STEEL TUBES

STEEL TUBES

Vitaly GNATUSH, expert with DerzhZovnishInform

UKRAINE

In December 2000, tube front of Russian-Ukrainian conflict
ran into a slack. Term of special inquiry initiated to investigate Ukrainian tube exports
to Russia expired on December 17, while the parties seemed to use Christmas holidays to
analyze the existing balance of power and outlooks for the further evolution of the
Russian market for steel tubes in 2001 under the canopy of a Christmas tree, whether
natural or artificial, and armed with a glass of cognac.

Making forecasts is a thankless job but according to
certain prerequisites, Ukraine and Russia will definitely come to an agreement stipulated,
among other things, by their mutual desire to become the WTO members in the nearest
future. Mass media point at different quotas but final figure will probably take into
account both expected demand of Russian tube consumers in 2001 as well as capacities of
Russian and Ukrainian enterprises.

To preserve tube production in Ukraine in the absence of
powerful domestic market became an urgent task for the Ministry of Economy of Ukraine, the
Committee for Industrial Policy, Truboprom Association, and top executives of various
enterprises and companies. The game is worth the candle since the stake is not only the
future of numerous collectives of tube manufacturing enterprises but also export revenues
that come to Ukrainian budget. The latter are not so meager that may seem. As for 2000,
exports of steel tubes in monetary equivalent made up 8.5% of the total supplies of metal
products rated under code 72, while in the first 11 months of 2001 their share reached the
high of 10%.

Returning to the tube conflict between Russia and Ukraine,
comparatively strong tube lobby in Russia should be mentioned. Development Fund for Tube
Industry and the State Duma of the Russian Federation press Russian government. Interfax
agency reported that the Fund planed to bring civil and arbitrary suits against Russian
government accusing it of deadline term violation in case of antidumping inquiry related
to Ukrainian steel tubes. The suits may contain a provision dealing with reimbursement of
outlay caused by steel tube imports. Besides, at the special plenary meeting held on
December 21, the State Duma decided to address the parliamentary interpellation “On
investigation initiated on March 17, 2000 and dealing with protective measures undertaken
by the Ukrainian government to safeguard ferrous tube exports to Russia” to Michael
Kasyanov, chairman of the Russian government. Generally speaking, formulation of the
mentioned interpellation gives rise to questions as well as proposition addressed to the
Supreme Council of Ukraine to arrange round-table discussion and explain the gist of
economic experiments in Ukrainian metallurgy to its Russian colleagues.

Speaking of the current situation in Ukraine, it is worth
mentioning that in the first 11 months of 2000, steel tube output and trade in this
commodity featured upward tendency.

According to the MetallurgProm Association, in November
2000 major steel tube producers manufactured 167 ths. tons of tubes (table 1). In the
first 11 months of 2000, total tube output made up approximately 140% against the
respective period of 1999 despite the fact that in November 2000 tube output evidenced a
10% curtailment, as compared to the figures reported in October 2000.

Table 1. Steel tube output in Ukraine (ths. tons)

Source: MetallurgProm Association

Proceeding from results of the mentioned period, all major
Ukrainian producers of steel tubes featured positive dynamics of the average monthly
output in 2000, compared to the 1999’ figures. Similar to what had been reported after
the first 10 months of 2000, the five leading manufacturers were Ilych Iron and Steel
Works of Mariupol, Novomoskovsk Tube Works, Lugansk Tube Works, Nizhnedneprovsk Tube
Rolling Works, and Komintern Metallurgic Works of Dnepropetrovsk. It is pleasant to admit
that Khartsyzsk Tube Works keeps on improving its work baldly exceeding the level of 2000.

It is worth mentioning that restructuring of Nikopol
Yuzhnotrubny Works together with appearance of new co-owners favorably affected the
technical policy of new enterprises. According to Interfax agency, commodities
manufactured by CJSC Nico Tube Seamless Tube Works of Nikopol were confirmed to comply
with DIN standards, whereas the enterprise is planning to obtain API certificate and
monogram. CJSC Nikopol Stainless Tube Works is engaged in the same activity aimed at
certification of the manufactured commodities. Besides, the latter enterprise is upgrading
its rolling-mill machinery and finishing equipment. In the near future, CJSC UTiST plans
to invest UAH 5 mln. in its reconstruction and re-equipment and has already received a
confirmation stipulating that commodities manufactured by the enterprise comply with DIN
standards.

Although the export supplies of Ukraine-made steel tubes
continue to feature comparatively stable upward tendency, certain setback is expected in
winter since in November 2000, tube exports made up approximately 76% against the figures
registered in October. According to the latest data with the State Customs Service of
Ukraine, in the first 11 months of 2000 steel tube exports exceeded the level of 1.1 mln.
tons worth USD 449 mln. Along with this, physical growth of the export supplies amounted
to 57%, as compared to the respective period of 1999 (figure 1).

Figure 1. Steel tubes exports from Ukraine in
1999-2000

Analyzing the pattern of steel tube supplies, it becomes
clear that augmented exports of large-diameter welded tubes (73%) and seamless tubes (64%)
stipulated the growth of the total tube exports in 2001, compared to the figures reported
in January-November 2000.

In the first 11 months of 2000, the number of countries
that consumed Ukraine-made steel tubes gradually rose to 57, which is somewhat lower than
in 1999, when 62 countries worldwide purchased this commodity.

The CIS member states remained the largest importers of
Ukraine-made tubes making up 81.5% of the total exports. The EU countries account for 6.4%
of the total and are followed by Eastern Europe (3.8%), Baltic States (1.6%), and North
and Central America (1.3%).

Russia was the unrivaled leader among importers of
Ukrainian-made steel tubes accounting for 689.6 ths. tons (60.9% of the total exports
reported in the period under review). Seamless tubes contributed 68.5% to the total
Russia-bound supplies, welded (other) tubes – 13.3%, and large-diameter welded tubes –
18.2% of the total.

distribution of seamless tube, large-diameter welded tube
and other welded tube exports is quite eloquent. CIS countries consume 70% to 96% of this
commodity (figure 2), which reveals at least two negative tendencies: firstly, marketing
activities of producers and sellers are insufficiently aggressive and secondly,
competitiveness and assortment of Ukraine-made tubes should be increased.

Figure 2. Regional distribution of steel tube exports
from Ukraine (11 months of 2000)

SEAMLESS TUBES

In 2000, seamless tubes accounted for 63% of the total tube
exports against 62% in 1999, while their average monthly supplies featured 1.5
augmentation. Ukraine exported seamless tubes to 53 countries worldwide. The largest
consumers of seamless tubes were Russia (approximately 472.3 ths. tons making up 66.3% of
the total exports), Turkmenistan (22.7 ths. tons), Italy (20.5 ths. tons), Belarus (19.0
ths. tons), and Turkey (18.4 ths. tons). The mentioned countries accounted for 78% of the
total seamless tube exports. Speaking of regional distribution, the three leading
consumers were the CIS countries (80.3% of the total), Asia (6.3%), and the EU countries
(5.7%). In the first 11 months of 2000, EU countries consumed some 40.8 ths. tons of
seamless tubes making approximately 71% of the average monthly supplies reported in the
respective period of 1999.

LARGE-DIAMETER WELDED TUBES

In 2000, share of large-diameter welded tubes in the total
exports grew to 19%, as compared to 17% in 1999.

In the end of the fourth quarter of 2000, the whole
situation on the market for large-diameter welded tubes witnessed certain improvement,
while the total export supplies were 1.7 times higher than the average monthly figures
registered in 1999. Along with this, as many as 18 countries worldwide imported Ukrainian
tubes. The CIS countries consumed the largest portion of the total Ukrainian exports of
large-diameter welded tubes (96.1%), including 56.3% consumed by Russia and 19.8% supplied
to Uzbekistan.

WELDED TUBES (OTHER)

In 2000, share of other welded tubes in the total tube
exports curtailed to 18% against 21% reported in 1999. In the first 11 months of 2000,
welded tube exports featured a 25% augmentation compared to the respective period of 1999.
CIS countries consumed 69.3% of the total exports including 46.5% imported by Russia.
Speaking of other large consumers of Ukraine-made welded tubes, the EU countries (14.4%)
and Eastern Europe (9.9%) should be mentioned. On the whole, in 2000 welded (other) tubes
were bound to 37 countries worldwide with South America being the only exception.

In January-November 2000, Ukraine imported some 27.6 ths.
tons of steel tubes worth approximately USD 31.5 mln. HR seamless tubes in physical
equivalent accounted for 69.4% of the total exports, welded (other) tubes made 21.1%, and
large-diameter welded tubes – 9.5% of the total. The largest portion of imported
seamless tubes came from Russia (11.2 ths. tons), Austria (5.8 ths. tons), and Japan (1.2
ths. tons), while other welded tubes were mainly imported from Russia (2.5 ths. tons) and
Poland (2.6 ths. tons). Besides, Russia was the only importer of large-diameter welded
tubes (1.4 ths. tons). In the first 11 months of 2000, geographic distribution of tube
imports kept on broadening, which resulted in situation when seamless tubes were imported
from 33 countries worldwide, while other welded tubes were supplied by 28 countries.

Summarizing the data on output, exports, and imports of
steel tubes in the first 11 months of 2000 and comparing these figures to the 1999
results, one can notice that situation on the Ukrainian market for steel tubes was quite
auspicious.

Taking into account the average monthly figures, it becomes
clear that in the first 11 months of 2000, steel tube output featured 40% augmentation
against the 1999’ level. However, it should be noted that a 52% growth of export
supplies was accompanied by a meager 15% increase in the amount of steel tubes supplied to
domestic market, as compared to 1999. Along with this, the average import of steel tubes
grew 2.1 times against the respective period of 1999. All these circumstances clearly
evidence that business activity on the domestic Ukrainian market had been frozen. Still,
there is nothing but a hope that upward tendency in development of Ukrainian economy will
also prevail in 2001, which would be a serious impetus for revival of domestic market.

RUSSIA

According to the State Statistics Committee of Russia, in
January-November 2000 major tube manufacturers boosted steel tube output 1.5 times against
the respective period of 1999. Seamless tube output accounted for 140.7% while
electric-welded tube output made up 165.1% of the figures reported in 1999. Data on steel
tube output by the largest Russian producers are shown in table 2.

Table 2. Steel tube output in Russia (ths. tons)

Sources: the State Statistics Committee of the
Russian Federation, Interfax

* Data covering 10 months

It should be noted that all major Russian manufacturers of
steel tubes (with Seversky Tube Rolling Plant being the only exception) increased the
level of January-November 1999 as much as 1.1 to 2.3 times. General upsurge featured by
the Russian economy together with increased demand of Russian oil and gas companies
stipulated the retention of upward trends in tube output. However, it is worth mentioning
that seasonal drop in demand curtailed growth rate of tube output, as compared to
January-October 2000.

Nevertheless, Russian producers of steel tubes estimate the
outlooks for 2001 as quite favorable. In particular, Interfax agency informed that in
2001, Chelyabinsky Tube Rolling Plant, the largest tube manufacturer in Russia, is
inclined to augment tube production by 10% against the scheduled 2000 level (i.e. up to
660-700 ths. tons). Share of tubes supplied to JSC GazProm will reach the high of 30-33%
of the total, stipulated by an agreement concluded between the enterprise and JSC GazProm
on tube acquisition for the period till 2003. In compliance with the agreement,
Chelyabinsky Tube Rolling Plant will update production lines to manufacture tubes, 1,200
mm and 1,220 mm in diameter, with local thermomechanical treatment of seams, and launch
experimental and industrial machinery for laser welding of large-diameter tubes. Besides,
management of the enterprise is going to switch to practical realization of a program
aimed at manufacturing of import-substituting products. According to Interfax agency, this
program stipulates the manufacture of seamless oil-conveyance, casing, and gas-lifting
tubes, 102-426 mm in diameter, with increased cold resistance, as well as elaboration of
technology targeted at production of tubes, 1,420 mm in diameter, made of two
semi-cylinders. Along with this, the enterprise plans to reach a twofold augmentation of
operating capacity of department that manufacture anticorrosive polyethylene coating of
tubes, owing to the second extruder (devise designed to forward liquid polyethylene to the
tube) worth USD 500 ths. to be mounted in 2001. Besides, in December 2000, manufacturing
output of tubes with polyethylene coating increased from 5 to 10 ths. tons per month.
Starting from January 2001, monthly output of this commodity will reach 15 ths. tons.

Strategic program elaborated by Volzhsky Tube Plant for
2001-2003 stipulates the recovery of tube output up to 1 mln. tons in 2003 and
augmentation of sales up to RUR 15 bln. Fulfillment of the program will provide tube
manufacturing with the enterprise’s own billets and enable production of large-diameter
tubes, up to 18 m in length and with wall thickness up to 25 mm. In 2003, steel-smelting
capacities of the enterprise will feature a 69% loading against 43% registered in 2000
while tube-manufacturing capacities will be utilized by 70%. According to Interfax agency,
in the recent years Volzhsky Tube Plant expanded the range of manufactured commodities up
to 800 standard sizes.

In 2001, Vyksunsky Metallurgic Plant will start the
reconstruction of its steel-smelting production to reach the capacity of 800 ths. tons,
which will boost steel smelting up to 1 mln. tons per year and simultaneously curtail its
cost by 20%. According to this project, in a 3-year term steel-smelting department
equipped with vacuum electric ovens will be created and production of continuous-cast
steel billets will be launched.

Thus, Russian tube manufacturers actively update their
production to broaden their outlets and increase competitiveness of their products.

According to analytical report, published by the Institute
of Economies in Transition (IET) dynamics of major indicators of Russian industry is far
from being optimistic. Abrupt drop in growth rate of solvent demand and continuous
plummeting of barter transactions resulted in absolute decline of joint demand. The report
stated that forecasts for monetary demand and manufacturing output continue their downward
drifting. Experts forecast further augmentation of the finished products being stockpiled.

Analysts point at reduction of money payments in all
sectors of Russian economy. At the same time, they note that despite obvious and
countrywide curtailment of demand for industrial products, November 2000 reported a slight
upsurge in growth rate of the total manufacturing output in all sectors of economy after
certain curtailment (by 6%) in October 2000.

USA

In 2000, the American market for oil-conveyance steel tubes
featured upward trends. It should be noted that during the period under review (6 months)
growth of prices for this commodity went down significantly.

In May-November 2000, prices for service tubing increased
by 2.6% on the average, while prices for casing tubes saw a 1.8% augmentation (table 3).

Table 3. Average monthly prices for oil tubes on US
domestic market (Houston area) in 2000, USD/ton

Source: OJSC CherMetInformatsiya Bulletin

Average monthly prices for resistance electric-welded
service tubes saw the largest mark-up (by 3.3%) while prices for seamless casing tubes,
grade 80, were notable for the lowest growth rate (0.5%). In our opinion, prices for this
commodity reached their record-high stipulating comparatively stable situation on the
market in the first quarter of 2001.