Global Steel Trade; Structural Problems and Future Solutions

When the Asian economic crisis sapped the demand of the Russian steel industry’s major customers, large
trade flows of steel had to be diverted elsewhere. With the closure of other export outlets through trade
actions of one sort or another, Russian steel companies began selling low-priced steel to the only remaining
major open market—the United States. The redirection of sales to different markets in the face of demand
shifts is a normal business practice in a global marketplace. The international trade frictions resulting from
Russian exports were aggravated, however, by the market-distorting practices under which steel was
produced and sold in Russia.
Since 1998, the Russian economy, and the prospects for the Russian steel industry, have greatly improved.
The post-1998 economic environment in which the Russian steel industry has more recently been operating
is discussed in greater detail in Chapter 5.
The Breakup of the Soviet Union
and the Fall in Domestic Steel Demand
Prior to the breakup of the Soviet Union, Russian domestic consumption of steel was among the highest in
the world. Per capita consumption in 1990 was 565 kilograms, on par with the European Union (EU) and
North America and nearly three times the world average. 2 During this time, Russia was a net importer of
steel, taking in almost 12 million metric tons (MT). 3
The Decline in Domestic Demand
Starting with the dissolution of the Soviet Union in 1991, Russian domestic demand for finished steel
plummeted. By 1998, domestic consumption had fallen more than 70 percent from its peak reached nearly
a decade earlier (Chart 3-1).
The primary reasons for the
precipitous decline in Russian
steel demand:
• A drop in defense spending.
• The breakdown in the links
of the centrally planned
production chain and the
Soviet bloc trading system. 4
• The general contraction in
the Russian economy.
• The shift in the nature of
the Russian economy away
from manufacturing and
toward services.
Metric Tons (millions)
60
50
40
30
20
10
1991 1992 1993 1994 1995 1996 1997 1998
Source: Infomine.
Military Demand for Steel. The
3-1. Russian Domestic Consumption of Rolled Steel
general decline in domestic
demand for steel began with
declining orders from the defense industry. During the Cold War, the Soviet emphasis on military strength
ensured that there was a significant and consistent demand for steel. It is estimated that the defense industry
consumed 25–30 percent of all rolled steel produced in the Soviet Union. 5 With the end of the Cold War and
government budget shortfalls that began in the early 1990s, military consumption fell dramatically. U.S.
intelligence sources estimate that by 1996, defense spending in Russia had dropped by 83 percent from peak
Soviet levels in the late 1980s. 6
Chapter 3: Behind the Crisis—Russia 41