Cheap pipe imports pose problem for Russia

Cheap pipe imports pose problem for Russia

Representatives of Russia's steel pipe industry sent a letter to Russian Prime Minister Mikhail Fradkov on February 11, 2005, complaining about the lack of restrictions on imports of large diameter steel pipes to Russia. Russia had hoped to resolve the issue by reaching an agreement with Ukraine regarding a quota system for the import of steel pipes. The two countries had signed a three-year agreement on steel pipe quotas, effective from January 1, 2002. However, the expiration of the agreement cast uncertainty over future handling of imports to Russia. The expiration of the weighted means pricing system between domestic and imported products meant that the profitability of sales for Russian producers fell 5%. On average, Russian pipes are 39.8% more expensive than their imported counterparts. In December 2004, it seemed that the two countries had reached an agreement to extend the quota system for an additional three years. The deal would have allowed Ukraine to import a total of 715'000 tons of steel pipe annually to Russia, including 230'000 tons of 1'420 mm diameter pipe. However, negotiations between the parties broke down on December 29, 2004, and no agreement was reached to extend the quota system. A significant increase in the number of imports from Ukraine has already been noted through the first six weeks of 2005. In an attempt to counter the growing threat of cheap imports from Ukraine, Russian companies have begun making investments to modernize their pipe production facilities so that they will become more competitive. Plans are already afoot for the Russian producers to invest $450 million in retooling their facilities during the first half of 2005.