In general, the bypast year 2000 was auspicious for Ukrainian metallurgy thanks to an economic experiment carried out at the enterprises of the country’s mining and metallurgical sector (MMS) and favorable conjuncture at the world metal market in II-IV qu

Ukraine’s Iron and Metal Industry: Problems and Search of Paths into Future

By Vladimir PIKOVSKY and Alexey SHAPOVAL

In general, the bypast year 2000 was auspicious for Ukrainian metallurgy thanks to an economic experiment carried out at the enterprises of the country’s mining and metallurgical sector (MMS) and favorable conjuncture at the world metal market in II-IV quarters of 1999 and I-III quarters of 2000. Different nature and independence of these two factors having contributed to the effective industry’s performance in 2000, require a more attentive analysis of the question whether the internal problems of the industry were resolved in a systematic way and how well-grounded expectations of equally high results of MMS enterprises in 2001 may be.

Main Problems

The first problem, which is positively the most important, is due to the fact that the country’s domestic market consumes only 17 to 20 % of the rolled metal produced, whereas in the developed and fast-developing countries this indicator reaches 70 to 90 % (figures 1 and 2). Thus, domestic consumption of the rolled metal was 16.8% of its total output in 1999 and 20.9% in 2000 against 53.4% in 1990.

Figure 1 – Share of export in total output of rolled steel in 1999

Weakness of the domestic market (or, rather, its insufficient volume), which is primarily linked to the lack of long-term and meaningful monetary policy, is forcing the metal industry to be exclusively export-oriented, whereas the domestic market development is infringed by high taxes and deformed price pattern. Taxes, being included in production costs at every phase of production, are transferred all along the industry’s chain of production and into the price of final product and, further, into that of the metal-consuming industries, thus making the final product non-competitive at the world market.

Products of machine building, shipbuilding, and other sectors of economy have much higher added value and significantly increase employment. Because of lack of domestic statistics, one may refer to the US data, where each worker in iron and metal industry created up to 40 jobs in metal-consuming industries. On the other hand, thanks to the reliance primarily on domestic market, steady development of the metal industry itself is ensured in developed countries, as in this case the industry is much less exposed to fluctuations of the world conjuncture and is capable of dynamic development.

The second problem is heritage of the industry’s extensive development, which resulted in the fact that now it has an extremely outdated technological basis. According to the specialists’ estimates, over 60% of Ukraine’s metal are produced using old technologies and only 62% of the country’s metallurgical export are certified according to international standards. The most worrying is technological profile of the country’s domestic metal production. In 1999, Ukraine produced 43.2% of metal using open-hearth process against 4.2% worldwide, and only 19.5% of liquid metal by continuous casting (with 82.9% worldwide). Such low levels of the domestic producers’ technological characteristics mean that flat rolled metal of Ukrainian origin is practically non-competitive when the choice is made of hot- and cold-rolled sheets and rolls of metal allowing deep draw (e.g. automobile sheets). In Ukraine, only 4.4% fall on electric metal against 33.4% worldwide. It means that in 2000, only 526 ths. MT of rolled metal were produced from high-cost alloyed steel, which represents 1.8% of rolled-metal production. For developed countries, the share of the alloyed rolled metal is normally 10 to 15%. Technological backwardness leads to sizable over-consumption of raw materials and energy. According to Sofres Conseil, the amount of waste metal in Ukraine per ton of metal produced is six times higher than that in Japan.

In early 2000, the wear of fixed assets in MMS was 63.1%. Annual depreciation of the equipment is reaching UAH 3 bln. to 3.5 bln., whereas renovation in 2000 reached only UAH 1.46 bln., and even that was mainly due to the experiment mentioned above. The source of investment is mainly enterprises’ own funds (up to 90-95%), while commercial bank loans provide only 2 to 3%, mainly due to high loan interest rates. Equally prohibitive for renovation of the industry is the low level of amortization remittances (6.2% against 10 to 12% in EU countries and 14.5% in Japan). However, the main reason of poor technological state of MMS enterprises is lack of task-oriented state policy of attracting investments since the very beginning of de-nationalization and privatization process.

The third problem is that the high share of low-technology enterprises, energy- and material-consuming processes in metallurgy is actually exsanguinating Ukraine, creating problems in establishing of effective fuel and energy balance in the country. Expected growth of prices for gas, electricity, coal, and cost of transportation would have ruinous effect on operation of MMS enterprises and, consequently, on competitiveness of their products, which would not be possible to compensate even by tax privileges.

The fourth problem is anti-dumping procedures. From 1996 till 2000, Ukraine has been subject of 58 anti-dumping investigations (the third ranking in the world), of which 46 resulted in anti-dumping sanctions. Direct losses from these sanctions, according to the sources, amounted to USD 1.5 bln; however, they might have run even higher as calculation is rather complicated.

Such impressive number of investigations is caused by several reasons; however, the main one is the price level. Prices, which under trade laws of some countries may be recognized as dumping prices, are pretty often the only available instrument in competing for a buyer of Ukrainian metal products. They are first of all explained by consumer characteristics of the goods proposed, which are not high enough, and by additional buyer’s risks. There are also some other objective factors of such price formation, which are: low salaries as compared with the average world level, low environmental expenses, and, the most important, distortion of domestic pricing pattern causing a need to subsidize coal and related industries from the state budget.

The fifth problem is exposure to the world market conjuncture: economically sound performance of export-oriented metallurgy directly depends on fluctuation of the world prices for metal products. Optimistic forecasts of accelerated growth of the world economy and annual 2% increase of metal consumption in 2000 – 2010 stimulated production, which led to over-saturation of markets in some countries (first of all USA) and to relative drop of prices in the IV quarter of 2000 and in January of 2001 for a number of products, first of all flat hot-rolled metal. Inevitably, this will further lead to a drop of Ukrainian export supplies in 2001, create additional problems in the industry and, first of all, decrease its profitability. The envisioned increase of the corporate profit tax for the enterprises participating in the experimental project in 2001 to 15% would obviously contribute to worsening competitive position of the industry.

The sixth problem (which at present may be fundamental for MMS) is the significant increase of domestic prices for fuel, energy, raw materials, and cost of transportation, which together with the appearing trend to decreasing prices for exported rolled metal, would lead to further drop in profitability of the products and to loosing their competitiveness. Starting from the beginning of this year, not only some enterprises, but the whole industry may become unprofitable.

Management of Metalurgprom and 15 major metallurgical enterprises of Ukraine prepared forecast calculations of increasing of costs and decreasing of profitability of finished products in the I quarter of 2001 in case of increasing cost of fuel, energy, and raw materials (Table 1). These calculations did not consider the forecast decrease of the world market prices, which would have additional negative effect on the economic position of the enterprises.

Table 1. Forecast calculations of changes in cost of production and profitability
of finished products in the I quarter of 2001

The results of the forecast calculations show that even with a 20% increase in the cost of electricity and natural gas (even without increase of the cost of coal and transportation), profitability of MMS enterprises comes close to zero level.

And, finally, the seventh problem of competitiveness of Ukrainian metal products is the low quality of metallurgical raw materials accompanied by continuous growth of their prices. Having but outlined this problem, we intend to disclose it in detail in the next issue of the Metal Monthly.

As is seen, despite the successful year 2000, the fate of the country’s export of metallurgical products in 2001 arouses anxiety, since recent events at the world metal market where Ukraine is a significant player (Table 2) indicate that possibilities of increasing economically expedient export of metallurgical products are practically absent.

Table 2. Ukraine’s share in the world export of sheet metal

To summarize, existence of a number of unresolved system-type problems, strengthening negative trend of growing domestic prices for fuel, energy, raw materials, and railway transportation services together with extremely limited domestic metal consumption against the background of unfavorable conjuncture on the external rolled metal market since the end of last year, provide grounds to speak of impossibility of sticking up to the last year’s indicators of export by Ukraine’s MMS sector.

Forecast Export Potential

To identify possible export potential of MMS in 2001, the results of 2000 as well as commodity range and regional profile of export of metal products and the respective figures for rolled metal were analyzed. Iron and metal industry of Ukraine ended the year 2000 with impressive results: as compared to 1999, production of cast iron has grown by 11.7%, that of metal by 15.9%, and rolled metal by 16.5%.

The 2000’ export of metal products from Ukraine equaled to some 28.6 mln. tons (including 21.28 mln. tons of rolled metal, 1.54 mln. tons of cast iron, 820 ths. tons of ferroalloys, and 4.96 mln. tons of ferrous scrap) worth a total of USD 4,834.6 mln. If physical exports increased by 7.8%, foreign currency receipts grew by 32%.

Analysis of commodity range of Ukrainian metal export (group 72 of the Commodity Classification for Foreign Economic Activities) in 1996-2000 and separately that of rolled metal (Fig. 3 – 5) leads to the following conclusions:

- In 1999 and 2000, shares of rolled metal, cast iron, ferroalloys, and scrap in aggregate export of metal products were characterized for Ukraine by the following distribution, which will hardly change in the next 2 to 3 years: rolled metal – 73 to 75%; ferroalloys – 2 to 3%; cast iron – 5 to 7%; and ferrous scrap – 17 to 18%;

- The commodity structure of rolled metal export did not worsen in 2000 as compared with 1999, it fully reflects technical and technological capacities of the country’s metallurgy in filling the respective segments of the world market;

- Considering quality characteristics of products within Ukrainian exports, as well as condition of the enterprises’ production assets, and technologies used, no increase is envisioned in the next 3 to 4 years as to the share of flat rolled metal and rolled alloyed metal; however, one may expect increase of exported volumes of rebars and wire rod with simultaneous decrease of shaped sections;

- The share of exported semis (40 to 41% of the total volume of rolled metal) and that of cast iron (5 to 7% of the total volume of metal products) will remain unchanged under favorable world metal market conditions or will grow by 2 to 3 and 4 to 5% respectively if the market conjuncture deteriorates.

Figure 3 – Export of metal products from Ukraine in 1996 – 2000

Figure 4 – Export of metal products from Ukraine in 1996 – 2000

Figure 5a – Export of rolled metal products from Ukraine in 1996-2000

Figure 5b – Export of rolled metal products from Ukraine in 1996-2000

If the commodity range of export is significantly determined by technological facilities of Ukrainian producers and the market situation, its regional pattern is to experience growing influence of domestic subjects of foreign economic activity. The results of 2000 have shown increasing level of professionalism of Ukrainian metal traders (80% of whom are the metal producers themselves). Thus, in 2000, for the account of a 34% drop in export of rolled metal to the cheapest market, which is China (from 4 mln. tons in 1999 to 3 mln. tons in 2000), supplies were increased to more expensive markets: to USA – 1.85 times, Russia – 1.5 times, Latin America – 1.9 times, Middle East – 1.4 times, EU countries – 1.1 times with overall growth of rolled metal export by 10% as compared to 1999.

From the aforementioned, one may assume that the country’s traders would not be able to keep up the volume of metal export in 2001 at the level of 2000. As an optimistic scenario, the results of 1999 may be expected to be repeated, which would correspond to USD 3.8 bln. to 4 bln. for the commodity group 72.

Proposed Strategy

It seems to be the time to stop looking at the problems of the metallurgical industry only in the light of the country’s most immediate interests. Of course, the industry assures major foreign currency revenues; however, no country has ever survived exclusively by exporting metal – the industry cannot be exploited so ruthlessly, even if some indulgences and privileges are given. If the Ukrainian metallurgy is to occupy a steady position at the world metal market, a system approach is necessary to its re-structuring.

First of all, short- and medium-term forecasts should be developed in respect to potential market niches for main types of metal products under different scenarios of the world economic development (tough, medium, favorable).

It’s time to run inventory of production facilities and identify those, which would assure production for these niches. The rest of the facilities should be rationalized, i.e. renovated and switched to output of high-tech products – or shut down. Definitely, closing production would inevitably create social problems; however, if the global task of the industry is not solved, social tension in case of market collapse will be much greater.

There is quite a little choice as to the options of behavior for Ukrainian metallurgy at the world metal market: to intrude, breaking the market’s structure – or to become an integral part of it. Admittedly, in each case losses would be incurred. However, given the present line of behavior, they may be of long-term nature, while changing this behavior would make them short-term with subsequent stabilization.

As such, in order to allay the practically inevitable crisis, it is necessary to make pro-active efforts aimed at system restructuring of the industry. These may be divided into several directions. Today one should pick up those, which do not require major investment and can be implemented quickly – what is needed is only understanding of their necessity and political will. Their general ultimate objective is to lay foundation for the system measures gradually re-orienting the industry to the domestic metal consumption, which would necessarily grow due to re-habilitation of the national economy, together with consistent formation of a steady position of Ukrainian metal at the world market.

New Directions

The core of Ukrainian metal export is represented by the products subjected to tough competition at the world market with significant fluctuations of demand. Besides, iron and metal metallurgy, being an export-oriented industry, remains extremely energy-intensive, which makes it critically dependent on the energy carriers: due to their high cost, the profitability of some exported products is close to zero.

At present, the main task is to refuse from raising production volumes of metal and rolled products with low added value and switch to a concept of raising profits from operation of metallurgical enterprises. Such approach would permit to optimize export volumes of energy-intensive products with low added value and encourage growing output of products with high added value, in particular, increase export of high-quality grades of metal simultaneously developing export of those types of low-quality products, which are not subjected to quotas and sanctions.

At first, it is necessary to examine and inventorize production facilities of ferrous metallurgy in order to identify the most outdated sections. The production facility reconstruction plans should first of all provide for more extensive introduction of continuous metal casting, which would assure higher quality of rolled products and not exclude closing excessive facilities, whose reconstruction is not economically profitable. This would permit to decrease the share of resource-intensive facilities by closing their outdated tarts, renovation of equipment, and introduction of modern resource-saving technologies.

Implementation of the latter task is impossible without fuller use of R-&-D potential of the industry. Creation of a system of economic incentives to technological development would enhance introduction of resource-saving technologies as well as updating of production technologies in metallurgy, which would lead to decreasing cost of metal production.

The need is felt for correction of composition standards for different metal grades towards their maximum harmonization with the international system. After examination of technological and assortment potential of the enterprises, it could be possible, at the first stage, to give some of them a right to work in compliance with temporary technical conditions (temporary standards) with parallel accelerated development of a new standard as to the dimensional line of products, especially flat rolled metal, as well as of a grade register of metal, and technical renovation of metallurgical facilities. Not of minor improtance is also creation of conditions for meeting international requirements as to weighing and packaging of metal products including those supplied domestically.

As was mentioned above, the main factor referred to when charging Ukraine with dumping of metal products is their price. In order to create a transparent – and understandable for western legal view – system of domestic and export pricing for Ukrainian metal products, it is necessary to accelerate shifting of the metallurgical industry to international accounting standards. This process would be greatly contributed by a special study of the country’s metal prices structure in comparison with pricing methodologies for respective products in other countries, considering the system of subsidies and privileges existent in each country.

Maintaining the dynamics of the industry’s development requires improvement of channels of wholesale distribution of metal products on both domestic and external markets, in particular decreasing the number of intermediaries in metal trading, and ultimately – creation of metal service centers. Such entities would contribute to retaining the existing export markets and fitting into new product niches – it would become much easier to build up relations between foreign and Ukrainian traders. Not to be excluded is also integration of Ukrainian metal traders into foreign metal-trading structures in order to promote Ukrainian metal products at the overseas markets and assure expert legal assistance in case of trade restrictions.

There also should not be forgotten more active presence of Ukraine’s metal producers and leading metal traders at metal trade web-sites. Internet metal trade should be approached gradually, with account of achievements and mistakes of the leading countries. At the first stage, in order to save time for introduction of Internet services, it may be recommended to create respective units at the enterprises, work out recommendations on advertising and information, as well as organization of dynamic contacts with potential clients. At the second stage, experience of the world’s major metal traders would be used as to making and implementing contracts for export of metal products using information technologies.

Organizational and Information Support

Ukraine’s ferrous metallurgy is already prepared for creation of Ukrainian Iron and Steel Institute (UISI), a single body responsible for formation of policy of the nation’s metal producers and traders at domestic and external markets. It is only organization of such scale that is capable today of promoting the policy of far-seeing decisions assuming refusal from immediate benefits for the sake of a prospect of preserving long-term positions at the world market, raising the issue of consolidation, united actions and creation of environment of trust between the country’s authorities, metal producers, and traders in the face of possible decrease of external market for Ukrainian metal within next few years.

It may look unusual that this body’s initial objective should be informing and co-ordination of behavior of the leading Ukrainian operators of the world metal market in order to avoid or lessen possible violations of the existing market proportions and requirements. It may also contribute to combining of efforts of the country’s government agencies and metal producers in upholding the interests of Ukraine at external markets, and help the government to more clearly demonstrate both domestically and internationally its determination to support Ukrainian producers, encourage corporate groupings of enterprises coming out in favor of protecting the Ukrainian market. At a later stage, with revival and consolidation of the domestic market, this organization would assume all the functions pertinent to such organizations throughout the world – like American (AISI) and International (IISI) Iron and Steel Institutes, EUROFER, or South-American Union of Iron and Steel Producers (ILAFA).

From the viewpoint of stage-by-stage creation of this organization, we think it appropriate to solve first of all some information and analytical tasks. Comprehension of the situation in the industry is impossible without keeping a register of the nation’s metal producers (characteristics of production facilities, loading of capacities in development, assortment of products, volumes of production and reserves) and traders (dynamics and volumes of export, storage capacity, geography of export). Additionally needed is a register of potentially exportable Ukrainian metal products with information about their export potential (producers, volumes, prices, dynamics, geography of actual and potential export) as well as permanent rating of exporters of Ukrainian metal products, rated by volume of operations, assortment, and regions of exportation.

Resolving misunderstandings as to pricing for Ukrainian metal products may be contributed by creating a system of monitoring and control of government assistance to metallurgical enterprises and metal traders, whose data should be available to the international community.

To assure greater openness of information about Ukraine’s export and import policy, it is also expedient to develop and maintain a monthly updated database on optical carriers containing statistical data concerning export, import, and trade balance of Ukraine. As an example from foreign practice, one may refer to the World Trade Atlas published by GTIS Company (USA) and distributed by subscription. Closely linked to this is the task of creating an integrated data bank of official statistics of the countries considered as potential importers of metal products from Ukraine. On this basis, it would be possible to compose operational trade balances "Ukraine – consuming countries" and balances of a given country’s market for a given product in order to identify potential market niches and possible violations of the market situation.

As the envisioned Institute would at the first stage serve as an instrument to prevent and mollify trade conflicts, it is necessary to create under its auspices an independent "early-warning" system identifying potential dangers for export of Ukrainian metal products sensitive to the world market, trade and political unions, and separate countries. The system should be supported by a non-interested organization and assure monitoring and analysis of the world commodity balance of production-import-consumption-export in order to identify changes in conjuncture and behavior of exporters, determine level of saturation of the market with exported metal products of Ukrainian assortment, forecast possible splashes of import/export and introduction of restrictive measures by importing countries. This information may also be used for to search for existing and to forecast potential export niches for Ukrainian products.

It is known that one of the factors leading to trade limitation of Ukrainian metallurgical production is re-export. In this connection, it is imperatively necessary to develop a net model of interaction of Ukraine’s metal traders and foreign importing companies, working out a system of indicators of possible Ukrainian metal product re-export as well as methodology of its early warning. The monitoring of potential re-export may be provided on the basis of Ukrainian export information (producers, suppliers, terms, dynamics, volumes, geography), export orientation of recipients of metal products from Ukraine, conjuncture of the market, and data of world balance of metal trade.

Within the framework of the system, it would be useful to create a special center for distribution of current information on changes at the world and regional metal markets as well as on activity of different countries in the area of regulation of metal trade. The leading metal producers and traders of Ukraine should create respective services or appoint specially registered persons to keep in touch with the system of early warning.

However, even despite the existence of such regulatory institution as the System of early warning, Ukrainian metallurgy may still face anti-dumping investigations. Introduction of information database within the Institute field of activity, examination of anti-dumping laws of leading countries and political-economic unions, development of medium term (up to 5 years) forecast of changes in rules of trade regulation from the globalization viewpoint as well as positive isolationist trends of the modern world may significantly increase adequacy of reaction of affected enterprises involved in anti-dumping processes. It would be also necessary to work out and distribute methodological data on current behavior of Ukrainian exporters on the external market. The Metal Monthly is planning to introduce a permanent monthly column dedicated to regulation of metal trade in the world, including peculiarities of anti-dumping laws of different countries, and calls other specialized media to attend this theme.

With the assistance of the Institute, it would be possible, as a way of rendering legal assistance to organize more effective participation of world-known law firms in contesting anti-dumping investigations against Ukraine and its separate plants. At the same time, the Institute could coordinate practice of initializing anti-dumping counter-claims by metallurgical enterprises and their associations. As a result of analysis of import commodity flows, it is possible to develop measures of controlling them as a remedy for economic pressure on potential importers of Ukrainian metal to eliminate the limitations. Higher dynamics and tougher counter-actions on antidumping claims (concerning non-specialized goods) in respect of the countries, which filed claims against Ukraine concerning export of metal products, would be useful for achieving long-term effects albeit with short-term negative consequences.

Finally, the Institute may become a center of image-making policy of the industry – the work on creating favorable image of Ukrainian metallurgy as not bringing any danger of over-production at the world market has been on the agenda for quite a long time. The most important task is forming individual image of a given Ukrainian steel-producing enterprise as an entity independent from state with its own technological and trade policy. In case of trade restrictions, this may provide a possibility of negotiating with individual enterprises rather than with the whole industry. It is also necessary to develop and distribute through international channels a Memorandum on economic experiment in MMS of Ukraine as a project, which is not aimed at creating protectionist conditions for the industry, with explanation of its aims and methods of implementation.

Equally important is wide coverage within the world metallurgical community of Ukraine’s intentions and actions for reducing excessive steel-smelting capacities, efforts aiming at decreasing share of metal products in the whole export of the country and the share of export in produced steel.

Interior Policy of the Industry’s Support

Alongside with deployment of the national program for increasing competitiveness of the products of strategical economic sectors, it is important for metallurgy to create political-economic and legislative instruments that would be aimed at raising concentration within the branch. It is possible to achieve this aim through stimulating formation of the vertically-integrated metallurgical companies that would include enterprises of all the phases of processing – from ore-mining and processing to those that manufacture with high share of added value as well as trading entities.

In light of the latest events at the world metal market, it became urgent to develop domestic and external political and legislative measures for decentralization of responsibility for export production and its redistributing from the whole industry to individual producers. It is necessary to find in the legislative field of countries – importers of Ukrainian metal and implement ways of creating legal status of individual Ukrainian metal producers as independent from the state with the purpose of dividing responsibility for presence of their products on foreign markets (possibly through enactment of laws, provisional from the viewpoint of adherence to the WTO). At the same time, it is important to create political-economic conditions, increase responsibility of Ukrainian metal traders for transaction that potentially lead to re-export and trade limitations.

As part of adaptation of Ukrainian legislation and practice of rendering budgetary assistance to international rules, it is necessary to accelerate development of the “Law on state assistance”. Regulating conditions of appropriating budgetary funds to enterprises of priority sectors of economy, this law should close the issue of most of the claims of other countries concerning funding of Ukrainian enterprises including steel-smelting. At this stage, the criteria should be specified, according to which enterprises of Ukrainian MMS fall under the Law on economic experiment in the industry, having in mind creation of equal conditions of operation. One should expressly fix the share of funds received from the experiment, which should be necessarily directed to renovation of production.

To restrain growth of domestic prices for metal products, measures are needed aimed at regulation of the prices for raw materials and fuel and energy resources as well as railway tariffs, and differentiated taxation that does not provoke the price growth.

Prospects of integration of Ukrainian economy into the world economic system requires resolving a question of final introduction of the uniform international commodity classification in foreign economic activity, elaboration of the system of transformation of Ukraine’s export and import statistics of the previous years from the Commodity Classification for Foreign Economic Activity-92 system, as well as restatement of export/import archive data in compliance with the international classification. There is also a long-awaiting task of adjusting Ukraine’s laws on statistics toward greater openness of detailed data on foreign economic activity in order to permit the interested parties to operate with them when formulating arguments in anti-dumping investigations.

Practically, all Parliaments in the world have groups open for public lobbying of the interests of different industries including metallurgy. As part of implementation of the international experience, it is necessary to legislatively formalize lobbying of the interests of socio-political and financial-industrial groups in the Supreme Council of Ukraine by adopting the law on lobbying. Quite interesting from the viewpoint of greater openness of behavior of those having interest in Ukrainian ferrous metallurgy may be organizing a formalized “metal lobby” grouping in the Supreme Council similar to the Steel Caucasus existing in the US Congress, even before adopting the law on lobbying.

It is time to understand that adherence of the country to the WTO as soon as possible is extremely necessary and is possibly the only way of maintaining prospect for Ukrainian metallurgical export in the light of worsen conjuncture, dramatic toughening of protectionism, and competition. Ukrainian metallurgical enterprises and metal traders should be ready to abrupt aggravation of competition and changes in existing proportions at the world metal market with simultaneous increase of dynamics of trade operations due to development of electronic metal trade. Considering this world trend, it is necessary to adjust as fast as possible the Ukrainian legislation in the part regarding international transactions through telecommunication facilities and recognition of electronic signatures, develop and distribute methodological materials on the principles of electronic metal trade, as well as to organize seminars with representatives of the enterprises and metal trading organisations on uniform policy and harmonization of their actions in Internet.

International Trade Cooperation

The events of the past years show that Ukrainian diplomacy is not yet active enough in representing interests of the national metallurgy at the world arena. At the level of the Ukrainian foreign service, the country now needs strengthening of negotiating process with countries – importers of Ukrainian metal products aimed at reaching an agreement on special favorable treatment of export (possibly quoted) of Ukrainian metal products as a measure of economic and political support of Ukraine at the stage of transition to market economy. Further, using of the precedent of the status of Ukraine in the EU as a country with transitional economy, it is necessary to develop methodology and practically implement the proof of market status of leading metallurgical enterprises at the international marketplace – this may redistribute anti-dumping responsibility from the whole industry to individual plants. A possibility appears to preserve presence of Ukraine at challenging metal markets by settling claims with each individual enterprise.

There are no barriers for better use of the provisions contained in agreements and joint declarations on trade relations between Ukraine and other countries – the problems of access to the markets should be resolved at the meeting of joint work groups welcomed by international Law. It is time to establish more active contacts with Steel Committee under OECD (Organization for Economic Development and Cooperation) towards joint developing of measures for integration of Ukraine’s metallurgy into the world system of metal production and trade, as well as to increase the level of representatives of metallurgical enterprises of Ukraine in international metal producers’ organizations. At the same time, successful may become efforts to assure Ukraine’s reappearance at some metal markets, which were oriented at supplies of products from the USSR 10 to 15 years ago.

As an answer to the rising of anti-dumping activity against Ukrainian metallurgy, it is time to develop and implement some political-economic measures for overcoming the commodity asymmetry in export of metal products. It seems quite logical to make the volumes of export of low-level processing products that is welcomed at the EU, the USA, and Turkey markets, strictly dependent on the increase of quotas or opening of the markets for final products from Ukraine. In particular an agreement between Ukraine and EU for acceptation should be reviewed towards permitting export of Ukrainian rolled metal against unlimited export of metal scrap from Ukraine to the EU.

Finally, trade and economic missions with the embassies of Ukraine are to develop closer cooperation with metallurgical enterprises and associations of metal trade (possibly through a coordinating center) for providing them with current information on changes in the interesting segments of the market in the importing countries, especially on raising tension and possible forthcoming protection measures.

Conclusions

By realistic estimates, restructuring, modernization and renovation of metallurgical industry of Ukraine would require some USD 13 bln. This article does not pretend to give any practical prescriptions as to use of this money even if it would be found. Its purpose is to contribute to shift the discussion to the sphere of system-oriented solutions. The emotional times of market romanticism showed that without strategically guiding force and a due counter-balance, the market can not assure balanced development of metallurgy, left aside if there is a need in its reconstruction.

The world experience shows that a renovation of the industry requires participation of the state. Beginning from the mid-70s and especially in the 80s, almost all the developed countries of the world have experienced renovation wave of metallurgical industry, which was accompanied by massive immobilization and liquidation of outdated facilities. Capital investments for renovation of production capacities throughout a decade reached USD 18 bln. in the USA, USD 33 bln. – in Japan, and USD 34 bln. – in the EU. Directly or indirectly these processes were backed up by the state – neither owners, nor foreign investors could do it. Apart from the lack of funds, they simply have other (more narrow) interests. Tax and amortization policy, multi-variant bankruptcy legislation, maneuvering with environmental norms, protectionist trade rules – this is still far from complete list of the government instruments to revitalige the dying sectors. Even now, for example, transfer under the state control of not profitable metallurgical companies in the USA described in the world press as bankruptcy is nothing else but rehabilitation at the expense of budget funds with further transfer to the market.

Thus, we are forced to go along the already known way, when renovation of metallurgy was made both with direct and indirect participation of the state bodies. At present, a Concept of development of MMS is in the draft process, which will soon be presented to the metallurgical community of Ukraine for discussion. We believe that it should, among other things, reflect a strong role of the state as a coordinator of system transformation of the industry. This being so, the state influence should not be translated into a dictate – its ideas and suggestions should find understanding and adequate response on the part of the industry’s proprietors and managers.