Global Steel Trade; Structural Problems and Future Solutions

The Russian steel industry has
made significant capacity
reductions, from an industrywide
capacity level of just over
100 million MT in 1990 to 84
million MT in 1998 (Chart
3-3). Nearly all of the reduced
capacity has been due to the
closure of old open hearth
furnaces. 15 A small amount of
modern capacity (e.g., electric
arc and basic oxygen furnaces)
has been added despite the falloff
in domestic demand and the
general poor economic
conditions prevalent in Russia
since 1991.
Millions of Metric Tons
120
100
80
60
40
20
0
OH EF BOF
1990 1991 1992 1993 1994 1995 1996 1997 1998
OH = open hearth furnace; EF = electric arc furnace; BOF = basic
oxygen furnace.
Source: WSD, Infomine, Ekspert.
3-3. Russian Gross Crude Steel Capacity by Process
Despite the fall in domestic
consumption and an overall
reduction in productive capacity, according to the President of the Russian Miners and Metallurgical
Workers Union, Russia did not shut down a single steel factory and did not lay off any workers. 16 (While
low wages make it possible for mills to retain large staffs and avoid unpopular layoffs, there have been job
losses in the industry through attrition—see box. 17 ).
Overview of the Russian Steel Industry
The Russian steel industry is made up of more than 100 steel plants that fall into three groups, each
employing roughly a third of the steel workers.
The three biggest, accounting for over 50 percent of production, are Severstal, Magnitogorsk, and
Novolipetsk. These large, integrated steel works make mostly flat products. They were the primary
exporters to the United States in 1998. Overall, productivity of the top three is an estimated 60
percent of U.S. productivity. Between 1990 and 1997, production for these companies dropped 25
percent while employment fell 11 percent (apparently only through attrition).
The next group, the middle six, produce about 40 percent of Russian steel. Mechel, Oskol, Nizhny Tagil,
Nosta, Zapadno-Sibirsky (ZapSib) and Kuznetsk are also integrated steel companies, manufacturing
mostly long and specialty products. Productivity is about 40 percent of the U.S. level. Production for
these six has fallen 35 percent since 1990, while employment has declined only 1 percent.
The remaining smaller companies operate at 21 percent of U.S. productivity, using mostly open hearth
furnaces. Their production has plummeted 70 percent, while employment has fallen 28 percent.
According to one study, elimination of government assistance would lead to the closure of at least
one of the medium-sized companies and most of the smaller companies. If these companies were to
close, an estimated 100,000 workers would lose their jobs.
The Russian steel industry would have significant potential if it underwent real restructuring. Russia
has the technical know- how, certain economies of scale, and abundant natural resources (natural
gas, iron ore, and coal). Wage rates, especially after the depreciation of the ruble, are extremely low.
World Steel Dynamics estimated in 1997 that if some former Soviet steel plants restructured, they
could be the lowest-cost producers in the world.
Chapter 3: Behind the Crisis—Russia 43