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Metallurgy 2014: Developmental growth

3According to the latest expert data, despite instable sales activity Ukraine has showed about 1% growth of steelmaking for 2013. Considering weak metal markets and poor situation in domestic industry, such results seem paradoxical. However, export demand for Ukrainian metal preserves its positions.

Thus, according to the branch company "Metallurgprom", for nine months of the last year the export of metal products increased by 1.6% comparing to the January-September period of 2012 (to 17.592 m tons), including 13.885 m tons to "far-abroad countries" and 3.617 m tons to CIS countries.

The center "Ukrpromvneshexpertiza" (industrial external expertise - ed.) specifies that export grows mostly owing to EU demand: 4.9 m tons in 2012 and 6.1 m tons in 2013. Exports climb also to Turkey, Africa and even CIS countries, despite trade conflicts with Russia. At the same time, due to complicated economic situation and low demand, domestic market necked down from 8.3 (in 2012) to 7.8 m tons. However, according to "Ukrpromvneshexpertiza" director Volodymyr Vlasiuk, this year the market is expected to recover its positions (up to 8.1-8.2 m tons), including growth of domestic supplies from 6.1 m tons (2013) to 6.4 m tons.

In 2014, export is expected to reach 23.6 m tons, mostly owing to price stabilization on global markets and value growth by 3-6% by the yearend. It will enable the industry to complete this year with the increase of realization receipts by 8% and increase of currency earnings by 7%. According to the international EBITRA financial metric, profitability of Ukrainian metallurgic enterprises will grow by 4% in 2014, against 2% drop in 2013, which means domestic industry will be able to increase steelmaking by another 2.7%, up to 34.2 million tons.

Positive factors

Experts note that recovery of domestic metallurgy enables to increase the capacity utilization, which levels 70% now, thus reducing the prime cost. Anyway, operating costs in our black metallurgy remain at the lowest level in the world: thus, the price cost of a square bloom (basic parameter to calculate costly characteristic of the whole industry in a country) decreased to $445-450 per a ton for leading vertically-integrated groups. Only Russia has lower rate - about $400 per a ton, and Russian metallurgists remain the main rivals of Ukrainian industry.

Moreover, the price drop for imported gas will also have influence on the prime cost. This year the cost of one ton of square bloom includes $29-30 of gas price, and if this sum decreases by 35-36% after the new gas discount given by Moscow, the saving will make $10-11 per a ton. On one hand, the sum is not very significant, analyst Volodymyr Pikovski comments, but on the other hand, considering modern market situation, even such small amount can make a difference and strengthen competitive ability of the product.

Probable improvement of trade relations with Russia may also help our metallurgists. Thus, Russians have already approved the quota system for pipe supplies by "Interpipe" company, cancelled in the second half of 2013 due to trade conflicts. "Ukrtruboprom" (Ukrainian pipe production - ed.) union informs that after the cancellation of quotas the export of pipes started dropping: less than 30 thousand tons in the III quarter against 160 thousand tons in the I quarter of 2013. However, considering the restoration of the quota system in 2014, the supplies will at least recover previous positions. Moreover, Russia may stop investigating into the import of rods from Ukraine, including such popular kinds of rolled steel as fittings and rod iron.

According to analysts, adequate state policy has also contributed to the recovery of metal production in Ukraine. As a reminder, in July of 2013 the Cabinet and metallurgic enterprises signed the Memorandum of support, valid till April 2014 and providing for three "bonuses" for the industry: fixed tariffs for rail freight (5% of rates of 2012) and fixed prices for electricity (5% of the rate of April 2013); sovereign guarantees for modernization projects, following the state program of economy recovery for 2013-2014, which provides for 10 billion hryvnias of sovereign guarantees; immediate return of all taxes paid in advance, especially profit tax.

Specialists note that the Memorandum has become one of the major incitements of industry recovery. Moreover, modernization projects of holdings "Interpipe" and "Donetslstal" have already been approved, including the construction of the second stage of electric steelmaking complex, new pipe production lines and compact strip production.

Considering modernization

In turn, improvement of economic parameters enables metallurgic enterprises to intensify and speed up modernization and reconstruction. Thus, in 2014 the largest domestic metallurgic groups, "Metinvest" and ISD, will continue implementation of pulverized coal fuel for iron smelting in blast-furnaces. According to the data of "Metallurgprom", this innovation reduces the prime cost by $50 per a ton and enables domestic plants to increase competitive ability. In particular, the pulverized coal fuel is being implemented in Yenakiyevo metallurgic plant, "Azovstal" (Mariupol city), Dniprovski metallurgical complex (Dniprodzerzhynsk city). In this respect Volodymyr Vlasiuk also notes that similar innovations significantly reduce polluting emissions, thus improving ecology in "metallurgic" cities.

In general, "Metinvest" has already invested $700 million into production modernization, and in 2014 the investments are expected to increase to one billion dollars. In particular, the construction of the second stage of electric steelmaking complex of "Interpipe" in Nizhnedniprovsk costs 1.54 billion hryvnias, and compact strip production project of "Donetskstal" costs nine billion hryvnias. Among other modernization projects being actively developed recently experts note the development of production of value-added rolled steel, shutdown of outdated and "dirty" Martin furnaces and implementation of modern continuous-casting machines or electric arc furnaces.

The above mentioned modernizations will enable to develop sales and distribution of our metal in strategic outlook. Meantime, already in 2014 the country may expect strengthening of economic positions of metallurgy and growth of metal export, which in turn will improve the trade balance and promote import substitution. Metallurgy has been the basic industry of our country for years, forming 25-40% of export currency earnings. And considering the recovery of industry rates, its role can but increase.

Andriy Boyarunets