Electrotechnical industry of Ukraine is one of the most dynamically developing. As novel equipment and new technologies are created, demand for electrotechnical products skyrockets in geometrical progression.

CABLE PRODUCTS: AIMING AT NEW MARKETS

Sergey MIKHNO, Chief Specialist with the Antimonopoly Committee of
Ukraine

Electrotechnical industry of Ukraine is one of the most dynamically
developing. As novel equipment and new technologies are created, demand for
electrotechnical products skyrockets in geometrical progression.

Manufacturers of cable and conductor products are the integral part of the
electronic industry. The market for cable and conductor products is segmented by types of
products and is 100% monopolized. Consequently, Ukrainian manufacturers mainly compete
with foreign companies, thus allowing for additional profits under certain economic
circumstances.

There are 10 large manufacturers of cable and conductor products in
Ukraine. These are the core of "UkrElectroKabel" corporation (established in
1992), which comprises a total of 17 enterprises. All the cable factories primarily
specialize in manufacturing products for certain industries (aircraft construction,
automobile manufacturing, shipbuilding, etc.). For instance, "AzovKabel"
specializes in manufacturing marine cables, "DobassKabel" produces rubber-coated
mine cables, "YuzhKabel" – thick power cables,
"Kamenets-PodolskKabel" – auto wires for "AvtoVaz",
"OdessaKabel" – communication cords. Proceeding from the above-stated, the
Government of Ukraine decided to include all the cable factories into the list of
enterprises of strategic importance for the economy and safety of the state. Totally,
cable factories manufacture some 90 types of cable products of more than 1,000 standard
sizes. Table 1 presents the list of the main manufacturers of cable and conductor products
in Ukraine.

Table 1. Main manufacturers of cable and conductor products

In the Soviet times, consumers of Ukrainian-made cables and conductor
products were enterprises from all around the Soviet Union. Following collapse of the
USSR, political and, consequently, economic conditions for trade in cable and conductor
products have changed. Simultaneously, production of these products has been almost
completely paralyzed. Producers had to seek for new sale markets in Japan, Belgium,
Germany, and the USA. This affected sale volumes of cable and conductor products. That is
why decline in production in this industry was especially strong within 1993–1994.
During this period, according to experts’ estimates, production capacities of cable
factories were hardly utilized for 30% and output volumes could be compared with those in
the 70s.

Reorientation of cable and conductor producers to the new markets, along
with reestablishment of lost business links, allowed cable factories increasing their
production volumes as high as few times in some cases (see table 2).

Table 2. Production of basic types of cable products

It should be mentioned that production of some types of cable products
features strong seasonal behavior. For instance, according to the data of the State
Statistics Committee of Ukraine, production of control cables and cables for municipal
phone lines increases during the spring and summer periods and decreases due to weakening
of demand during the autumn and winter periods.

Basic raw material for manufacturing of cable and conductor products is
high-quality electrotechnical copper wire rod (aluminum wire rods are also utilized for
some types of wires). Percentage of this material in the total production costs is
approximately 65%. Other raw materials (varnish, polyethylene, insulating tape, heavy
kraft paper etc.), which are purchased both from Ukrainian producers and abroad, make
10-15% of all the production costs.

Copper wire rod (in 1997, the total production of copper wire rod accounted
for 1,776 tons) or its derivatives can be produced only by CJSC “YuzhKabel” (a 42% of
the total production), OJSC “Artyomovsk Nonferrous Metals Processing Factory” (a
26.8%), Kharkov-based “PivdenKabelMet” (a 25%), “ZaporozhKabel” (a 5.4%), and OJSC
“UkrKabel” (a 0.3%). This market is not still: in 1998 LLC “Forum” (Zaporozhje),
with planned capacity is 8 thousand tons per year, started functioning. LLC
“Catec-Electro” purchased copper wire rod manufacturing plant from OJSC “Artyomovsk
Nonferrous Metals Processing Factory” and also commenced its production.

Volumes of copper wire rod production in Ukraine are rather low and do not
satisfy internal demand. Therefore, import of copper wire rod in Ukraine exceeds its
production in the country 12 times. It should be mentioned that Ukrainian producers are
lacking free funds to pay suppliers of non-ferrous metals’ scrap. This automatically
decreases the number of potential suppliers of non-ferrous metals’ scrap to cable
factories for processing. To operate effectively under these conditions, cable factories
have to cooperate with suppliers of copper wire rod on the give-and-take basis thus
supplying finished products in exchange for copper wire rod.

Due to the fact that 80-90% of cable factories are equipped with imported
enginery, quality of manufactured products corresponds to the world standards, which
allows cable factories to receive respective international certificates and to
successfully enter Western markets. Though Ukrainian market is also developing, new
competitors are emerging from foreign countries (mainly, from Russia, Poland, and
Germany). This does not allow enterprises to “relax” and makes them compete for
“their” consumers. Figure below and table 3 show the dynamics of export and import on
certain types of cable products.

Table 3. Export and import of certain types of cable products

Mainly, decrease in cable production occurred due to the following factors:

• high tax rates (mainly on VAT);

• dramatic lack of free assets to purchase raw materials and energy
  carriers;

• insolvency of consumers;

• losing of traditional markets of raw materials and accessories required
  for manufacturing cable products;

• no production of necessary raw materials (electrotechnical copper wire
  rod) in Ukraine;

• raw materials required for manufacturing cable products are included into
  the list of strategic materials. Export of such materials from producing countries is
  strictly limited.

According to market operators, all the above indicated factors can be
summarized as follows: some 50-80% of cable products, manufactured at the factories, are
produced on barter or give-and-take basis.

The positive aspect of the national output of cable products is that,
starting from 1991, their sale prices (according to the State Statistics Committee of
Ukraine) did not increase substantially in comparison with products by foreign
competitors. For instance, in December 1998, price index on construction cable increased
as high as 4.13 times compared to prices introduced starting from January 1, 1991, and as
high as 0.98 times in comparison with sale prices in December 1997. In December 1998,
price index for hookup wires increased as high as 11.7 times as against prices introduced
starting from January 1, 1991, and as high as 2.88 times as against sale prices in
December 1997.

Table 4 presents data on average purchase prices for certain types of cable
products. The table clearly shows that Kiev and Lvov regions feature the highest prices,
while Odessa and Cherkassy regions – the lowest.

In conclusion, it should be mentioned that, recently, output of
telecommunication cable and conductor products has been growing with the annual growth
tempos of approximately 10-15%.

Table 4. Average purchase prices for cable products in March 1999,
UAH/1 km.