Global Steel Trade; Structural Problems and Future Solutions

Production Links. A second cause of the fall in domestic demand was the dislocation and breakdown in
existing production links. Under the planned economy, large-scale companies specialized in particular
aspects of production and were linked to specific upstream suppliers and downstream customers. For
instance, iron ore from Ukraine was shipped to Russia to make sheet, which was then shipped back to
Ukraine to make pipe. 7 After the breakup of the Soviet Union, the old suppliers and customers were
sometimes no longer in the same country, and customs duties and trade barriers were erected where none
had previously existed.
At the same time, the other countries of the former Soviet Union, which had been major consumers of
Russian steel, were also going through economic transition and a decline in steel consumption of their
own, and unlike other export markets, often could not pay cash. 8 In 1990, non-Russian republics of
the Soviet Union accounted for 70 percent of Russia’s sales; by 1995, this figure had dropped to 6
percent. 9
Economic Contraction and Transformation. The steel industry is still of major strategic importance to the
Russian economy. However, the political and economic changes associated with the transition toward a
market economy and the 40 percent contraction of the Russian economy as a whole since 1992 led to a
dramatic reduction in domestic
steel consumption. Part of the
60
decline in steel demand is
attributable to a general shift,
50
40
Total
as seen in other industrialized
nations, away from
manufacturing and toward
30
20
Machinery
services. Russian
manufacturing as a share of
gross domestic product (GDP)
has shrunk from 60 percent to
slightly below 40 percent. 10
Metric Tons (millions)
10
Engineering
Other Sectors
Declining domestic steel
0
consumption was not uniform
1991 1992 1993 1994 1995 1996 1997 1998 across consuming industries;
rather, it depended on the
Source: Infomine.
extent to which these other
3-2. Russian Domestic Consumption of Rolled Steel by Sector industries faced their own
problems. In general, the most
steel-intensive sectors of the
economy (e.g., machinery) have been the sectors whose consumption has fallen the most (Chart 3-2).
Production of major industries that consume rolled steel has declined by 72 percent since 1991. 11
Production in more than twenty steel-consuming sectors fell by over 60 percent. 12 Construction
engineering, a major user of rebar, has fallen by 40 percent. 13
Fewer Customers + Not Enough Cutbacks
= Too Much Steel
Russia’s inheritance of the majority of the Soviet Union’s massive steelmaking capacity, coupled with the
drastic fall in domestic demand over the past decade, is perhaps the most significant development preceding
the 1998 U.S. steel crisis. This huge capacity was a remnant from the priority assigned to steel production
by Soviet planners. By 1988, Soviet production of crude steel reached 163 million MT (21 percent of total
world production), making the Soviet Union the world’s largest steel producer. 14
42 Global Steel Trade: Structural Problems and Future Solutions