201 Series: Russia and Restructuring

201 Series: Russia and Restructuring

Russia on the restructuring path Ever since the 201 controversy began, a number of countries have either followed suit with tariffs of their own or began questioning the efficacy of their own steel industry. The day that U.S. steel quotas took effect, Russian producers announced their own six-point plan for their domestic steel industry. Now, Russian steelmakers are asking the Kremlin to adopt a restructuring strategy. Top brass from four of Russia's major steel firms have some plans of their own which they announced at a press conference in late March. The four firms, Magnitogorsk, Severstal, Novolipetsk and EvrazHolding are responsible for 75% of Russia's steel production. Their chief executives explained that a number of measures need to be implemented to launch a restructuring program. For starters, they would like a 5% government export duty eliminated. The government has already agreed to this request but when, is the question. Other suggestions include: shutting inefficient mills, have the U.S. grant Russian steel market status for investigation of trade disputes according to U.S. trade law, protect domestic markets from CIS imports of rolled products, especially from Ukraine and Kazakhstan, eliminate or reduce import duties on technological equipment for steel plants that can't be produced in Russia, decrease tariffs for rail, electricity and gas. Some of the chief executives are attempting to whisper reality into the Kremlin's ears to get them to take swifter action so the necessary work can begin. One top executive commented that one of the major problems is a group of producers who are only effective when market conditions are good. He added that another issue is that a large number of companies are working inefficiently and put strong pressure on the domestic market. This same chief executive recommended that EU companies who recently lobbied for stricter sanctions on Russian steel imports, need to be slapped with retaliatory tariffs on large-diameter pipe sales to Russia. Russian producers say the reason is that producing certain types of steel is unprofitable, due to a drop in prices on global and domestic markets. One of the four firms, Magnitogorsk, saw its average profitability go down by 20% in 2001. Then during the period from December 2001-February 2002, it fell by 10%. To top that off, in the last three months, Magnitogorsk saw a loss on some exports, as well. Analysts predict that growth in Russia's domestic steel consumption won't top more than 5% in 2002. Experts comment that it will take at least 10 years for the Russian market to absorb the volume of production currently exported. Even if domestic consumption grows by 10% each year, analysts still insist the 10-year time frame is valid.