Global Steel Trade; Structural Problems and Future Solutions

these intermediaries, one source estimates that Severstal’s export prices were still generally 30 percent
below European prices. 130
• Trading companies’ impact on trade flows. Russian steel producers’ heavy dependence upon trading
companies to sell large quantities of steel had an impact on trade flows. Trading companies generally
target the spot market that is willing to pay the most. As a result, relatively small changes in one market
can lead to rapid shifts from one market to another. When the Asian crisis hit, for example, Russian
steel was quickly diverted from the Asian to the U.S. market.
Examination of the export markets for the Russian steel producers demonstrates what happens when
there is an over-reliance on trading companies. Rather than having relatively stable quantities going into
relatively the same markets over time, the final market destinations of Russian steel have exhibited no
consistent pattern. Given that Russia has become one of the largest exporters of steel in the world—
selling more than 20 million MT of steel mill products a year—the potential is great for fluctuating
volumes to disrupt world steel markets. The low prices at which Russian steel was often sold increased
the level of instability.
Pre-Steel Crisis Rumblings: Russia’s Export Options Narrow
A number of trade actions taken by countries around the world, combined with the Asian financial crisis,
gradually closed many of Russia’s export markets. Trading companies began searching the world for
potential markets and saw fewer and fewer available. The U.S. market stood out; the prices were good and
the restrictions were few. Although plate exports had been limited due to dumping in 1997, the U.S. market
was open for all other steel products.
• European Union. The first export market to comprehensively restrict Russian steel exports was the
European Union (EU). Beginning in the 1970s, individual countries within the EU had established quotas
for steel imports from the Soviet Union. In 1992, the EU restructured these national quotas into a
unilaterally imposed EU-wide quota on Russian steel. 131 Three years later (1995), the unilateral quotas
were replaced with the first EU-Russia agreement on steel. 132 This agreement limited Russia’s exports of
steel to the EU to 308,000 and 354,000 MT of finished steel products in 1995 and 1996, respectively. 133
The first agreement was renegotiated and extended in 1997 for another five years, with quota levels
beginning at 841,000 MT in 1997 and rising to 928,000 MT by 2001. 134 Quota increases are conditional
upon Russian progress in three specific areas: ensuring and increasing competition domestically among
Russian steel producers, decreasing subsidies, and improving environmental protection. 135
• China. Another major market for Russian steel has been China. According to Chinese import statistics
reported in the World Trade Atlas, in 1996 China imported 4.7 million MT of Russian steel mill
products, accounting for approximately 20 percent of Russia’s total exports. 136 Up to that time and
particularly in 1993 and 1994, China’s construction boom was fueling huge demand and causing a
shortage of Chinese steel. Since the early 1990s, China has increased steel production, and in the mid-
1990s became the largest steel maker in the world. With production growing and the construction boom
abating, China experienced a glut of steel. Steel imports into China dropped by approximately 58
percent in 1997 from peak levels in 1993. Russian steel mill imports into China dropped by 36 percent
between 1996 and 1997 to less than 3 million MT. 137
• Other Asian markets. In the early 1990s, the majority of Russian steel exports went to Asia due to
strong regional demand and a shortfall in regional supply. However, between 1994 and 1998, demand in
Asia began to taper off. With overall Russian exports growing, the percentage of Russian steel going to
Asia began to decline. Specifically, the percentage of Russian rolled steel exports to Asia dropped from
64 percent in 1994 to 40 percent in 1998. 138
Chapter 3: Behind the Crisis—Russia 59