Finally, here comes the first year of the third millennium. What will it bring to Ukrainian steel tube producers and traders?…

STEEL TUBES

STEEL TUBES

UKRAINE

Finally, here comes the first year of the third millennium.
What will it bring to Ukrainian steel tube producers and traders? Global economy is
slackening, oil prices are also settling down after 2000’ turmoil. There is every reason
to expect lower consumption of steel tubes in 2001. This in turn will facilitate tension
at various regional sectors of global steel tube market.

Specialists are well aware of notable effect energy market
has on the market for steel tubes. The trend is presently evolving towards creation of
continental systems of energy sources. Development of plans, which foresee integration of
energy flows of the EU (consumer) and Russia (supplier), will result in foundation of
global Europe-Asia energy system. Falling out of this framework, Ukraine may only hope for
the role of a satellite. The country will only turn into a full-fledged member if
interests of the state and nation’s well-being will become cornerstones of the policy.
Otherwise, the dream of Ukraine’s independence might receive a deep-six.

Considering the aforementioned, there comes better
understanding of Russia’s government attitude regarding supplies of Ukrainian tubes to
the Russian market. Foremost, departure of Ukrainian tubes from the market of Russia will
advance supplies of similar products by Western companies, prices being higher. This will
make things difficult for Russian buyers, but Western producers of steel tubes will
benefit even more as their productive facilities are loaded by less than 50%. Secondly,
banning Ukrainian tubes export will have an adverse effect on trade relations between the
two countries, which will boomerang other commodities.

Problems of Ukrainian producers of steel tubes are the
precise reflection of problems within the country. The reasons embrace absence of system
approach to establishing of legislative and executive structure of the state. In light of
trade, production, and financial turnover in the world economy, key institutions in the
country’s executive branch should be the Ministry of Economy, the Ministry of Trade, the
Ministry of Industry and Energy, as well the Ministry of Agricultural Sector, and the
Ministry of Finance. Comprising the groundwork of the state, these should raise efficiency
and manageability, as well as responsibility and smartness in decision making.

As regards situation in Ukraine, steel tube production and
trade in January 2001 were on downturn.

According to Metallurgprom Assn., output of steel tubes by
major Ukrainian producers in January amounted to 124 ths. tons (Table 1). This, however,
accounts for only 70% of the commodity production in December 2000, though as compared to
January 2000, the figure increased 1.7 times.

Table 1. Output of steel tubes by Ukrainian mills,
ths. tons

Source: Metallurgprom Assn.

When it comes to dynamics of average monthly output, only
Lugansk Tube Works and Khartsyzsk plant outran the 2000’ figure reporting 156.3% and
126.6% respectively. Just a little behind average monthly production of 2000 were Nikopol
Yuzhnotrubny Works (94.3%) and Ilyich Iron and Steel Works (ISW) of Mariupol (94.3%). The
last in January 2001’ ranking were Dnepropetrovsk and Novomoskovsk Tube Works (67.6% and
47.6% respectively). At the same time, even though Nizhnedneprovsk Tube Rolling Works
(TRW) was said to only reach some 84% of the 2000’ output, the plant accounted for the
largest share of 37.4% in national output of steel tubes. Besides, Nizhnedneprovsk TRW and
Khartsyzsk TW jointly contributed as much as 58% to Ukraine’s production of steel tubes
in January 2001.

According to preliminary data, steel tube export in January
2001 totaled some 86 ths. tons yielding USD 49 mln. Comparison to the same period of 2000
shows that the commodity shipments increased 1.7 times, but accounted for only 70% of the
indicator in December 2000.

Figure 1. Export of steel tubes from Ukraine in
2000-2001

Consequently, export of Ukraine-made steel tubes in January
2001 took up the downturn reported in the fourth quarter of 2000; thus, in October 2000
– January 2001 supplies from the country lost 85 ths. tons approximately. This put
Ukraine’s export in the first month of 2001 down to the figure of March-April 2000
(Figure 1).

The structure of steel tube export in January was as
follows: seamless tubes accounted for 57.0% against 61.8% in 2000, large-diameter welded
tubes – 27.9% and 20.8% respectively, and welded tubes (other) – 15.1% and 17.4%.

Some 82% of Ukraine’s steel tube export in January 2001
were bound to the CIS. Within this amount, seamless tubes accounted for 52.9%,
large-diameter welded tubes – 33.2%, and welded (other) – 13.9%.

EU countries ranked the second among regions (Figure 2)
with a 7.7% share in the Ukrainian commodity export. Supplies of seamless tubes to this
region made 69.6%, welded tubes (other) added 30.4%, and no large-diameter welded tubes
were supplied to the region in January 2001.

Figure 2. By-region distribution of steel tube export
from Ukraine in 2001

In terms of regional supplies of Ukraine’s steel tubes,
the EU was followed by countries of Eastern Europe (3.6%). Shipments to this region in
January 2001 only comprised seamless tubes (75.5%) and welded tubes (other) (24.5%).

Seamless tubes

In the opening month of 2001, Ukraine exported seamless
tubes to 24 countries worldwide as compared to 57 countries. The largest consumers of the
Ukrainian commodity were Russia with some 29.4 ths. tons or 60.4% in total export,
Kazakhstan (4.3 ths. tons), Germany (3.9 ths. tons), and Uzbekistan (2.2 ths. tons). These
four accounted for almost 82% in total shipments of Ukrainian seamless tubes.

Top three regions embraced the CIS that totaled 76.6% in
seamless tube export, the EU (9.4%), and Eastern Europe (4.7%).

Large-diameter welded tubes

Ukraine’s shipments of the commodity in January 2001
headed for three countries only. Russia had an overwhelming 97.9% share in total export of
large-diameter welded tubes from Ukraine.

Welded tubes (other)

In January 2001, Ukraine’s major exports of other welded
tubes were bound to CIS countries (75.9%), Russia importing 53.5% of this amount. Other
regions consuming this type of Ukraine-manufactured tubes were the EU making 15.5% and
countries of Eastern Europe – 5.4%. By and large, 16 countries worldwide bought welded
tubes (other) from Ukraine in January 2001.

In the period under review, Ukraine’s import of steel
tubes amounted to 1.0 ths. tons worth USD 0.8 mln.

HR seamless tubes contributed 87.5% to physical imports,
welded tubes (other) – 12.3%, and large-diameter welded tubes added 0.2%. Major
suppliers of seamless tubes were Russia (0.8 ths. tons), Germany, and the Netherlands
(some 0.02 ths. tons each), which jointly accounted for 98.6% of the commodity import to
Ukraine. The largest imports of welded tubes (other) came from Russia (0.08 ths. tons),
Belarus (0.01 ths. tons), and Poland (0.003 ths. tons), all of these making up 82.4% in
Ukraine’s import of the tubes. At the same time, the Czech Republic turned out the only
supplier of large-diameter welded tubes. By-region pattern of steel tube import to Ukraine
in January 2001 as was follows: welded tubes (other) arrived from 17 countries, seamless
tubes – from 10 countries, and large-diameter welded tubes were supplied by one country.

On the basis of data on production, import, and export of
steel tubes in January 2001 and its comparison to 2000’ figures, the decline trend on
the Ukrainian steel tube market is clearly traced.

Analysis of general data considering average monthly rates
reveals that the year 2001 eyes an 11% recession in steel tube output and a 19% decrease
in export of the commodity as compared to 2000.

At the same time, supplies of steel tubes to interior
market showed upturn by some 15% against 2000, whereas average imports of steel tubes
dropped 2.5 times. These suggest an ambiguous situation, which results from uncertainty
about antidumping processes in Russia as well as pendent problems within Ukraine.

RUSSIA

According to the State Statistics Committee of the RF,
Russia’s main producers of steel tubes boosted output 1.5 times in 2000 against 1999.
Production of seamless tubes amounted to 137.0%, and electrically-welded tube output made
158.8% of the respective 1999’ period. Data on steel tube output of Russia’s main
producers are represented in Table 2.

Table 2. Steel tube output of Russian enterprises,
ths. tons

Data sources: The State Statistics Committee (Goskomstat) of the RF,
Interfax Agency.

The largest Russian manufacturers of steel tubes outran the
1999’ figure 1.1 to 2.2 times. Positive dynamics in tube production was preserved by
general economic recovery in Russia as well as increased demand from Russia’s oil and
gas companies. However, production growth rates somewhat lowered in the end of the year,
which was most likely caused by seasonal reduction in the amount of orders.

According to Interfax Agency, a number of Russian tube
plants scheduled increase in sales for 2001. In particular, Volzhsky TW heads for a 61.7%
increase in sales against 2000, which suggests the output of 663 ths. tons. Sinarsky TW
also intends to boost production of steel tubes by 6.6% up to 500 ths. tons.

The tendency of manufacturing concentration in Russia seems
to draw in steel tube producers as well. The evidence is the announcement that Chelyabinsk
TRW passed decision to join the OMK (United Metallurgical Company) group. Following the
integration with Chelyabinsk TRW, OMK will account for virtually 30% of Russian steel tube
output. The group also comprises Vyksa Metallurgical Works (MW), which manufactures steel
tubes, Chusovoy MW (ferroalloys), Schelkovo MW, as well as VtorMetInvest and
MetalInvestBank.

Active export policy is run by Volzhsky TW. The plant aims
to supply 20 ths. tons of casing tubes to ONGC state oil and gas company of India in
2001-2002.

Russian tube-makers, therefore, foresee increase in
production and export of steel tubes in 2001. One of the strategies for these objectives
is concentration of production and capital.

As analytical review of the Transition Economy Institute
(TEI) informs, the year 2000 was the most successful for Russian economy in the past
decade. The report mentions that economic growth occurred in the light of favorable
foreign economic conjuncture and interior social and economic stability. Annual 2000’
performance features positive trend by virtually all key macroeconomic parameters: GDP
growth made 7.6% against 1999, investment in fixed assets added 17.7%, and gross
industrial output was 9.0% up. According to preliminary estimates, foreign trade balance
of the RF in 2000 outran USD 61 bln. as compared to USD 34 bln. reported in 1999.

The TEI analysts emphasize that starting early 2000, the
portion of import keeps increasing within the structure of commodity stock on consumption
market and on the market for material and technical resources. One of the reasons of
falling competitiveness of Russian products is that economic growth in 1999-2000 was
primarily oriented towards increasing utilization and involvement of reserve productive
capacities. No considerable changes are traced in commissioning of new productive
facilities, technological and age structure of production equipment keeps deteriorating.
At this, lack of up-to-date equipment becomes a significant obstacle in the way of
industrial recovery.

When evaluating outlooks for development of Russian economy
in 2001, the TEI analysts make stress on certain negative moments. Foremost, they say that
recent signs of lower growth rates in industrial and construction sectors evidence the
runout of post-devaluation development capacities.

To support this, January 2001 registered almost complete
cessation of production development as intensity of output changes dropped from +23 to +2
points over the month. This is said to be one of the harshest changes in manufacturing
output over the entire history of poll. Downright growth of output was only preserved in
electrical energy segment, machine making, and forestry sector.

USA

According to Preston Pipe & Tube Report (December
2000), American steel tube market saw the year 2000 as of the best in its history.
Shipments equal to 14.5 mln. tons brackets 2000 with years 1982 and 1997, when shipments
amounted to 14.6 mln. tons. As suggested, 2000 was the Buyer’s year as supported by the
2000’ average price on the market at USD/t 742 against the 1997’ figure of USD/t 842.
Experts say that the market for steel tubes in 2001 will be strongly affected by prices
for energy sources. Market prospects for the main range of steel tubes (except for OCTG
and Line Pipe) are rather indefinite. Forecast reduction in demand will facilitate
rivalry, thus, causing drop in prices. At the same time, it is expected that more active
drilling works will drive demand for OCTG tubes up. It is a historical move that demand
for Line Pipe tubes is one year behind the period of increased drilling; hence, the year
2001 should be beneficial for sellers of Line Pipe.

Starting from September 1999 till September 2000, imports
to the USA added 58% (1,161.0 ths. tons). In the same period, export only raised by (112.2
ths. tons). Throughout one year, starting from September 1999, the balance of trade in all
tubes outran exports 4.4 times. By selected types of tubes, imports exceeded export as
follows: OCTG – 4.3 times; Line Pipe – 5.6 times; Standart Pipe – 3.2 times;
Mechanical Tube – 6.1 times; Structurial Pipe & Tube – 4.2 times; and Stainless
Pipe & Tube – 2.4 times. Preston Pipe & Tube Report mentions that in November
2000, American steel tube producers had their productive capacities loaded by 54.4%. As
compared to September 2000, the figure lost 0.6%. The report notes that the year 2000
featured average operation load at 49.1% of productive capacity.

American market for oil-conveyance tubes in 2000 maintained
positive tendency. Still, in the period of 6 months under review, price advance for the
product revealed considerable slowdown.

In July-December 2000, prices for tubing added some 1.8% on
average, and prices for casing tubes were 0.7% up (Table 3).

Table 3. Average monthly prices for oil-conveyance
tubes on the interior market

of the USA (Houston district) in 2000, USD/ton

Data source: Herald of OJSC CherMetInformatsiya.

The most sizable increase (2.4%) was traced in average
monthly prices for electric resistance-welded tubing. Simultaneously, prices for seamless
casing tubes (Grade 80) went down by 0.4%. Most likely, prices for the mentioned products
hit their high in 2000; thus, in the first quarter of 2001, the market will observe some
downward tendency.