Yelena Remizova

    The situation on world markets of metals is getting worse. In mid-2000 prices for steel rolled products started their downfall and today they have reached the lowest level in the last 20 years. By American assertions, over 30 U.S. companies got bankrupted mainly due to policies of other countries directed at supporting their producers. The U.S. administration officially imposed 3-year duties of 8% to 30% on most steel imports. Blacklisted are Russia, Ukraine, Japan, China, South Korea, EU countries.
Russia has already figured out consequences of the U.S. step. It is estimated that the country’s losses from reducing export of steel products might come up to $900 mln a year or approximately 10% of Russia’s turnover in trade with the U.S. and metallurgical companies’ profits will fall down by $50 mln to $70 mln.
Discussing chances for Russia’s retaliation prime minister Mikhail Kasyanov said that the U.S. administration’s decision «should not be considered a step toward trade war with somebody since this is one of the measures to stabilize the U.S. economy in these complicated times» and « the right of any state». «We can quietly sit down with America to negotiating table and find mutually beneficial ways out of this situation», RF minister of economic development and trade Herman Gref believes.
However, today, when crises occurrences caused by worsening conditions on world markets have had their impact on enterprises’ economies, metallurgists do not want to wait «quietly» for results from rather sluggish and inconsistent actions of state bureaucrats. They are not content with the economic policy of Kasyanov’s cabinet and think that the government lacks a program to promote development of national industries and, above all, the ferrous metallurgy.
One has to admit that metallurgists themselves are to be partly blamed for it. In contrast to oil companies, which coordinate efforts to defend their interests and, as a result of it, almost always succeed, there is still nothing like a strong metallurgy lobby in Russia. Creation of such a lobby was hindered not only by severe competition on markets of raw materials and products but also by mutual enmity among companies’ leaders, which was an outcome of sharp conflicts in the course of fighting for property rights. Now common threats force them to restrain ambitions and act hand in hand.

P R O F I L E Alexander Abramov The president of the EvrazHolding Mining-and-Metallurgical complex, 43 years old. Born in the city of Krasnodar. Graduated from the prestigious Moscow physics and technology institute, doctor of sciences (physics and mathematics). Was actively involved into scientific research till 1992, headed a major laboratory in the Institute for High Temperatures with the USSR Academy of Sciences. 10 years ago set up the Evrazmetal partnership, a predecessor of present EvrazHolding. The family is his top priority among life values. Two sons and a daughter give him the greatest fun. A devoted fisherman and nature admirer, keen swimmer and tennis player.

On the initiative of the Russkaya stal consortium, leaders of Russia’s four largest metallurgical companies, EvrazHolding, MMK, Severstal and NLMK, which account for 75% of the Russian steel production, held a press conference declaring in fact their common position on the current situation. This press conference was followed by a number of public events and statements. All this gives reason to believe that today Russian producers are feeling resolute enough. So, let us try to outline basic goals, which they are striving for.

Expand the domestic market
Metallurgical companies want to substantially increase sales of their products on the domestic market. Predictions by the ministry of economic development and trade do not guarantee them such a possibility. Even if the domestic market keeps expanding annually at record-high rates, it will take at least 10 years. Until then Russian enterprises will not be able to consume all metals produced in the country.
The Russian market is seriously threatened by steel shipments from Kazakhstan and Ukraine. So far there is no reliable system in Russia to protect the country from dumping. Usually, all comes to taking separate restrictive measures, mostly of temporary nature, which do not bring any tangible results.
As far back as November 2001 an investigation of galvanized rolled product shipments from these countries started. Since 1998 they have «robbed» Russian producers of half of the market and import volumes are still on the rise. A decision to impose quotas should be taken with no delay since Kazakhstan is doubling its capacities and Ukraine has already have the 1999 law on state support of rolled stock producers, which provides them with tax privileges. As is known, galvanized rolled stock is a commodity with high value added and it is of strategic importance to the Russian industry.
EvrazHolding’s president Alexander Abramov called for more aggressive policy toward steel imports from the CIS member-countries. And, in his opinion, quotes on subsidized steel products should be imposed first.
The investigation of galvanized rolled stock is not the only one, which Russian metal producers have initiated. Currently Ukraine’s pipe shipments are being restricted; compensatory measures for steel bars are being investigated; documents are being compiled for protecting the domestic market from hot-rolled stock and plates.
As metallurgists point out, their industry is closely connected with other sectors of the national economy. Crisis in metallurgy will inevitably affect the machine-building, fuel-and-power complex, railway transport and the whole number of other industries, which are now developing quite well. That is why, it seems reasonable to somewhat restrain their specific interests for the sake of common success. To ensure effective operations of the metallurgy industry, MMK’s general director Victor Rashnikov proposed to «standardize tariffs on rail transportation and lift import duties on those types of equipment, which are not being manufactured in Russia at all».
It seems that leaders of the Russian metallurgy industry have learned well the organizational experience of U.S. steel companies, which join labor unions in the fight for their interests. The statement of the four contains unambiguous hints at a possibility of heavy social consequences in case the situation will get worse. «If all of a sudden the government forgets steelworkers, we will stop working to our own disadvantage and we will be forced to just shut down our mills», Alexander Abramov said. Leaders of other companies were also raising a possibility of work stoppages and mass dismissals realizing well that it would a nightmare for authorities in the country’s regions as well as in Moscow to have tens of thousands of unemployed in cities where there are no alternative jobs. EvrazHolding’s president added though that «such an outcome is unlikely».

P R O F I L E Alexei Mordashov The general director of Severstal, 37 years old. Graduated with an honorary diploma from the Leningrad engineering and economics institute as well as from the business school of the Northumbria university (Newcastle, U.K.). He has been working at the Cherepovetsky integrated metallurgical mill since 1988 (named the Severstal joint-stock company after it was privatized and went shares). Being head of the ZAO Severstal-group subsidiary Mordashov is directing the enterprise’s restructuring, which covers not only assets in metallurgy but also in other business fields including iron ore and coal mining, car making, transportation. Heads a working group of the Russian union of industrialists and entrepreneurs on Russia’s WTO entry and tariff policy. Member of the Russian-German intergovernmental group on strategic interaction of two countries.

Protect exporters’ interests
«To solve the problem of restricting exports to the U.S. there should be political efforts made at the highest level since this U.S. decision contradicts clause 201 of the agreement», general director of Severstal Alexei Mordashov pointed out.
In 1999 Russia and the U.S. signed a comprehensive agreement on steel, which restricts supplies by quotas. So, Russia could not harm the American market. But since the agreement is in fact violated by the American side, Russia is not going to observe it either. Putting forward such an initiative the largest exporters intend to market their products ignoring quotas.
Washington’s response to this step is not clear as yet. Obviously the big politics has interfered: the U.S. is trying to avoid unneeded complications on the eve of the summit meeting between presidents Bush and Putin. But, nevertheless, the U.S. department of commerce has already decided to introduce a 100% quota on Russian cold-rolled stock
Russian metallurgists are proposing to change the very approach to calculating export duties as another compensatory measure. Alexei Mordashov explained the essence of the problem this way:
«If the world’s duties are to regulate exports and imports, here, in Russia, they kind of regulate profit returns to the state budget and have rather a fiscal nature. Metallurgy is a cyclic industry: a slump is followed by years of an upsurge, when introducing such a measure might be quite reasonable. There is a need for a clear-cut and intelligible mechanism: what products in what cases and to what extent can be subject to export duties».
The top brass of leading metallurgical companies are insisting on abolishing a 5% export duty on ferrous metals. An appropriate letter has already been sent to Russia’s vice premier, chairman of the government commission on protective measures in foreign trade and customs-and-tariff policy Alexei Kudrin. The need for such a step is backed with following calculations. Russian exporters have to pay about $8 for every ton of steel and all in all these payments total no less than $200 million. And this amount is practically what they are losing because the U.S. market is getting closed.

Until recently the U.S. accounted for 17 % of the Russian steel exports. General director of NLMK Vladimir Lisin explained how things might develop after the American market «has been closed»: «This steel got to go somewhere. As a result, this volume will be pressing upon other markets and there will be a domino effect. A tough competition will lead to falling prices for metal products. An upsurge of protectionism all over the world can be expected. Canada, Mexico, Thailand, Iran have already announced that they are going to raise import duties and this will make the Russian exports unprofitable.
Russia is striving for joining the WTO. Recognizing the expediency of such a move metallurgists, nevertheless, do not think that it will result in an immediate improvement of their business. As Alexei Mordashev said, Russian metals’ producers do not think that after the WTO entry «protectionism in metal trading will disappear; most likely it just will be rising. At the same time the Russian membership in the WTO could help us protect our interests on the world market more efficiently». But a much more serious problem for Russia is the lack of the market economy status, not its relations with the WTO. In the absence of this status the WTO membership will bring no benefit to the country.

P R O F I L E Victor Rashnikov The general director of the Magnitogorsky integrated metallurgical mill JSC. Born in 1949. Doctor of engineering. Climbed up the business ladder from the very bottom and became the mill’s general director in 1997. In 2001 was elected president of the Club of Russia’s best managers. President of the Chelyabinsk region’s Union of industrialists and entrepreneurs.

Promote the industry’s modernization
The largest metallurgical companies are determining the appearance, level and nature of the Russian ferrous metallurgy but on the whole the picture is rather diverse. Along with powerful integrated mills of the complete cycle there are numerous inefficient plants. Their annual production volume totals about 10 million tons of steel, i.e. approximately as much as any of the abovementioned companies can secure alone. These plants do not pay taxes and they undermine the civilized competition on the domestic market of metal products. Those, who represent large metallurgical business, propose to restructure this sector.
When getting ready to defend its positions at the RF government’s session to discuss the concept of developing the metallurgy, the Russkaya stal consortium worked out a number of proposals, which are being supported by other metallurgical enterprises as well. So as to give the cabinet’s members a chance to better understand the critical situation, metallurgists provided the following statistics as their key argument. In 2000 the state budget will get 86 bln rbl ($3440 mln) from the industry’s enterprises in taxes and other payments, in 2001 the amount will come to over 50 bln rbl ($1786 mln) and this current year these revenues will not exceed 25 bln rbl ($806 mln).
No one said exactly how the restructuring should be implemented. «We can only discuss the extent of our participation in the government’s decisions in every specific case»; reduction of steel-melting capacities is connected to a number of social problems and the government should «determine its position on this question»� Vague wishes like these most likely testify to the fact that Russia’s metallurgical business realizes the limits of its responsibility and does not attempt to substitute the government for itself.
Russia’s current Law on bankruptcy does not ensure reaching the main goal to gradually reduce a number of insolvent enterprises. After an enterprise is declared liquidated, all property is to be sold by auction. But what about blast furnaces, open-hearth furnaces? So far nobody has answered this question. Neither procedurally, politically nor administratively�
NLMK’s general director Vladimir Lisin is proposing to divide all enterprises of ferrous metallurgy into three categories: «the first one consists of enterprises, which keep steady in any market conditions, the second one includes enterprises, whose stability depends on certain market conditions and the third one comprises enterprises, which are always inefficient». In his opinion, «the problem of reducing capacities should be addressed» exactly on the basis of this classification.

But Russia still has got all chances to elude antidumping tariffs. The question of the Russian economy getting the status of the market one could be settled in the nearest future. Besides, there are hopeful news coming out from the U.S. market. Thanks to tough decisions by the U.S. administration and general improvement in the American economy, prices for steel rolled products are rising. And to all appearances Russian companies, for example, Severstal, will be able soon to get profits from shipping their products even with those 30% quotas being in effect.