Yuri Adno

T

hough pretty favorable on the whole for the Russian steel makers, the last year proved disappointing for the Russian pipe making sector. Domestic consumption of steel pipes decreased by 2.3% consequently entailing a reduction in the steel pipe production, the first one over the recent three years (see Table 1).

Unfortunately, the trend for lower steel pipe production has remained this year as well. According to statistics of the Federal Agency for Statistics January 2005 saw a 9.6% decrease in the steel pipe production.

One of the reasons for this is believed to be a take-off in prices for rolled steel offered by iron and steel works. However, in the opinion of the RF Pipe Making Industry Development Fund (PMIDP), actually it was due to higher export volumes of steel pipe products from Ukraine. While enjoying not only objective competitive advantages, including, first of all, low labor costs, but also a direct state support in the form of tax relief, Ukrainian steel pipe makers have been sadly prone to dumping schemes. That is why export volumes of these products from Ukraine would be limited by annual quotas set by way of difficult and bitter negotiations.

The Russian market is of great importance for Ukrainian steel pipe making companies. After the collapse of the Soviet Union a significant number of enterprises of this industry were left in possession of Ukraine, including Khartsizski Trubni Zavod, a Ukrainian steel pipe rolling plant, which until recently was the only major manufacturer of OD 1420 mm longitudinal welded steel pipes for cross-country gas pipe lines. Pipes of this type constitute approximately 40% of the Russian import of steel pipes, 80% of which are those supplied from Ukraine (see Table 2).

To a significant extent the demand for these products would be determined by Gazprom, a major consumer of big diameter steel pipes, orders from which has been very unstable over the recent years. Thus, for example, in 2004 Gazprom bought on the Russian market only 350 tonnes of big diameter steel pipes instead of expected 450 tonnes. In spite of this big diameter steel pipes remain a very attractive segment of the market. Alexander Deinenko, the head of the RF Pipe Making Industry Development Fund (PMIDF), estimates Gazprom` s current demand for OD 1420 mm longitudinal welded steel pipes at approximately 400 thousand tonnes a year which figure is expected to reach 600 thousand tonnes a year in 2008-2010 when several major plans on construction of long mileage cross-country gas pipelines will start to be implemented.

With this prospect in view, Russian companies have taken to implementation of several major investment projects aimed at development of big diameter steel pipe manufacturing facilities.

The most imposing is the Severstal Group` s project on building a new steel pipe manufacturing plant in the town of Kolpino not far away from St. Petersburg with the initial capacity of 450 thousand tonnes of big diameter steel pipes a year which can be further stepped up to 800 thousand tonnes a year. The new plant will produce 18 meter long steel pipes (that is 6 meter longer than those offered by the Khartsizski Steel Pipe Rolling Plant) with wall thickness of 26 mm. To date the company has already started producing steel sheets of plate slabs also made locally for which purpose a rolling mill #5000 was upgraded. Steel pipe welding shop equipment is to be supplied by SMS Meer. Construction of the plant is expected to be completed in early 2006.

United Metallurgical Company (UMC) is being upgrading its steel pipe arc-welding machine at Vyksa Steel Works and commissioning production of 12 meter long OD 1420 mm steel pipes with wall thickness of up to 40 mm.

ChTPZ group also has got an intention to arrange production of steel pipes of up to OD 1220 mm for which purpose the group is now upgrading one of its steel pipe welding machines at the Chelybinsk Tube-Rolling Plant.

To date Volzhsky Pipe Plant owned by Pipe Metallurgical Company (ÒÌC) has been the only manufacturer of OD 1420 mm steel pipes in Russia. This plant has a production capacity of 320 thousand tonnes of big diameter helical welded pipes. In 2004 it produced 150 tonnes of steel pipes for Gazprom.

To meet the consumer needs steel pipe-makers now offer an improved protection for gas line pipes. Thus, today the share of big diameter externally isolated steel pipe production constitutes 50% at Volzhsky Pipe Plant, 44% at Vyksa Steel Works and 53% at the Chelybinsk Tube-Rolling Plant – 53%.

Besides steel pipes for cross-country gas pipelines, oil country tubular goods (including casing, tubing, drill pipes, oil and oil product transportation pipes, etc.) is another significant steel pipe market segment. The segment of construction purpose steel pipes (pipes for boiling systems, bearing pipes, thin wall steel pipes, etc.) also looks very promising. Now demand for pipes of this type is fully met by Russian pipe-makers, with some production capacities remaining underused.

Economic effectiveness of upgrading steel pipe rolling facilities is to a significant extent dependent on prices for hollow billets. Now it becomes more obvious that the companies, which prove unable to shortly solve the problem of an effective raw metal supply, will have little chance to keep their position on the market. That is why now leading steel pipe-makers exert their efforts trying to set up their own pipe rolling facilities. For the present Pipe Metallurgical Company (ÒÌC) is the only Russian steel pipe-maker, which produces hollow billets to meet its own demand for them. However, there are two other companies which nave a similar intention.
Thus, for example, the ChTPZ group is intended to build a new arch-furnace plant with smelting capacity of 1 million tonnes of steel a year, which is expected to meet 100% of the group` s demand for hollow billets. Construction of the plant is expected to take approximately two years and not less than US$ 200 mln. in investments. United Metallurgical Company (UMC) is being implementing a similar project, which implies construction of a new casting and rolling facility in the Nizhni Nivgorog area with the design capacity of up to 2 million tonnes of steel a year. Total capital costs of this project are estimated at US$ 500 mln.

In the opinion of management of the RF Pipe Making Industry Development Fund (PMIDP) should the plans on upgrading big diameter steel pipe manufacturing plants and building own steel smelting facilities be successfully implemented, Russian steel pipe-makers, assuming availability of power and scrap metal supplies, will be able to meet 100% of the steel pipe demand for all the braches of the Russian industry.

Assessment of an investment risk for the Russian pipe-making sector is, first of all, associated with forecasts for further development of the domestic market. Whatever encouraging the forecasts are, final say in purchase volumes and prices still rests with Gazprom and major oil companies. Unfortunately, there have been no well coordinated decisions on a number of major oil transportation projects. Plans on construction of the Taishet-Nakhodka and Western Siberia-the Barents Sea oil pipelines have been suspended, while Gazprom is delaying with correcting its investment projects. All this make it impossible to get a clear understanding of the Russian steel pipe market even for a short term prospect.

Ukrainian steel pipe import is yet another destabilizing factor. In accordance with 2005 quota the volume of Ukrainian steel pipe import has been appreciably reduced (now it amounts to only 395 thousand tonnes compared to 715 thousand tonnes in 2003), however, this quota has never been accepted by the Khartsizski Steel Pipe Rolling Plant, the key Ukrainian steel pipe-maker.

All in all, we have to agree with the opinion of Alexander Deinenko that "there are no any visible factors which could give impetus to the Russian steel pipe market. As a result one can expect that in 2005 Russian steel pipe production will remain at the 2004 level". Longer term prospects depend on which priorities will be chosen for the Russian industrial policy, first of all for its fuel and energy industry and housing and public utilities, which are on the edge of dramatic reforms.

Table 1. Russian Steel Pipe Production Dynamics, in thousand tonnes

Company 2001 2002 2003 2004
Total Production 5404 5161 6134 5993
Including plants as follows:
Vyksa Steel Works 823 743 885 868
Chelybinsk Tube-rolling Plant 683 582 824 750
Volzhsky Pipe Plant 517 532 754 785
PNTZ 637 614 685 690
Tagmet 504 424 571 608
Sinara 534 547 574 581
Seversky 491 513 561 526
Novosibirsk Metallurgical Plant 132 154 214 156
Severstal 167 185 213 213
MMK 98 104 82 81

Based on the data of the RF Pipe Making Industry Development Fund (PMIDF)

Table 2. Big Diameter Steel Pipe Import into the Russian Federation

2001 2002 2003 2004*
Total Steel Pipe Import, in thousand tones 960 648 1018 1300
Steel Pipe Import Share in Domestic
Consumption of Steel Pipes, % 12.8 13.7 16.8 23.7
Big Diameter Steel Pipe Import,
In thousand tones 260 312 418 460
including:
From Ukraine 89 99 338 360
From Japan 6.7 – 43 50
From Italy 29 90 24 36
From Germany 109 81 5 15
___________________________
* estimated
Source: the RF Pipe Making Industry Development Fund (PMIDF)