Russian pipe industry: shortcomings of modernization

The struggle for the long term contracts on supply of pipes to GazProm forced the Russian pipes with large diameter producers to invest in the modernization, in order to be able to be competitive with foreign pipe producers. The situation on the market changes very rapidly. Only a couple of years ago, the main problem in the market for pipes with large diameter was the scarcity of products, which was partly compensated by German, Japanese and Ukrainian imports. But the investments in the pipe production changed the rules of the game. Now the real problem of surplus of production is persist in the market. As a consequence, the competition in the market had turned into the struggle for the right to supply pipes with large diameters to GazProm projects of gas pipelines. Only four years ago, the problem of scarcity was very actual. GazProm together with Transneft and other oil companies' growing need in pipes of large diameters, for realization of pipelines projects, made the huge investments in the development of the Russian pipe industry seen reasonable. However, even by that time, the estimates of demand of the market were smaller than the forecasted production capacity of Russian pipe industry after the modernization. Thus, according to forecasts, in 2006-2008 the consumption of pipes of large diameters in Russia would be equal to annually 1.9-2 million ton at large, while the production is estimated at the level of 3 million tons a year. Now, there are three plants in Russia, which specialize in production of pipes with large diameter: Voljzskiy Pipe Plant (part of TMK), Viksunskiy Pipe Plant (part of OMK) and Chelyabinsk Pipe Plant (part of ChTPZ). In addition, Ukrainian Kharsyzsk Tube Works plays an important role in the Russian market for pipes with large diameter. Finally, Severstal builds another pipe plant, Izjorsk Pipe Plant, with total capacity of 450,000 tons of pipes with large diameter a year. Together those plans are capable to produce 3.8 million tons of pipes with large diameter a year, which is one and a half times higher than the apparent consumption in the Russian market. This fact led to inevitable struggles for the market. The main loser of the current oversupply of pipes of large diameter in the Russian market is defiantly Ukrainian Kharsyzsk Tube Works, which will inevitably be forced out of the market. The main policy employed against this producer is the initiation of antidumping investigations. As far as Russian pipe markers are concerned, their competitiveness is somewhat equal. In the struggle to supply the pipes for GazProm's gas pipeline projects the strongest are Viksunskiy Pipe plant and Severstal's Izjorsk Pipe Plant, which announced the readiness to satisfy all conditions of GazProm. Viksunskiy Pipe Plant and Chelyabinsk Pipe Plant are somewhat left behind in the race due to technological unsuitability of their products for the gas pipelines projects. However, against background of already oversupplied market for pipes with the large diameter, Russian pipe industry continues to increase the capacity of the production as well as invest in the new technological processes. The main reason for this is the increasing demands of technological suitability of the pipes used in gas pipelines by GazProm. Now, a complicated situation occurs in the Russian market for pipes with large diameter. On the one hand, the producers are increasing the capacities, and consequently continue to oversupply the market, and improve the technical characteristics of the pipes to satisfy the requirement of GazProm. On the other GazProm still continues to prefer foreign pipes to Russian ones.