Global Steel Trade; Structural Problems and Future Solutions

Although the production
facilities at Magnitogorsk were
in need of updating, the
decision to begin construction
of a new hot-rolling facility in
1992 must be seriously
questioned. As clearly
illustrated in Chart 3-14,
domestic consumption of hotrolled
sheet had fallen by
nearly 50 percent between
1991 and 1992; and by nearly
95 percent between 1991 and
1993. When the hot-rolling mill
came on line in 1994, domestic
consumption was just above 1
million MT while production
from Magnitogorsk’s facilities
alone could eventually
approach 5 million MT.
Metric Tons (millions)
5
4
3
2
1
0
Severstal
Source: Infomine.
Novolipetsk
Magnitogorsk
Total Russian Exports
1996 1997 1998
3-15. Russian Exports to the United States of Hot-Rolled Products:
Top Three Producers
Despite the poor domestic
market and the threat of
bankruptcy in 1996,
Magnitogorsk continued to
ramp up production on its
new hot-rolling mill (Chart
3-16). Like the other major
Russian steel producers,
Magnitogorsk began to export
aggressively.
Millions of Metric Tons
5
4
3
2
1
Since 1996, Magnitogorsk
has, on average, exported
0
more than 55 percent of its
hot-rolled production. 162 As
with the rest of the Russian
1994
Source: Infomine.
1995 1996 1997 1998
steel exporters, the big market
for Magnitogorsk was
3-16. Magnitogorsk Hot-Rolled Steel Output
initially Asia. When the Asian
crisis hit, Magnitogorsk turned to the United States. 163 What distinguishes Magnitogorsk from
Novolipetsk and Severstal, however, is that its production of hot-rolled products was increasing
between 1994 and 1998.
Total exports of hot-rolled steel by Magnitogorsk were flat between 1996 and 1997 but increased 43
percent between 1997 and 1998 (Chart 3-17). The increase of Magnitogorsk’s exports to the United States
is attributable to three factors. First, Magnitogorsk continuously increased hot-rolled steel production
(Chart 3-16). Second, much of the increase in exports to the United States was attributable to exports
diverted from Asian markets. 164 Finally, a substantial percentage appears to have been sold previously in
the domestic market. (The switch to export markets may have been due to a greater need for “real” money
or perhaps to the Russian financial crisis of 1998.)
Chapter 3: Behind the Crisis—Russia 63