Iron and steel industry remains one of the most important economy sectors of Ukraine. The share of the industry in the formation of GDP makes about 25% and in export currency inflow - 40%. In 2011, despite unstable market outlets, domestic metallurgists managed to increase manufacture by 5.7%, to 35.3 million tons. This year the situation is more complicated: foreign demand has decreased and for nine months the production has reduced by 6% comparing to January-September-2011 period, to 24.6 million tons. At the same time, metallurgic holdings have managed to overcome the tendency of monthly reduction of production, and August figures were higher than those of July. August results give hope that Ukrainian metallurgic companies will be able to restore production volumes.

Nevertheless, our country remains among the Top-10 world producers of steel. According to the World Steel Association, for the eight months of this year the list of first ten steel producers included China (481.573 mln. tons), Japan (72.523 mln. tons), US (61.047 mln. tons), India (50.696 mln. tons), Russia (47.398 mln. tons), South Korea (46.6 mln. tons), Germany (28.874 mln. tons), Turkey (24.101 mln. tons), Brazil (23.187 mln. tons), Ukraine (22.409 mln. tons).

So, what will be the dynamics of the end of this year and beginning of 2013? What should we do for further development of the industry? ForUm has tried to find the answers.

Results and forecasts

"Metallurgprom" complex forecasts that in October the manufacture of steel will remain at the September level - 2.6 million tons. Further monthly figures are difficult to predict, as foreign markets remain unstable, director general of "Metallurgprom" Vasyl Kharakhulakh complains. He reminds that 'standstill' of results is caused by low demand and unclear forecasts. In general, the results of 2012 will show the reduction of steel production in the country by 5-6%, to 32.5-33 million tons. At the same time, vice president of "Ukrmet" association Serhiy Hryshchenko notes that in August, September the daily average steel manufacture volume increased.

The specialist admits that despite weak marketing performance, production figures may stabilize in October-November, including due to the increase of demand from China. "Beijing has made a decision to limit domestic steel production in order to prevent further cheapening of metals on the market, thus, suppliers, including Ukraine, which have working experience on China markets, will try to use the opportunity," Hryshchenko specified. According to the leading analyst of Investment Company "Trinity Dialogue Ukraine" Ivan Kharchuk, domestic producers may even improve the figures due to the launch of new complex "Dneprostal", formed on the basis of Nizhnedneprovsk tube-rolling plant of "Interpipe" holding.

The development of the situation in 2013 will depend on the world market, where 80% of Ukrainian steel production goes. On one hand, experts predict the slowdown in reduction of manufacture and formation of conditions for stabilization. It will be possible due to expected measures of budget consolidation in the EU, which would lead to balancing and then revival of demand for steel and mill products.

On the other hand, the increased demand can be covered by revived Chinese steel export, which was slowing down in last two years due to overall weakness of the world market. Hryshchenko also notes that metallurgic companies of the Celestial Empire are now massively entering all possible markets. According to traders' reports, Chinese production is now being supplied (at lower prices than the current market prices) to Latin America, Iran and a number of Russian regions. Such active participation will impede Ukrainian metallurgists to strengthen their positions on the promising market outlets, from South-Eastern Asia to Middle East and the EU. "If in 2013 we manage to increase sales at least by 5% it will be a significant achievement," Kharakhulakh summs up.

What should be changed

What could and should be done to improve competitiveness of the domestic iron and steel industry? Economists agree that the industry needs to develop production of goods with high added value. The matter concerns mill products, namely low carbon items, high-strength construction longs, engineering sheets (shipbuilding plates, automobile body sheets). However, Ukrainian metallurgic holdings did not invest into development of manufacture of mill products, as they could quietly sell steel semimanufactured products at high prices, and as of today, their share in the sales structure of our enterprises makes 45-50%. But the majority of roll trains in the country are morally and physically gone out of date - there are mill rolls in Ukraine, put in operation back in the first half of XX century.

Since the beginning of 2000s years, domestic metallurgists have realized only two large investment projects in milling modernization: reconstruction of mill roll-2800 into mill roll-3000 on Alchevsk metallurgical complex (in 2006) and construction and launch of mill roll-390 on Makeyevski metallurgical plant (in 2009). In 2010-11, the launch of new projects was announced, namely reconstruction of sheet mill-3600 on "Azovstal" and construction of a new medium-section mill on Yenakiyevo plant. "The state must respond to such promising initiatives and must be ready to provide conditions for increase of domestic consumption of mill products.  Only the growth of domestic market can become the decisive incentive for development of hi-tech milling capacities," analysts believe. And there are certain positive tendencies in it: in the first half of 2012 the growth of domestic consumption made 1% (up to 3.515 million tons). By the yearend the growth can reach 3.5-3.6%.

Former minister of industry of Ukraine Valery Mazur adds that Ukrainian metallurgy must take more care about energy savings and reduce manufacturing costs. "Such modernization will require not one billion hryvnias, but this must be done sooner or later," the specialist says. IN particular, modernization provides for gradual withdrawal of open-hearth furnaces, replacing them with modern continuous casting machines or electric arc furnaces. This very project has been developing and financed actively enough for the last years. According to representatives of "Interpipe", replacement of open-hearth furnaces on Nizhnedneprovsk tube-rolling plant has allowed to reduce environmental discharges by 2.5 times and optimize manufacturing expenses, saving $100 per a ton of steel and reducing gas consumption by 130 cu m per a ton. Other plants, including "Donetskstal" and "Zaporozhstal" have similar plans on withdrawal of open-hearth furnaces.

Indeed, the modernization process costs pretty money, but without overhaul reconstruction of out-of-date capacities Ukraine will keep lagging behind its rivals regarding the quality of steel products, which form a considerable part of GDP. Especially it concerns expensive types of mill products, which require big investments and modern technologies. Without modernization, the country will soon lose its export positions. How realistic is the idea of carry out the modernization projects in the industry. Experts agree it is very much realistic, especially with state support, namely certain direct preferences and tax concessions, promotion of modern high quality mill products on foreign markets, assistance with import of required equipment and technologies, encouragement within various national ratings, etc.

Andriy Boyarunets


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