that Ukraine undermines the global and especially the European markets by selling poor-quality metal at dumping prices. In fact, Ukraine’s performance in trade with EU member-states is not too good. During the past couple of years, Ukraine retained a passive balance on trade with Western Europe, thus financing manufacturers from the most developed countries of the world. Quite often Ukraine imports articles, which are far from being of critical importance to the country. Things are even worse when one takes a look at the breakdown of Ukrainian metal exports in 1999. That year iron made up 27.4%, scrap metal – 30.6% and semis – 23.4% of the total physical metal exports from Ukraine. All this clearly proves a disparity in relations between Ukraine and the EU, when finished rolled metal contributes less than 14% to the total Ukrainian exports. In 1999 the international community became even more confident that Ukraine is a source of cheap raw materials and semi-finished products.

Within the quota limits, all the Ukrainian mills and metal traders could supply only some 250.0 ths. metric tons of rolled metal to the EU, which definitely can’t threat the stability of the European market. Moreover, Ukrainian iron & steel mills exported only 25.0 ths. metric tons of wire rod to all the EU member-states. All this is taking place simultaneously with somewhat of a flood of similar metal products coming from Asian states and quota-free metal supplies from Poland, Czech Republic, Slovakia and Romania. Recently, similar advantages have been granted to Kazakhstan-made metal. This allowed Kazakhstan expanding the list of its clients from 19 to 65 countries worldwide in only 3 years. Though, one should keep in mind that an international net steel-exporting company holds a controlling interest in the sole iron and steel works of Kazakhstan. Meanwhile, there are objective pros for expansion of quota limits on supplies of Ukrainian metal to EU member-states.

In particular, Italy has proposed to cancel limitations on metal supplies from the CIS or to considerably enlarge quotas on metal imports within the framework of the appropriate international treaties. It was proposed that the agenda of the next OECD session include execution of a special study on balancing up demands for CIS-made metal.

Mainly, Ukrainian companies can only export semis and other raw materials to the North American market since it is impossible to export large shipments of plates within the Ukrainian quota limits owing to high sale prices imposed. The US market has always been a lucrative piece for exporters with its strong demands for metal and high prices. In 1999, Ukraine exported some 1,749 ths. metric tons of metal products worth USD 197,428 ths. to the US market. This exceeds the 1998 physical exports by 17.5% and the 1998 export revenues by 96%. Iron was the main export item in supplies to this country making up 60% of the total metal exports, while semis ranked the second with 19% of the total. Due to favorable market situation and certification of products in compliance with the American standards, Ukrainian exporters of long rolled metal secured their positions on this market and expanded export supplies in 1999. This is undoubtedly a nice achievement of Ukrainian exporters in the year expired.

During the 55th session of the OECD Steel Committee, the Ukrainian participants held new consultations with delegation of the US Department of Commerce on the issue of provisions of the Agreement on suspension of antidumping inquiry on Ukrainian ferrosilicomanganese and execution of the Agreement on suspension of antidumping inquiry on imports of certain commodities made of flat-rolled carbon steel sections from Ukraine. One should keep in mind that in terms of currency flows Ukraine exports to the USA twice as little as it imports from the United States.

Discrimination of the Ukrainian iron and steel industry is a way of putting pressure on the executive authorities to limit the ‘wild’ export supplies, which undermine the existing balance on the global market for ferrous metals.

Ukrainian metallurgic mills and metal traders should participate in international conferences, symposia and exhibitions. This is essential in forming the positive industrial and financial image of the Ukrainian iron and steel industry. Furthermore, only after accepting the existing rules of international commerce and executing a specific program of accession to the production and distribution pattern of the steel market, it will be possible to demand the EU, USA and other countries to treat Ukraine more fairly.

There are considerable reserves of steelmaking facilities, which can rapidly start functioning should the market situation change for the better. Countries, which trade in steel on the ‘civilized’ basis and which have already established their distribution networks, can build up the global demand on their own by protecting their traditional markets with regulative measures and political treaties. Both actively functioning and latent productive capacities of CIS countries, which are something of a free-floater on the world steel market, constantly upset the world metallurgic community. This is a true problem. Ukraine should boost domestic demand, close down obsolete facilities, upgrade the existing facilities to make saleable products with high added value, thus relieving the global market from cheap low-tech commodities and semis.

Accession to the WTO means that a country should accept the international rules. If we want to enter a house built by other people for their own purposes and governed by their laws, we cannot alter the rules. The WTO, OECD Steel Committee and all the other modern institutions were set up by developed countries for their own purposes, such as reconciliation and nowadays prevention of various disputes on the markets. If we really want to live in this house, we have to at least avoid bothering its dwellers, which means that we have to play by the existing rules. At a glance, it seems that representatives of the existing global steel distribution systems act extremely selfish in regard to Ukraine. However, they simply try to protect their stability and predictability of the market.

Ukrainian steel manufacturers should not view advice of coordinating institutions, such as the OECD Steel Committee, as an authoritative command. Quite the contrary, this is a sign that foreign countries now have to take the mighty iron & steel industry of Ukraine for granted. Europe and other countries understand well that this powerful industry can destabilize the market. To avoid this, foreigners try to propose the way for Ukraine’s integration to the existing establishments in global steel trade.

It is also interesting that international experts consider Ukrainian capacities to be excessive. Well, it is true that our capacities are over-excessive for the global market because quite a few countries hardly utilize 60.0% of their own capacities. You will have to admit that Ukrainian iron and steel industry virtually functions for exports intruding its commodities into the existing sale channels, which is quite unhealthy. Ukrainian domestic demand can become the key cure to this situation. As the economy starts recovering (and we believe that this will happen), Ukrainian steel exports will reduce pressure on the global market. This should definitely become an advantage in relations of Ukrainian manufacturers with the other members of the global steel-trading club.

However, at present, CIS-made metal products are being carefully watched after. Almost all the analyst companies track and find presence of these products in various regions worldwide. The developed countries, such as the USA and the EU, constantly take steps to restrict imports. The US antidumping measures against Russian-made hot-rolled steel in 1999 are a typical example. Low offer price causes the major suspicions, which means that clear price formation mechanism should help Ukrainians avoid antidumping inquiries.

Re-export of Ukrainian commodities is yet another problem that can potentially bring about antidumping persecution of Ukrainian steel producers. It seems that the problem takes root in uncoordinated activities of small exporters, which once had an opportunity to get into various barter and other transactions getting metal directly from manufacturers as debt settlement. Luckily enough, this process is about over because privatization in iron & steel industry nourishes larger exporting companies, which means that producers will have more control over their commodities. By the way, this agrees with advice of the OECD Steel Committee.

Like ever before, most Ukrainian exports were bound to Southeast Asian countries in 1999. Ukrainian metal products are comparatively cheap and have rather high consumer properties, which is a nice pro on the Asian markets. Although it should be mentioned that cheapness partially originates from noncompliance of Ukrainian commodities with certain commodity standards, which are accepted in the developed countries but are not crucial for metal-consuming sectors of the developing economies. The authoritative steel manufacturers, such as Japan, the EU or the USA, simply cannot offer their commodities at such prices. Obviously, as long as the Asia-Pacific market has demands for such commodities, Russian and Ukrainian steel will find its consumer.

Despite the financial crisis and its aftermath in Asia, in 1997-1998 Ukrainian metal exports to this region stably exceeded some 5.0 mln. metric tons per year (exports amounted to more than 6.8 mln. metric tons in 1997). It is just that the importing countries sometimes revised purchase volumes of various commodity types. For instance, back in 1996 Thailand was the main business partner of Ukraine importing some 1.5 mln. metric tons of steel, whereas in 1998 Thailand-bound exports reduced almost fivefold. Simultaneously, Taiwan gained the leading positions. Ukraine also makes stable steel exports to the Philippines and Indonesia. The vast Chinese market remains extremely attractive. In 1997-1999 Ukraine exported 3.7-4.7 mln. metric tons of steel to China.

In 1999 metal exports to Russia were going down. Increase in export supplies was traced only in case of HR and CR flat metal. All the export items yielded 65.5% less export revenues to Ukraine than in 1998.

Note. The Metal will publish report of Valentin Kulichenko, President with the Ukrainian Association of Scrap Metal, in one of the coming issues.

• the Metal