Global Steel Trade; Structural Problems and Future Solutions

Since 1992, Russia has, on average, produced twice as much finished and semifinished steel as it has
consumed. In 1998, this figure was 224 percent. 18 In 1997, the United Nations estimated that despite
growing export volumes in recent years, overcapacity in Russia and Ukraine amounted to 20–30 million
MT, or 16–23 percent of total capacity. 19 A recent report on the Russian economy described 20 percent of
Russian steelmaking equipment as nonviable. 20
As the 1990s progressed, there was an absence of real restructuring in the Russian steel industry and a
growing gap between the levels of steel production and domestic consumption. This gap, and the
attractiveness of export cash earnings, compelled the Russian steel industry to turn increasingly to exports as
an outlet for production that could not be consumed at home.
A Lot of Exporting and Very Little Restructuring
Faced with rapidly falling demand for steel at home and reluctant to engage in real restructuring, Russian steel
producers reached a point at which, for political and social reasons, they were unwilling to engage in further
production or capacity cuts. In order to stay in operation, they began to export vigorously. As domestic
consumption dropped more than 70 percent over the past decade, exports rose by roughly the same percentage.
Russia went from a net importer
of nearly 12 million MT in 1990
to an exporter of 22 million MT
60
in 1997 (Chart 3-4). 21 Thus,
roughly 34 million MT of steel
50
Production
came on the world market that
40
was previously consumed
domestically.
Millions of Metric Tons
30
20
10
0
1992 1993 1994 1995 1996 1997 1998e
Source: WSD Core Report NNN.
Exports
Imports
Apparent Consumption
3-4. Russian Production, Exports, Imports, and Consumption:
Finished and Semifinished Steel
More than 20 million MT of
Russian finished and
semifinished steel have been
sold in export markets every
year since 1994. The
percentage of Russian steel
production that has been
exported—approximately 60
percent— is unusually high (by
international standards). For
the large firms, the percentage
of production exported is even
greater. Sixty-seven percent of
Russian finished and semifinished steel was exported in 1997 22 (Chart 3-5). Other major steel-producing
countries do not come close: in 1997, Brazil, Korea, and Japan exported 38 percent, 25 percent, and 23
percent of their production, respectively. 23 Steel exports have provided Russian companies the needed cash
to stay in operation. Exports have also been a valuable source of foreign exchange. In recent years, exports
from the ferrous metals industry accounted for more than 9 percent of Russian total foreign exchange
receipts. 24 Steel has been the number one Russian manufactured export product, right behind exports of oil
and gas, which are the country’s top exports. 25
While much of Russia’s steel production has the long-term potential to be internationally competitive,
the over-reliance of Russia on exporting its steel production has to be examined closely in the context of
normal steel industry economics. It has been estimated that almost two-thirds of steel produced
throughout the world is consumed domestically. Similarly, it has been estimated that only 15 percent of
44 Global Steel Trade: Structural Problems and Future Solutions