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Domination by the largest With privatisation all but complete in the Ukrainian steel sector, three major combines have emerged controlling assets from mining to distribution, and leaving little to enable the few remaining independent mills to compete. BY G VALENTIN & C COURONNE* onsolidation has been the name products and 35 enterprises producing given time. The intense concentration of the game in the international blackplate and coated items. The figures observed today derives from this period of steel industry for the past 15 highlight a wide distribution of production instability and dubious dealings and years. Europe and the US have for iron and steel, while almost all of the nevertheless managed to turn the witnessed mega-mergers, output of crude steel and pig iron is actually Ukrainian iron and steel industry into a Cconcentration of resources and produced by 11 steel mills making over a global business, despite major streamlining of operations between steel million tonnes a year. Five main steel works shortcomings notably due to the mills, raw material suppliers, iron and steel are generating two third of the sector’s technological backwardness of parts of the makers, equipment manufacturers, traders, revenue, with the balance spread between at sector. Today, with sky-high steel, iron ore etc… Ukraine had to go through the same least 15 plants. This also suggests a rather and coke prices, the sector is in the best of process, but did it while managing its post atomised sector, from upstream down, while positions to successfully manage its communist transition and trying to find the the level of concentration is actually very transition one step further. right formula to ensure the survival of the high and is the result of intense activity in largest and most crucial sector of its the political, financial and industrial fields. INTERPIPE economy. Today, the sector is showing a During this decade of consolidation, radically different face than 15 years ago, RESTRUCTURING STEEL groups comprising financial institutions when most of the industry was in the hands The concentration and restructuring and industrial assets have emerged, soon to of the Ukrainian state. As of today, the movement in the Ukrainian steel industry become the dominant forces in the privatisation process is largely complete was a period coinciding with great economic life of the country. Three major with the last major mill sold being instability in the country and a climate of Industrial-Financial entities have surfaced Kryvorizhstal, the country’s largest. Only a violence that could have discouraged many from Ukraine’s transition to assume few, ill placed companies are still listed by willing to invest in the sector. Rival clans, control of the largest works and raw the state as waiting for a private owner to commanding competing industrial assets material suppliers and turn the industry revive their destinies. from the two major bases of steel around. From the shadows of the early Ten years ago there were 32 iron and steel production in the country; Donetsk – years, Dnepropetrovsk and Kiev-based works in the country, including integrated capital city of the Donbass region and Interpipe, owned by Victor Pinchuk, works. A decade on, a number of them have Dnepropetrovsk – the main city of the President’s Kuchma son in law became a shut down or almost totally phased out steel Dniepr Basin, were jockeying for key contender in the steel pipe business production, leaving room for the fittest to ownerships and political influence. worldwide. Turning over $900M and survive and become the much sought-after President Kuchma, himself a former metal exporting to 70 countries, the organisation assets in a movement of consolidation that works manager from Dnepropetrovsk, had is involved in seamless and welded pipe has now been almost completely achieved. to rein in the warring factions to keep order making, manufacturing of railway wheels Today, the sector gathers 365 enterprises, in the industry and the country’s loose (10% of the world’s market share) and including 14 metallurgical factories and democratic principles. For a long period of production of manganese ferro-alloys plants, 7 pipe production plants, 10 plants of time, hazy dealings, fragmented ownership including ore extraction (11.4% of the hardware production, 16 coke chemical and difficult court cases complicated the global markets). The building of what is plants, 17 plants producing refractory work of the industry to a huge degree, to now the fourth largest pipe-making products, 26 ore mining enterprises, 3 iron the extent that some companies had trouble conglomerate in the world and the largest alloy plants, 26 plants for non-ferrous knowing who really owned them at any in Ukraine took over a decade and put Interpipe into a very strong position of *The authors are with Global Business Reports, London power within the industry. Tel +44 207 079 0042 Fax +44 207 637 0419 e-mail [email protected] Today, the group controls the largest pipe

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making factories in the country: 100% The corporation also used to control Nizhnedneprovsk tube rolling plant The second five: the Azovstal mill, the country’s second The remainder Alchevsk, produces over 800kt/y of hot deformed 19.9% largest, as well as the Khartsyzsk tube pipe and is leading the pipe industry in Donetskstal, works, also one of the country’s best, Nikopol Ukraine in terms of volumes produced. Ferroalloys, but lost them to another heavyweight Novomoskovsk Tube Mill has the 75% Top ten Nyzhniodniprovsk metallurgical corporation of Donetsk, largest production capacity, at 1.3Mt/y companies Tube Works, Donbass: System Capital Management 80.1% of welded pipes, and the factory is not Donetsk Iron and (SCM). Today, besides its remaining producing at full capacity. Following major steel mills at Alchevsk and the Russian inspired slump in the 50% Dnieprodzerzhynsky, the strength of market in 1998, most of the sector The first five: IUD lies in its vertical integration in suffered steep reductions in purchased Kryvorizhstal, coal, coking coal and in its diverse Mariupol Ilyich, volumes and it took some time to Top five downstream activities in pipe making, domestic production share Azovstal, readjust production to reduced companies construction engineering, machine 25% Zaporizhstal, demand. Yet today orders are up again; 59.2% building and mechanical engineering. on the back of sustained high oil prices, Dnieprodzerzhynsk In the area of mining, the very strategic the oil industry is buoyant and concentration of IUD allowed it to infrastructure work is on the rise, produce and deliver more than 5.5Mt fuelling a strong demand for pipes 0% of coal concentrates to coke and worldwide. Novomokovsk Tube Mill, The industrial concentration of the Ukraine ferrous chemical plants and more than 4.2Mt of for instance, saw its production levels metals production, by total sales revenue, 2002 coke to iron & steelworks in 2002. shoot up 33% year on year in 2003. Its partnership with Swiss-based steel Besides these two major mills, Source: Vlad Mykhnenko, Rusting Away? The Ukrainian Iron and Steel trader Duferco gives IUD a much Interpipe also controls smaller Industry in Transition broader market penetration potential operation such as the Nikopol to the products of its mills, pipe works, Seamless Tube Plant Niko producing just Industrieanlagenbau (Austria) for the mines and heavy manufacturing companies. less than 300kt/y of products, as well as a supply of two continuous casters and two Interestingly enough, the company has also handful of smaller works and mills. The ladle furnaces for Alchevsk. The cost of been very active abroad, successfully Interpipe Corporation also controls the modernisation project amounted to bidding for the Dunaffrer works in ferroalloy production through the Nikopol €140M, and has the objective of boosting Hungary, the largest steel mill in the Ferroalloy Plant, Europe’s largest producer output and quality at the Alchevsk plant country, although it did hit harder times of ferroalloys (annual capacity 1.2Mt), to 5Mt/y. with Huta Czestochowa in Poland where specialising in the production of Another member of the IUD group of IUD was initially declared the winner of the silicomanganese and ferromanganese. The companies, until June of this year, the bid, but was shunned by the former main advantage of the plant is its local Dniepropetrovsk Petrovsky Steelworks, is government who then declared source of raw materials, which allows the one of the oldest works in Ukraine and is multinational giant LNM, already owner of company an unrivalled domination in the showing signs of its age. Today work is Huty Stali (PHS), Poland’s largest mill, CIS ferroalloy market. Over 70% of output underway to renovate one of its blast winner of the privatisation bid. Since then, is exported throughout the world. It holds furnaces although IUD has sold its 42% the process has run into further trouble approximately 57% of the CIS market, 48% stake to Pryvat Bank, who was already with the victory of LNM contested in the in Eastern Europe, 39% in the Middle East, holding a stake in the company, alongside courts and the new Polish government and 15% of European Union’s markets. strong participations in other ferroalloy displaying a will to revert to the original With the latest massive upsurge in prices of concerns (Zaporizhia Ferroalloys, decision. The European Commission also ferroalloys, fuelled by sustained Chinese Stakhanov Ferroalloys, Nikopol refused the contents of Poland’s demand, the Nikopol Ferroalloy Plant is a Ferroalloys) as well as in coke plants. In the restructuring programme for the mill and is prime asset for Interpipe in the overall case of Petrovsky, it seems that the two about to launch an inquiry concerning metallurgical picture. And it is a disputed stakeholders could not agree on a common illegal state support. During the process, one: Interpipe and Igor Kolomoisky’s concept for the future of the works and smear campaigns against IUD, highlighting Privatbank fought hard to obtain a IUD decided to call it quits, hardly a year the shadowy origin of its funds and the lack controlling stake in the ferroalloy plant, after taking the controlling stake. of transparency of its structure, were originally put for sale at $10M the stake was This year IUD was also on the acquisition conducted and the corporation had a hard eventually sold after a very acrimonious trail with its purchase of the time clearing its name and fighting for its battle and went to Interpipe for $77M, Dnieprodzerzhynsky Iron and Steel reputation. Today, it is engaged in a battle more in line with the company’s Combine confirmed this year for a price of of proceedings to have its victory in the bid international value. $133M and the commitment to invest for Huta Czestochowa recognised. Why so another $180M in plant upgrades by 2008. much effort to pursue this purchase? One INDUSTRIAL UNION DONBASS of the reasons for the latest and The second large industrial- vigorous foray can be found into the financial group that built a position increasingly competitive market as an iron and steel conglomerate conditions in it home markets. is the Industrial Union of Donbass (IUD) or ISDJ. The company is SYSTEM CAPITAL MANAGEMENT vertically integrated and gathers The expansion of Donetsk-based under its control some of the System Capital Management (SCM) country’s largest mills. It has also might appear as irresistible to built a strategic alliance with Swiss anyone observing the Ukrainian iron based trader and steel plant owner, and steel sector of the last decade. Duferco, and hence gained market Reputed to being controlled by access in one of the greatest steel Ukraine’s richest man, Rinat marketing platforms of the world. Akhmetov, the group has pursued an As far as productive assets, IUD is aggressive policy of vertical and a key contender in Ukraine: horizontal integration that leaves Alchevsk Iron and Steel Combine today’s SCM with pretty much most has a capacity of 3.3Mt/y and is of the prime assets of the industry. currently undergoing an upgrade of Alongside its associates, Danko and its plant that should help boost its Ownership structure of Ukraine’s metals sector and its major ARS, SCM controls the largest iron profitability and sustain domestic customers, as of 31st December 2002 ore mine, a number of major competitiveness. In September Source: Vlad Mykhnenko, Rusting Away? The Ukrainian Iron and Steel Industry in dressing and concentration plants, 2003, IUD and Duferco signed a Transition coal mines and coking plants, as well contract with Voest-Alpine as the largest steel and metals

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trading organisation of Ukraine, Kryvorizstal is in itself a clear indication Switzerland-based Leman that things have changed, and the Commodities. SCM affiliate ARS is industry has matured to one that can said to control about 90% of Ukraine’s now take on the world. Today, coking coal mining and coke producing problems arise for those left aside in the companies, giving it considerable movement, and hang on to the illusion leeway in the domestic sector, and to of independence. With the most intense put it bluntly, massive control. Further concentration arising upstream, in raw downstream, the list of assets is material supplies, and further impressive: The Azovstal Iron and Steel downstream in the control of the most Combine (output 2003, 5.34Mt) the powerful marketing channels, little is Yenakievo Iron and Steel Works left to those who are alone. Mills that (capacity 3Mt) and the Khartsyzsk Tube have decided to opt for a stand-alone Works were the jewels in the crown policy will be pushed out of the until being eclipsed by SCM’ share in Ukrainian metallurgical sector by lack the recent privatisation of Ukraine’s of access to the key resources, ores, largest iron and steel concern, energy and capital. For example, the Kryvorizstal. Mariupol Ilyich works is calling upon Teaming up with the Interpipe Ukraine’s steel companies by annual sales share, 1999- political assistance to help it survive, Corporation to form the Investment 2002 average but Ukrainian politics, already placed Metallurgical Alliance, SCM and its Source: Vlad Mykhnenko, Rusting Away? The Ukrainian Iron and Steel under the influence of the metallurgical new associate took control of the plant Industry in Transition sector, has already taken into account and its iron ore base for $800M, the sweeping changes and is supportive keeping at bay some of the world’s best of its corporations and the oligarchs known iron and steel players all that have emerged. jockeying for control of this much The fiscal advantages offered to the coveted asset, the largest and most metallurgical sector in the Donetsk profitable combine of Ukraine. region and its tailor-made investment The positioning of SCM as the regime are a further testimony of that definitive leader of the industry also recognition, and of the fact that the marks the end of the major political and industrial balances of consolidation within the local industry. powers have shifted east, much closer A few worthwhile assets remain on the to the Russian border than before. privatisation list, notably the Makiivka And Ukraine’s new attitude towards plant in the Dnepropetrovsk region and EU and NATO memberships, no a number of coalmines still under longer priority items on the national government control. But, in general, the agenda, are also a recognition of sector is consolidated and in the hands these facts: Russia is Ukraine’s of what seems like aggressive, yet natural trading partner, supplying focused organisations that have showed Ukraine’s tube mills by annual sales share, 1999-2002 much needed energy to Ukraine’s their intentions of investing in the average metallurgical sector, and buying a development of the industry and the large part of its production. But also sustainability and expansion of its Source: Vlad Mykhnenko, Rusting Away? The Ukrainian Iron and Steel both countries compete and partner economic value. The concentration also Industry in Transition on the world iron and steel markets. highlights the rise and today’s A strong source of influence in predominance of the Donbass region Ukraine, Russia is now paying close and its regional capital Donetsk over The consortium established between attention to the rebirth of Ukraine’s Dnepropetrovsk. Interpipe and SCM to win the bid for heavy industry. STI

OLD AND NEW WAYS he Ukrainian industry, mainly Donetsk regions. More capacity can be The sector has almost completed its concentrated in the southeastern found in Lugansk, in the most eastern ownership restructuring, its consolidation Tregions, revolves around three part of the country and at Alchevsk. from raw material extraction through to major poles: Upstream, iron ore is The whole industry suffered heavily steel products is solid and the Ukrainian extracted from a variety of deposits, from the collapse of the Soviet Union in iron and steel industry is now looking at located along the lower Dnieper river 1991, already having to face steep strengthening the next phase of its region. Similarly, coal is extracted from reductions in consumption in the late evolution: its anchorage in the world the Donbass basin. Downstream, two 1980s, it found itself deprived of market market and the competitiveness of its major centres struggle for both industrial prospects, short of cash, sometimes industrial tool. predominance and political influence in without energy to run the plants and Recently, the privatisation of the Kiev and the national institutions. The operated by managements that had country’s largest integrated iron ore and Donbass region, with Donetsk as its limited international experience and steel plant, Kryvorizhstal, attracted an capital is host to thirteen iron and steel exposure to the world market’s harsh impressive short list of local and works and thirteen coal-coking plants. On realities. A period of barter deals, international contenders and expectations the city’s doorstep is the coastal town of featuring steel for energy trades were to see the plant go for at least Mariupol on the Sea of Azov, emerged, where the reputation of the $1.5bn. concentrating the second and third largest industry was affected and production Yet, hopes were short lived as combines of Ukraine: Azovstal integrated levels plummeted. Kryvorizhstal was snapped up by local steel mill (8.3Mt/y capacity) and Ilyich For a decade, the Ukrainian iron and contenders, at a discount and after (7.2Mt/y capacity) and employing 23000 steel industry was shadowy, ripe with international bidders were mariginalised people. Further downstream, machine scandals and not in the best of shape. Ten in a dubious fashion. Following this making is thriving in Mariupol, with years on, the picture is radically different: episode, most questioned the country’s machine builder Azovmash leading the Ukraine is back in focus as the seventh willingness to open up and signal its national pack. Tube and pipe makers are largest producer of steel worldwide, and attachment to market values as well as active both in the Dnepropetrovsk and one of the three largest exporters of steel. best business practices.

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AGEING TOOLS The industry is clearly showing its age Difficulties in moving forward regarding the production processes employed in the country. In 2003, 45.9% of steel was produced from open-hearth furnaces, placing Ukraine in the number two position of open-hearth produced steel in for the Ukrainian steel industry the world. Oxygen steelmaking (BOS) accounted for 48.6% or the overall Out of date plant and the concentration of the ownership of most raw production (17.9Mt) and only 5.4% was materials in the hands of a few major steel groups is challenging the produced from electric arc furnaces (2Mt). With 16.9Mt of open-hearth output, survival of the second tier steelmakers in the Ukraine. Ukraine has the undesirable title of being second only to China for this most BY G VALENTIN & C COURONNE* antiquated production method, and Chinese steelmakers appear to be phasing out open- n the 1870s Ukraine was a land of cannot be economically viable for long hearth furnaces much quicker than opportunity and transformation: the without a strong steel sector. Despite the Ukrainians. This highlights one of the major discovery of iron ore deposits in steep decline in production volumes from the issues at stake in the industry: the unfitness many parts of south eastern mid-1980s onwards, the industry started of most of its production tool and its severe Ukraine, along with coking coal and showing some signs of recovery in the mid- lack of modern, profitable and efficient, anthracite1 deposits found in abundance in 90s. From just below 57Mt of crude steel steelmaking facilities. Yet, the leaders of the the Donbass region led to an influx of produced in 1986, output declined to under sector are displaying a tendency to tackle the entrepreneurs, some of them foreigners, 25Mt in 1995, representing almost a 60% loss issue with a mix of bullishness, vision and for willing to tap into this subterranean wealth of output, before rebounding to over 35Mt in some, resignation. and turn mineral reserves into iron and steel. the past two years (2003: 36.9Mt). Export For instance, a Welshman, John Hughes volumes picked up with ferrous metals KRYVORIZHSTAL NEWLY PRIVATISED from Merthyr Tydfil, established the first accounting for up to 30% of the country’s The largest organisations are spread across large iron and steel plant at Hughesovka overall foreign sales and 80% of the domestic the southeastern region. Some players are (now Ukrainian Donetsk) in 1869. Today, iron and steel production total sales. benefiting from real ‘house-hold the country’s iron and steel industry is Reorganising the industry was painstakingly recognition’ on international markets, for mainly a direct descendant of those early difficult, protracted and a somewhat gloomy good reasons, like being recognised as part days though shaped by later developments. business and the shadows from this period of the first league of global exporters, or for Further plants were built in the 1930s, when are still very present in many Ukrainian bad, like being at the centre of sometimes Ukraine had both the misfortune of memories. Finally, the harder times are now unjustified controversies. By revenue, suffering from Stalin’s implacable repression behind, at least as far as setting up a coherent profits and production volumes, the of peasants yet also had the chance of sector organisation. But beyond knowing company that stands out from the pack is the participating in the edification of an iron and formally the names and address of who owns recently privatised Kryvorizhstal (See steel powerhouse designed to fuel the Soviet what, lies another critical issue for the Privatisation in Ukraine: – Could they have Union’s industrial development. Ukrainian iron and steel sector: the shape of done better? in this issue). The world’s 26th Inherited from this double-edged that which is owned. largest steel company by output and fully historical development, the regional vertically integrated, the giant is reaping concentration of the industry is striking The 5.3Mt/y Azovstal steel plant is situated at the benefits of a continuous supply of and allowed many synergetic the port of Mariupol on the Sea of Azov iron ore from Ukraine’s largest mine developments along ore reserves, and is also the steel mill with the largest power resources provided by the turnover in the country, with over a Dnieper river’s hydroelectric billion dollars in sales and strong infrastructure and transportation profitability levels. It is squarely placed potential thanks to navigable rivers, at the centre of an industrial hub Ukraine’s coastline on the Azov and comprising one of the largest iron and Black sea and the extensive railway manganese ore deposits, open cast systems developed under Stalin’s rule. mines, ore processing and Today, after going through the agglomeration plants, and the steel radical overhaul of its fundamental work’s is Ukraine’s largest producer, role, ownership structure and raison with an output of 6.9Mt of crude steel in d’etre, the industry is emerging from 2003, and employing 52 000 workers. An over a decade of confusion and investment plan was a condition of a protracted struggles as an almost fully successful privatisation offer. It is hoped integrated iron and steel cluster, featuring Azovstal plans to increase output from the that the new owners, a mighty alliance of the complete production cycle of iron and present 5.3Mt/y to 7.5Mt in 2006 Donetsk-based System Capital Management steel, from raw material extraction through (SMK), the biggest powerhouse in Ukraine to semi-finished and finished metal and Dnepropetrovsk and Kiev-based products. Possessing iron ore, including high Interpipe (controlled by President Kuchma’s concentration ores, manganese, as well as son-in-law), will combine their efforts in metallurgical limestone, kaolin, dolomite, developing further the giant into an even coking coal in the Donbass region, larger player in the years ahead. This will anthracite and a range of other mining come to pass provided its new owners products, Ukraine was clearly destined to be implement the right mix of large-scale a metallurgical hub. Twenty years ago, the investment and sound marketing policy. But country was one of the world’s top four before looking to these future hopes, the producers of pig iron and crude steel, investment simply required to maintain such churning out up to 57Mt of crude steel iron and steel works and to push them into before plummeting while the country was the next stage of development is anticipated coming to terms with its post-communism to be huge and must be made. And with such transition. a large-scale workforce, productivity cannot The significance of steel production in the be expected to be high. Despite the stated country’s economy is immense and Ukraine commitment of the new owners to invest in the works and preserve employment, some The authors are with Global Business Reports, fear that it may not be enough. Yet, the keen London Tel +44 207 079 0042 Fax +44 207 637 0419 email [email protected] interest displayed by the big names of the

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Ilyich employs 60 000 workers in Mariupol and UKRAINE produced 6.5Mt in 2003 but mostly by open hearth furnaces

guaranteed by its employee and management ownership, may become its curse, as access to raw material, in particular to Ukrainian iron ore and coke production is now fully controlled by the vertically integrated ‘majors’ that have emerged from the market’s concentration. This is threatening the status of the works and could in the future precipitate the company’s purchase, locally, or its economic collapse. In this case, Vladimir S Boyko, the company’s Chairman of the Board is calling upon the state to help the company going through hard times: “We need strong action from the government to guarantee that companies like Ilyich have access to raw materials, under market conditions. Today, world’s iron and steel industry during the redeployment of sales and marketing everyone thinks that the market is without privatisation process are a further testimony efforts. “This effort is a revolution in many rules and big groups are dictating their rules that the Ukrainian steel works conveyed a respects,” affirms Mr Velyi. to us. This is how, despite working at high lot of appeal, despite the associated capacity, we still lose money.” upgrading works. ILYICH GLOOMY PROSPECTS Despite modernisation attempts of its Other key players like Ilyich, the second industrial plant, the company remains one AZOVSTAL INVESTS giant works of Mariupol, are looking at of the most archaic iron and steel The dilemma of refashioning and shaping maximising the use of their abundant manufacturer in the country and the cost of old production workshops into efficient steel workforce and versatile production, staying both alive and fit for the global making facilities is faced by all the sector’s diversifying into ship building, agricultural markets is extremely high and is not leaders: Azovstal, formerly the country’s land, manufacturing apparel and canned expected to decrease. With the largest largest steel producer, is following in food production. The strategy of such employment in the sector, the productivity Krivoyrizhstal’s footsteps, producing diversification may bring straightforward levels per worker are lagging behind most 5.340Mt of steel in 2003 (3.8Mt is BOS steel profit. In its core business, the factory is a international counterparts. Industry-wide, and the rest is open-hearth). The company giant by all standards, employing a these levels are said to be very low, as plans for 2004 and beyond involve ratcheting staggering 60 000 workers and producing suggested by some researches pointing out up output from 5.9Mt (4.4Mt by BOS) this 6.5Mt of steel in 2003, mostly using open- that an average Ukrainian steel worker year to 6.5Mt in 2005 and 7.3-7.5Mt by 2006, hearth technology. For more than 100 years produces only 76% of a Polish steel including around 6Mt of BOS steel. For this, OJSC Ilyich ISW has produced high-quality worker’s output, 18% of a Brazilian’s, 14% Azovstal, one of the two giant mills of the metal products: cold- and hot-rolled metal, of an EU steel worker, 11% of a US seaport Mariupol, has embarked on a vast galvanised sheets and coils, seamless oil colleague and 10% of the average South modernisation programme to keep up with tubes, longitudinally welded tubes, pressure Korean’s output. (Vlad Mykhnenko, acceptable levels of competitiveness and vessels, and ferroalloys are amongst the Rusting Away? The Ukrainian Iron & Steel outputs. Mr Velyi, Azovstal General product list and the works has received many Industry in Transition, 2004) In this case, the Director gave a few highlights on the major certificates for shipbuilding steel of normal clock is ticking for the very survival of works restructuring undertaken by the company: and high strength, boiler steel, strip, bridge like Ilyich. In sum, the litany of woes and “At the moment we have five working blast- steel, structural carbon and low-alloy steel, life threatening issues faced by the company furnaces, and we are currently rebuilding electro-welded tubes. But clearly today, means the future of one of the greatest iron furnace number 2, which has been stopped challenges are piling up, as the company was and steel works appears increasingly since 1998. The new furnace will be fired in left outside of the industry’s concentration gloomy. June 2005. We have also undertaken some phase. Today, Ilyich’s independence, reconstruction in our BOS converter shop, connected with continuous slab casting, and we are building a caster. The reconstruction Dnieprospetsstal located in of two casters is being undertaken by Zaporozhye on the river Dnieper Novokramatorsky Mashinostroitelny Zavod produces special steel grades JS Co, a leader in production equipment for the steel industry, using technology from the Austrian based plant builder, VAI. Besides, we have bought a liquid oxygen plant from the French company Air Liquide. The total investment is approximately $320-350M. This year we will spend $208M and the rest next year.” The company is presently producing X80- X90 grades and will be able to produce X110 and X120 steels by the addition of a ladle furnace and a vacuum degasser. The investment effort put together at Azovstal is a sign of confidence, as well as a mark of maturity. Despite increasingly competitive offers from domestic technology suppliers, Ukrainian steelmakers are also turning to international service providers to upgrade their plants. For instance, Azovstal called upon the services of Germany’s SMS Demag for mastering rapid cooling of thick rolled steel while keeping all the product’s strength characteristics. New technology is going into all aspects of the company’s activities, including management procedures, integrated IT systems and

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Minimill Istil based in Donetsk has two UKRAINE international subsidiaries, one in UK and one in USA

ZAPORIZHSTAL SEEKS AUTO siphoned off some of the company’s assets and left its 4.05Mt of MARKET capacity, scarcely used, and brand The Zaporizhstal works, in new production equipment half Zaporizhia is another one of the installed due to lack of resources. country’s top five mills, ranked as The company notoriously has a 55th steel producer in the world. brand new 3500mm rolling mill still Far from complacent, the company waiting for final installation and has here again engaged in a race Valery Dudnik, its director is eager against time to strengthen the to underline the inner value of the efficiency of its production plant industrial plant: “We want to be and brace itself for tougher days optimistic, as this works has been ahead, should steel prices follow a investing in the upgrading of its downward trend. Producer of production capability, before being carbon, low alloy, alloy and turned astray by some. Today, we stainless hot rolled coil and cold want to put all our efforts into rolled coils, the company comprises taking this company out of a a sinter shop (six sinter machines), difficult time and back to where it five blast furnaces, an open-hearth should be”. This may be achieved furnace shop with nine furnaces thanks to the arrival in the and a shop for preparation of ingot- company’s shareholder structure of mould trains. The company also has the Ukrainian State, through state four rolling mills for hot and cold rolled flats, organisation. Our goal is to be recognised as company Naftohaz Ukrainy, the oil and gas strip, tinplate and cold rolled formed one of the best suppliers of special steels in state company. At stake, is the very survival sections. Total annual production of the the world.” of the Makiivka metallurgical combine. The Works is 3.5Mt of flats and 600kt of cold state operator bailed it out taking on board rolled formed sections. MINIMILLS the company’s $31M debt, and committing Zaporizhstal is investing for increased Investment programmes are trying to itself to helping the company find new performance: it is for instance completing a sustain the self-proclaimed bullishness and markets and secure its energy needs. $66.5M investment to refurbish its blast improve energy efficiency and flexibility to Privatisation of the plant is expected to take furnace No 2 and improve the energy enable Ukraine to play its part in global place this year, and India’s Tata Steel, at efficiency of the unit. It is also starting the markets. Oxygen converters and electric arc one stage interested in the privatisation of installation of a 300kt/y capacity ladle furnaces are being purchased and installed Kryvorizhstal, also mentioned Makiivka furnace in the teeming bay of the open- and the industry is working overtime to then as a potential target. Following the hearth furnace shop for processing medium catch up with the world’s standards of effective exclusion of foreign bidders during and high-carbon and low-alloy steels. The production. Here, the experience of smaller the privatisation of Kryvorizhstal, Makiivka work is being undertaken by a variety of steel mills, such as the Istil minimill, in may have to make do with a lower turnout local suppliers, notably Novokramatorskiy Donetsk, is of great value. The company is of eager foreign investors but the industry is Machine-Building Plant, Ukraine and one of the rare foreign investments in the nevertheless attracting much overseas international leaders such as Germany’s sector and therefore has been somewhat of interest and Makkivka’s senior management SMS Demag, Austria’s VAI; and Danieli a pioneer, as well as a rarity in Ukraine. is hoping to benefit from this renewed from Italy. Zaporizhstal is also building a Originally a UK and US company, Istil has interest to ensure the survival of one of the pickling unit, at a total cost of $40M over its main manufacturing base in the Donbass larger works in Ukraine. three years, started 2003. The company is heartland, following the acquisition of Behind these individual stories, the also prompting a number of other prime Donetsk Metal works in 1996. It also has dominant pattern emerging is one of investments, following indications that two finishing mills outside Ukraine, one in combining crucial issues stemming from the leading carmakers may increasingly choose the south of England – the former companies ownership structure and owners’ Ukraine for sourcing high quality Queenborough Rolling Mill, and one in will. Following the intense concentration automobile sheet. The purchase and Milton, Pennsylvania, USA. In Ukraine, the period of the last decade, new steel moguls installation of a galvanising line and paint company has been constantly upgrading its have arrived and are yet to show their full line at Zaporizhstal is, for instance, planned minimill, investing a total of $85M in an intentions with regards to the industry’s around 2007-2008, at a cost of $100M. electric arc furnace, a vacuum degasser, future. Resource allocation, concentration Such major capital expenses, alongside continuous caster and upgrading some of of raw material supplies under a few players other planned investments, are a further the blooming mill equipment. The company and the cost of major restructuring will testament that the sector is not standing still, is trying to adopt a strategy of undoubtedly prove to be fatal to the survival and that despite the advanced age of most of differentiation, producing round billets of some companies. The companies that are the production plant, the industry is working from 80mm to 330mm diameter to respond currently under-utilised, too costly to hard to sustain competitiveness and quality to an increasing, yet exclusive, market upgrade and offer a limited product mix and is fighting for keeping a leading position demand in machine making and lacking real long term commercial value will amongst top global suppliers. construction worldwide. “We want to feel the pain. And this is a real challenge improve the value added side of our that the industry will have to face: moving DNIEPROSPETSSTAL products by increasing the size of our from the current ensuring survival – largely Dnieprospetsstal Special Steel Works is a rounds but we are also planning to install a helped by a cyclical upsurge in global steel very dynamic operator in the market also. heat treatment unit in the near future. We prices – into the next stage of creating a Maker of special steels, (bearing steels, heat have to be very proactive in keeping up with sustainable future. To prove its worthiness resistant, structural steel, high speed the best technology”, explains Dr Farooq and ensure its long-term success whilst also steel,…) it relies on a 5.8Mt capacity and is Siddiqi, Senior Vice President of Istil limiting the socio-economic costs of a also investing heavily to expand, notably Ukraine. Extending his analysis to the other second wave of ‘readjustments’ and to take putting the final touches to a finishing shop. companies of the sector in Ukraine, he the whole of Ukraine into the next stage of “We benefit from the edge of our products adds: “The companies that won’t do it here its economic revival , the iron and steel in the first place” explains Alexey Alekhin, won’t be able to compete with lower costs industry is now facing a monumental task. Chairman of the Board. “But this cannot be producers. It is more than a conundrum, it is Some have started tackling the challenges the complacent approach to privilege. In a life necessity for the industry”. and are busy working to perpetuate the today’s market place, we have to strive for economic importance of the industry in excellence and competitiveness and this is MORE TO PRIVATISE Ukraine. Others may have to face where we direct most of our efforts. We are Makiivka metallurgical Combinat is on the extinction and shall come to illustrate the permanently listening to market demands privatisation list for this year but the excruciating difficulties of a complete and are implementing an ambitious reform company has had to go through a number transition movement, from one economic programme, both on the production side as of misfortunes that pushed it to the brink of and political system to another radically well as in the management of this bankruptcy. Unscrupulous ‘investors’ different one. STI

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metal products in Ukraine’s total exports. WTO trading partners that have imposed Ukrainian steel: anti-dumping measures against Ukrainian exports include Canada (3 measures), Chile (2), Colombia (2), EU (8), India (4), Mexico (4), Turkey (2), US (5), and – vulnerable overseas, weak at home Venezuela (2). Apart from the imposition of antidumping duties, Ukrainian exports Ukraine’s remarkable recovery in steel output since the collapse of are also subject to quotas and licensing based on intergovernmental agreements. 1991 is heavily export dependent with 70% of output exported. The Agreements currently in place govern domestic market has not kept pace with the recovery of the steel exports of various metal products to the EU, the US, Indonesia, and Russia. industry making steel vulnerable to world markets, often hostile to the The European Union and the Unites States have both designated Russia and Ukraine. Kazakhstan as market economies, but, for BY VLAD MYKHNENKO* specific political reasons, Ukrainian efforts at receiving a similar designation has not efore the end of the Cold War and largest steel exporter. The Ukrainian steel met with success. Furthermore, the the collapse of the Soviet Union in companies sell annually abroad around Ukrainian steel companies are at a 1991, Ukraine had been the US$6-7 billion worth of crude steel, while competitive disadvantage vis-à-vis the new world’s fourth largest steel- ferrous metals account in general for about EU member-states from Central Europe. producing country after Russia, 40% of the country’s total exports. After the EU enlargement in May 2004, the BJapan, and the United States. The competitive disadvantage of the Ukrainian Ukrainian steel industry entered the period EXPORT RESTRICTIONS steel industry in comparison with the new of the post-communist transformation as a The overseas steel market expansion EU members of the single market have fully-grown and densely located notwithstanding, since gaining increased; at the same time, exports to manufacturing sector. Yet, as the result of independence in 1991, Ukraine has been Central Europe have been negatively exogenous trade shocks caused by the faced with what a recent International affected, as these countries adopted the collapse of the internal Soviet steel market Monetary Fund report describes as ‘a common EU tariff and other protection in the early 1990s, and due to the overall plethora’ of unwarranted anti-dumping policies. As the great bulk of the Ukrainian disorganisation of production, management investigations and external market steel export has been barred from the US and commerce, the main outcome of the restrictions. Export opportunities for the and EU markets, the primary target for the Ukrainian steel industry’s transition to the Ukrainian iron and steel producers have Ukrainian steel exports are China, South- market was a massive, sharp, deep, and long been badly damaged by a wave of anti- East Asia, and Russia. The rest of the world decline in the ferrous metals output. In the dumping sanctions, import tariffs, appears to be of secondary importance. first half of the 1990s, Ukraine’s crude steel quantitative restrictions, and other As long as China and the countries of output declined by 58%, from 52.6Mt in protectionist measures imposed by the South-East Asia generate strong economic 1990 to just 22.3Mt in 1995. European Union, the United States, and a growth, the Ukrainian steel industry should Radical market and structural reforms number of other steel-producing countries. have enough space for output growth and initiated at the end of 1994 by the market expansion overseas. At least, Ukrainian government, fast large-scale this view seems to be widely shared by privatisation, and the reported Ukraine’s top steel managers. Yet, improvement of the business climate in China, Japan, South Korea, and the country, have returned the steel Taiwan – the largest economies of industry back on the growth path. South-East Asia – are also amongst Already in 1996, the Ukrainian steel the world’s twelve largest steel- industry recorded a 12% annual sales producing as well as steel-exporting increase; and 8% growth followed in nations. The Southeast Asian steel 1997. In absolute volume terms, companies are in strong competition Ukraine’s crude steel output increased with their Ukrainian counterparts to 25.6Mt in 1997 – for the first time in both domestically and overseas. the country’s independent history. In Moreover, with the most recent 2003, the Ukrainian steel enterprises Ukraine’s ferrous metals sector: raw materials and crude steel efforts by Beijing to stabilise the produced 36.8Mt or 70% of the 1990 production, 1990-2003 (volume index, 1990=100) country’s overheated economy, output level. On the international scale, Source: Vlad Mykhnenko China’s ‘steel hunger’ could well be the turn of the Ukrainian iron and steel alleviated. Where could the industry towards recovery and growth Ukrainian steel industry turn in that has put the country back into the league of Currently, 69 restrictive measures imposed case? the largest steel producing countries. between 1999 and 2002 against Ukrainian Currently, Ukraine occupies seventh steel exports are in place. According to the WEAK AT HOME position in the world steel ranking, behind World Trade Organisation and IMF data, A potential disruption of the steel Germany, South Korea, Russia, and the Ukraine has been ten times more likely to expansion overseas would be the greatest world’s top three steel-producing giants – have anti-dumping measures imposed trouble the Ukrainian steel industry has China, the United States and Japan. against it as the country’s share in the been faced with since the collapse of the international trade could suggest. For Soviet Union. On the whole, the Ukrainian VULNERABLE OVERSEAS instance, over the January 1995 – June 2002 steel producers export between 75 and 85% The apparent recovery of Ukraine’s ferrous period, out of a total 1161 anti-dumping of domestically produced steel. While in metals sector has been propelled by a measures, WTO member countries the late 1980s the Ukrainian domestic remarkable export expansion. Between imposed 37 measures on Ukraine. The 3% market for steel was as large (on a per 1990 and 2002, the country’s share in the share of measures imposed on Ukraine is capita basis) as that of any industrially world steel output halved to 4%. disproportionate to the 0.3% Ukrainian advanced economy of the West, by 2002 it Nevertheless, by the late 1990s, Ukraine share of world exports, but it is partly contracted by 80%. The current level of became one of the world’s top three major explained by WTO members’ propensity to Ukraine’s per capita crude steel steel-exporting countries. In 2002, impose measures on metal trade (one-third consumption (84kg) is half that of the Ukrainian steel companies exported of all measures) and the dominating role of world’s average (162kg) and far below the 25.9Mt of steel, slightly behind Russia’s level of such steel producing giants as Japan 27.7Mt and Japan’s 35.2Mt. Considering *PhD Candidate, Darwin College, University of (571kg) or the US (406kg). To date, net export figures, Ukraine, on a par with Cambridge, UK. Ukraine’s heavy engineering and Russia, is currently the world’s second email [email protected] construction industries – the two major 00

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UKRAINE Ukrainian steel fostering a domestic market Domestic demand for steel is being grown by major steel combines investing in downstream heavy engineering activities, sometimes with international partners, to ensure a market for their steel output. BY G VALENTIN & C COURONNE*

he 1990s witnessed the collapse in plants in Ukraine, domestic demand in Ukraine and alongside a handful of products; we need stable other CIS countries due to the rapid smaller mills, or like quality at every stage. decrease in military orders from the System Capital The second point is that Ukrainian State and its Russian Management, owner of by having our own steel Tneighbour and the slump in heavy machinery the Khartsyzsk Tube production, we can work sales, both at home and abroad. The financial Works, one of the most on the development of difficulties faced by the iron and steel sector profitable pipe making new products. And when and the Russian financial collapse of 1998 did operations in the we address our the rest to send production spiralling country, has created a customers, we can bring downwards. Russian orders plummeted and vacuum. It is only those in a very long chain of the industry found itself in deep trouble. with strong marketing innovations. We do not Meanwhile, the tube and pipe makers were ability to reach and have to explain to the also feeling the blow and suffered a complete redevelop their sales and customers our collapse in orders, which accelerated the redeploy their strategy commercial interest in restructuring and concentration of this sub- fast enough to ensure the the development of a sector of the steel industry. viability of their works. new product. We have to Consider these facts the revival is all the Smaller players have do it. We have to take more impressive. The companies behind had to struggle twice as these risks. Without this these achievements have also gained their much to gain their we will lose our market status in the first league of world producing position in the limelight. tomorrow.” and exporting steel mills, and the finished The company UVIS, products manufacturers have had a manufacturer of HOME MARKETS staggering revival, proving the resilience of corrosion resistant pipes Other areas where an industry that many were forecasting to and running the Nikopol Ukraine has pressed disappear when their export markets Stainless Tube mill, is ahead with expansion collapsed. The pipe industry has one of them. Yuriy are mechanical accelerated a restructuring process that Atanasov, Commercial engineering, machine made it one of the world’s largest export Director, explains that to Khartsyzsk tube works owned by System building and heavy producers and the major industrial and successfully manage the Capital Management is highly profitable manufacturing. After a financial conglomerates of the country have market challenges of the year ahead, dramatic slump in orders in the early 1990s, been prompt in asserting control over a innovation is required. The company may, the machinery sector of Ukraine seems to branch of the industry that, at times of high for instance, be considering producing its be bouncing back, albeit not at the levels oil prices, is benefiting from infrastructure own stainless steel. “Plans are very active, experienced when Soviet Union orders investments and from the renewed and we need a lot for active development. were abundant. Major machine and optimism in oil and gas producing And we need it not in 10 years, but now. production equipment makers like countries. The chief export market for local Approximately two years ago, when we first Novomokovsk Machine-building plant pipe makers is obviously Russia, and approached international markets, we (NKMZ) and Azovmash, in Mariupol, are despite the occasional Russian attempts to understood that we needed our own steel pushing the domestic consumption of iron curb market access, the mood is set on production. Not only from the point of view and steel up, helping compensate for the optimism. Pipe makers had to readjust their of optimising costs and controlling the difficulties encountered by iron and steel market strategy swiftly as, aside from process, but to guarantee the quality of our exporters faced with trade sanctions, quota Russia’s erratic purchases, Europe, another restrictions, anti-dumping actions and obvious and traditional market, was striking other protectionist measures. Steel makers the pipe sector with trade barriers. in Ukraine are increasingly turning to the Illya Shapiro, General Director of domestic market, hoping to find secure Dnepropetrovsk Tune Works, a medium exits for their products. It is then only size mill belonging to System Capital logical that finished products Management, when asked about where the manufacturers have also become part of the major market challenge occurred for his consolidation movement and are being company, replies: “The European market. absorbed by the newly emerged It’s very serious and important. The conglomerates. The Industrial Union of enterprise used to have its market before Donbass (IUD), for instance, controls a the new policy of transitional quotas and number of mechanical engineering duties. People used to know what to enterprises (Slavtyazhmash, produce and how to produce for this Starokramatorsky Engineering Plant, market, and there was appropriate control, Druzhkovka Engineering Plant, as we knew the particularities of each Donetskgormash) that have become prime country and the exact type of product they users of steel rolled in the IUD mills. needed. Tubes for Portugal or Sweden are completely different, and if you look at the MACHINE BUILDERS range of products we produce, you’ll see a The System Capital Management group great variety. As the production gets controls Azovmash, in Mariupol, one of the accustomed to a particular market, when country’s two largest mechanical you lose this market, you have very little engineering firms, jockeying for title of time to get re-oriented”. Industrial leader with NKMZ. The factory’s number consolidation that created giants like The machinery building sector in Ukraine is a one output and a global sales success that has Interpipe, controlling two of the largest pipe growing market for domestic steel sustained the company’s results is 00 The authors are with Global Business Reports, London Tel +44 207 079 0042 Fax +44 207 637 0419 e-mail [email protected]

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UKRAINE Nikopol Stainless Tube Mill Nikopol Stainless Tube Mill (NSTM) made its first delivery to Western Europe four years ago and has successfully become a recognised supplier of seamless stainless pipes. A $20M investment in reequipping production facilities is currently underway. In an interview with Steel Times International, Yuriy Atanasov, Director for economic and commercial activity of parent company UVIS Ltd and member of the Interpipe Group, tells about the sales strategy and production plans of the Yuriy Atanasov, Director for Economic & Nikopol Stainless Tube Mill. Commercial activity UVIS Ltd STI – Mister Atanasov, how after four years machines and technological lines. common composition steels. How could you has the Nikopol Stainless Tube Mill Today, the plant is engaged in setting up comment on this situation? positioned itself in the world market and what the product flow in the pipe-drawing shop We have no problems rolling standard steel are the basic priorities in relations with for production of high-quality 24-meter long grades. I agree that the market for alloys is western customers? pipes. A Mahler bright-annealing furnace is a very expensive and a specific one. I believe we are not beginners in the world already operating. Within the next two years Sometimes, certain steel grades are the market already. We are known both in we plan to buy all the equipment for this prerogative of only one manufacturer. But Europe and in America. Although our line including a cold-rolling mill, a unit for nothing is impossible for us in respect to present output is not as large as such giants high-quality cleaning of pipes, straightening alloys: requirements for chemical as Sandvik and Tubacex, we are among the and grinding mills and non-destructive composition in our GOST Standards differ world’s five largest manufacturers of testing facilities. We have started work on little from the equivalent Western stainless tube. We position ourselves as one the production line for finish processing of standards. Basically, we have already of the largest specialised enterprises in pipes that will be used by the nuclear mastered the main foreign alloys and today Europe that manufacture seamless stainless industry: the pipe straightening mill from we are going to include them into our tube. Today we produce the range of pipes Bronx (UK) has already started operating specialisation. that is most popular and is in greatest and our near plans are to acquire Loeser grinding machines from Germany. Speaking about the CIS market, here our demand by European consumers. We position is strong in nickel-base alloys. In produce austenitic steels, ferritic steels In 2004-2007, we are planning to replace the days of the Soviet Union, they were part (410, 405, & 417), and are entering into six old cold-rolling mills by modern close- of the specialisation of our Hot-Extrusion duplex steels, which are not offered by all type units and to update the rolling mills shop. However, taking into account the manufacturers of stainless pipes. and the draw benches. We are also present situation with the high price of In our business, quality is and will be the considering the possibility of purchasing nickel, today our experts are engaged in priority. It is the only thing that allows you pipe-bending and heat-treatment developing new pipe materials made from to win and maintain the interest of the equipment for the manufacture of U-bent more economic alloys and nickel-free steels. established buyer. pipes. The estimated cost of the technical development project for NSTM in 2004- At present, we are mastering the duplex STI – NSTM was established on the 2008 exceeds $20M. steel grades, which are in extraordinary production shops of the former Nikopol demand in Europe. And of course, for Juzhnotrubny Plant, and you have inherited, STI – What foreign standards do you use western customers, we are seriously we should say, not the most up-to-date today in your business? projecting manufacture of pipes made of equipment. What have you done about Everything depends on the requirements of high-nickel and carbamide grades of steel. updating the production facilities? our customers. We master the standards We have repaired and essentially that are most demanded in the market. At STI – What serious industrial problems are modernised various equipment. Speaking the same time, we are trying to expand you still facing? about the concept of technical development specialisation to the maximum. Today we As before, we are still facing the problem of of production lines as a whole we are relying deliver pipes produced according to such manufacturing those sizes, which were not on the recommendations and conclusions of foreign standards as ASTM and UNI 6904, previously produced by NSTM. We domestic and western advisers and have as well as the domestic GOST standards. manufacture tubes from 4mm minimum made a decision to focus on outstripping diameter to 168mm maximum diameter. scientific and technical development instead STI – Concerning steel grades, what strategy Today, we have the desire to expand the of simply catching up with modernisation. are you adhering to? Today, 70-80% of world assortment of hot-rolled commodity pipes That is, our position is not just local steel manufacturers are producing the to meet the requirements of the western improvement of out-of-date equipment, but standard 304L and 316L steel grades, and the systematic purchase of new modern only a few producers are making other less NIKOPOL STAINLESS TUBE MILL Nikopol Stainless Tube Mill (NSTM) is 1000 standard sizes of pipes of more than one of seven pipe producing enterprises 60 domestic and foreign grades of steel. which were established from the largest Products are manufactured to meet former USSR stainless producer, Nikopol ASTM, DIN, NF, UNI, GOST and TU Juzhnotrubny Plant when it was re- standards. structured by the Government. In 2000, The quality control system of NSTM has the Dnepropetrovsk metal company UVIS been certificated by the German suggested privatisation of the stainless Certification Centre TUV Nord and meets pipes facility. The project was recognised the international standard ISO 9001-2000. as the best solution, and the same year The plant has international certificates for UVIS became the main shareholder of the products in compliance with the Pressure Closed Joint-Stock Company Nikopol Equipment Directive PED 97/23 EN for Stainless Tube Mill. This new enterprise high-pressure boilers and the European comprises the Hot-extrusion Shop No4 Regulations AD.2000-WO. Today, work on and Cold-drawing Shop No2 of the former the mill’s system for environmental safety Nikopol Juzhnotrubny Plant. to meet the requirements of the ISO 14000 Today, the plant manufactures about standard is in its final stage. Seamless tube ready for dispatch 1 Steel Times International October 2004 FOUR/FIVE/NICO/LEMAN 9/17/04 3:47 AM Page 4

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market. Alas, for the time being we are pipes manufactured by two unable to start production of long hot- Ukrainian enterprises – finished pipes, which are in great demand. Nikopol Stainless Tube To solve this problem we are planning to Mill and Nikopol Tube install an extrusion press of 2000t force Company. The priority capacity in the Hot-Extrusion Shop in the markets for UAS are near future to manufacture H/F pipes Western Europe and North ranging from 36 to 75mm outer diameter. America. As for our company, we are also STI – Until recently, the Swiss company engaged in independent Sepco SA was your international distributor. sales of pipes to the CIS This year, it seems that you have changed the countries where we have an distributor? extensive dealer network, Not exactly. A group of Sepco SA’s experts as well as to Eastern has set up a separate division – the company Europe and other areas. World markets for stainless tube in 2003 and share of NSTM UAS (Ukrainian Allied Stainless), which, This year we are planning supply (kt) started operations on May 1 of this year. to sell about 3kt of pipes This is now our official international through the UAS, and by 2008 to increase with the help of UAS we hope to strengthen distributor. Unlike Sepco, UAS will focus its these sales to the Western market to 10kt our position in the market and to find new business exclusively on sales of stainless per year. For today, these are only plans, but customers. STI CONTACT Yuriy Dinets, Manufacturing & Commercial Group UVIS, Tel: +38 0562 389-157 Fax: +38 0562 334-711 email: [email protected] www.uvis.ua

00 Ukrainian steel: – vulnerable overseas, weak at home... given the highly volatile and, at times, politically-charged nature of the world steel domestic steel consumers) – are lagging far Russia’s gas monopoly Gazprom, the major market, the weak standing of the Ukraine behind the steel industry in recovery. In consumer of Ukraine’s steel pipes abroad. steel industry at home will remain the 2002, market sales of the Ukrainian heavy As the drastic collapse of the domestic industry’s greatest challenges for years to engineering firms were only 46% of the market for the Ukrainian ferrous come. STI 1990 level, whereas construction orders metals has not been reversed and were down to 22%. The post-communist story of the tube-rolling branch of Ukraine’s ferrous metals sector indicates one potential grim scenario for the industry as a whole. After the collapse of the Soviet market, the output of steel pipes declined from 6.5Mt in 1990 to 1.2Mt in 1999, or by 82%. Given the absence of viable domestic consumers, by 2003, the Ukrainian tube-rolling mills managed to recover to the annual output level of 2.1Mt, or to just one-third of their production level a decade ago. Opportunities for any further market expansion of Ukraine: reported annual profit rates (sales-costs), Base metals in Ukraine’s foreign trade, exports of ferrous the Ukrainian tube-rolling steel industry and total industrial sector, 1992-2002 and non-ferrous metals, 1994-2002, US$ milion branch are severely limited to Source: Vlad Mykhnenko Source: Vlad Mykhnenko the capricious behaviour of

00 Ukrainian steel fostering a domestic market... success of its industrial base machinery, metallurgical, press and forging equipment, railway tank cars, but Azovmash is also combine our efforts with such world-known the company has also had a number of engaged in the production of armoured companies. These companies give us the successful alliances with world-class vehicles, once the major product churned out design project and we provide them with metallurgical equipment makers. Despite of its assembly line. Today, this activity is the finished products. If we propose a better the strong handicap of lack of financing markedly reduced but thanks to its in-house design, they agree to work to our capabilities, these organisations have a product development and innovative designs, specification, if their design is preferred we sound base of know how, inventive the company has struck a few international do the manufacturing of the units. And the production abilities and are open for deals that keep this activity alive. cost of manufacturing equipment in cooperation. This offers great Finally, and representing a growing third Ukraine is cheaper in comparison with most opportunities for partnership and should of its turnover, the company is producing parts of the world. That’s why our products provide some room for manoeuvre to the steelmaking plant, notably in cooperation have the highest technical standards and are iron and steel industry. with engineering firm Danieli of Italy for cheaper: all this makes them competitive From tube and pipe makers through to the refurbishment of some of the Ukrainian and we expect to see more cooperation of heavy engineering, the dedication, iron and steel mills. Furnace rollers, this nature in the years ahead” explains bullishness and will of Ukraine’s domestic continuous slab casters and other heavy Anatoliy D. Chepurnoy, Azovmash Vice- sector are striking. Despite production steel making equipment can be President. levels still lagging way behind the pre- manufactured by Azovmash, who sees a This example of cooperation is in itself transition ones, the industry has reacted bright future in the type of cooperation it bearing much optimism for local operators. with courage and should be reckoned with established with Danieli, Kunkel-Wagner NKMZ, the other giant heavy engineering on the global stage. Here again challenges and other world-class design and company in the Ukraine producing a wide abound but Ukraine is a country that has engineering companies: “We decided that range of rolling mill machinery, reinvented faced many of them before. Today, the ones the key strategy for our success would be to itself. To ensure the sustainability and the at hand seem addressable. STI

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world’s largest reserves of ore and coking coal, it is not easy to walk away with its largest Privatisation in Ukraine: and most strategic national steel works. OBSCURE CONDITIONS Some people describe the conditions stated in the tender as ‘patriotic’. Others describe – Could they have done better? them as ‘discriminatory’. Nevertheless, the tender attracted a great number of Ukraine’s largest steel plant, the 7Mt/y capacity Kryvorizhstal was prospective buyers from overseas who should have noticed that one criterion of privatised this June with ownership passing to a consortium of two the bid was to produce a minimum of one major Ukrainian companies, Interpipe Group and System Capital million tonnes of coke in the Ukraine; almost a de facto ruling out of any foreign Management, despite much higher offers from international bidders. participation. Interpipe and System Capital Management however control considerable Whether the price of this desire to keep Kryvorizhstal in national hands reserves of coke in the Donetsk region, makes commercial sense remains to be proven. ample to fulfil the tender’s conditions. Any foreigners hoping to get a look in on the BY G VALENTIN & C COURONNE* deal might have been wiser to team up with a Ukrainian partner is the way same way that Mr Akhmetov and Mr Pinchuk did Privatisation involves securing raw materials as well as steel plants when forming their Investment Metallurgical Alliance, specially designed for the tender. Despite this and similar clauses promising an uncertain bidding process, world giants still dispatched their best teams to the Krivoy Rog region, in an attempt to win the coveted production plant. The Indian company Tata Steel, the Russian company Severstal, the world’s biggest metallurgical concern Arcelor, as well as the LNM Group and US Steel consortium offered some of the most impressive efforts to win this bid. Joining forces, LNM with US Steel submitted the strongest bid comprising $1.501bn for the 93% equity plus an additional $1.2bn for the implementation of a capital expenditure programme. The consortium also made a point of complying with international environment rules as well as to the national requirements for the development of the plant. The LNM-US une 2004 might have been a turning well as local interests who had been Steel Consortium declared “its point in Ukrainian history and in the jockeying for control of the works since the commitment to maintaining and improving economic development of the nation. start of the privatisation process in the 1990s. social harmony at the plant” and proposed For a transitional economy such as Much to the annoyance of the participants a development plan to reach a steel Ukraine, privatisation is not only a from afar, it was the local bidders who won. A production superior to 11Mt, to provide Jzzznecessary step towards economic consortium of two Ukrainian national giants, access to global markets as well as zzzdevelopment, it is the only way to attract the Interpipe Group and System Capital increasing supplies to the domestic market, foreign investors. Management (SKM), called Investment to “ensure EU compliance on In 2003, Ukraine received only US$6.7bn Metallurgical Alliance won with a final price environmental issues”, and finally to of foreign investment, that is less than 10% of $800M (4.26bn HRV) and were rewarded commit to purchasing Ukrainian raw of the $68bn received by neighbouring with a 93.02% stake in the steel works. The materials including iron ore and coke. country Poland over the same year. The groups are controlled by Mr Rinat Akhmetov, Yet on June 14, Mikhail Chechetov, highly lucrative privatisation process of the the Ukraine’s wealthiest man for System Chairman of the State Property Fund, Kriyviy Rih Mining and Smelting Plant – Capital Management, and by Mr Viktor announced that the Ukrainian bid had better known as Kryvorizhstal – was one of Pinchuk, son-in-law of President Leonid been successful. the major steps of the Ukrainian Kuchma for Interpipe – clearly a powerful Scandalous as it may seem, national Government’s privatisation programme concoction. For Ukrainian patriots, the result interests will always trump international announced for 2004 and an opportunity to can only be seen as a success; Ukrainian norms of fairness and, with stiff see the country’s share of FDI increase. As business remains Ukrainian. Unsurprisingly, competition for resources access in the stated by Mr. Anatoliy Kinakh, the then the losers and the international press claimed capacity constrained steel industry world Prime Minister of Ukraine, “The that there had been foul play and the playing wide, there is extra incentive to maintain Government of Ukraine considers field not level (a caveat had been added that the asset in national hands. privatisation as part and parcel of the any bidder must have produced and sold at Kryvorizhstal will now belong to the establishment of a market-economy and as least one million tonnes of coke in the consortium of Kiev-based Interpipe Group an integral component of the structural Ukraine in recent years). Even patriotic and Donetsk-based System Capital reforms of the national economy”. Ukrainians raised an eyebrow when they Management. Interpipe is already the Kryvorizhstal is one of the world’s largest considered that the bid starting price was major share holder in the pipe business, steel plants, and produces nearly 7Mt of $1200M – 50% above the winning price; and including companies Nizhnedneprovsk steel per year (2002 = 6.9Mt). Its that the steel giant LNM had offered a bid Tube-Rolling Plant; Novomoskovsk Pipe privatisation thus promised to attract iron amounting to $2700M. Producing Plant and Nikopol Seamless and steel giants from around the world, as However, from the outset, it had always Pipes Works Niko Tube making Interpipe looked as though it was going to be very the fourth largest pipe producer in the The authors are with Global Business Reports, London difficult for the foreign firms to compete. In world, and the second largest supplier of Tel +44 207 079 0042 Fax +44 207 637 0419 a country whose industry is dependent on manganese ferroalloys. email [email protected] steel and one that contains some of the For its part, System Capital Management 00

1 Steel Times International October 2004

PART TWO/SIX 9/17/04 3:46 AM Page 2

UKRAINE An interview with Sergey A Taruta, Chairman of the Board of the Industrial Union of Donbass The Industrial Union of Donbass (ISD) is one of three major groups that have emerged within Ukraine’s steel industry. As well as acquiring two integrated plants on their privatisation, Alchevsk and Dnieprodzerzhynsky, it also owns down-stream operations in Ukraine including engineering plants. It is vertically integrated assuring raw materials supply by ownership of coal and ore mines. It has an international outlook, having a partnership agreement with Swiss-based international trader, Duferco and is in the process of buying Hungary’s largest steelworks, Dunaferr (which now includes DAM). It also unsuccessfully bid for Poland’s largest steel group, PHS and later its attempt to buy Huta Czestochowa was thwarted by a decision of the Polish government, which is presently being challenged in the Courts. Here, Global Business reports speak with Mr Taruta.

Q: A lot has happened to the Ukrainian iron recognize that there are big Ukrainian But I wouldn’t like to announce the exact and steel industry in the last few years and a mechanic engineering enterprises, such as figures, taking into account that we work in lot has happened to the Industrial Union of NKMZ and AzovMash, but unfortunately an aggressive environment. This money will Donbass and to its name for good and maybe they have no possibility of meeting the go into upgrading existing equipment and some bad reasons. Could you tell us what has long-term investment programmes we need the introduction of new capacity in blast happened to this organization in the last at this stage. furnaces and steel-melting equipment. We couple of years? have a government obligation to invest in our activities following the privatisation Sergey A Taruta: A lot of changes have Q: Your group is active across a wide range of activities, from energy and gas, through to process: The investment required is in the occurred in the last few years. First of all range of $350-400M. And we are the recognition of Ukraine as a real player mining and the metallurgical sector, but also in the agro food business. What is the relative implementing the investment programme in the world market of metal. Coming back faster than originally planned. to Soviet Union times the USSR wasn’t a share of metallurgy in the overall picture? substantial player on the foreign market, SA Taruta: I’d like to put it in other words. but nowadays, both Ukraine and Russia, The share of metallurgical and support Q: Another big story for the Iron and Steel along with Brazil, China and Australia, industries in our turnover is 83-85%. community is the Dunaferr operation in present the main resources for raw Including the machine building industry Hungary. What sort of plans do you have for materials and semi-finished products. And and coal mining – everything that is needed this plant? How do you plan to build synergies the recent privatisation of Kryvorizhstal for metallurgy. Our company has several between your Hungarian operations and your clearly shows that the privatisation activity directions, and we are reinvesting the Ukrainian assets? of enterprises of the metallurgical complex income from these into our development, SA Taruta: Now we are at the final stage of is increasing, and is attracting the attention but the metallurgical drive is the main one. privatisation (of Dunaferr). All the of foreign partners. Currently, there is a restructuring questions are settled; technical and programme in the Alchevsk Iron and Steel financial ones. We have a detailed business Q: But for the privatisation of Kryvorizhstal Works, and there’s going to be the same plan. It appeared to be better than those of there was greater interest than ever, featuring programme at the Dnieprodzerzhynsky our competitors. Investment, social and the biggest names of the industry, from LNM Iron and Steel Combine. ecological programmes are depicted there. through to Arcelor, US Steel and Severstal. A joint group from VAI and our The amount of investment is about $300M. SA Taruta: Well, you know, if somebody specialists has already started the We foresee a great potential in this had suggested $200M for Kryvorizhstal development of the preparatory enterprise. First of all we will increase the three years ago, he would have been given a programme depicting the strategy and output of steel within the limits of present medal for courage. Not many believed in stages. And this year we have already capacity. This enterprise was interesting for the effective work of Ukrainian enterprises started several projects. us mainly due to its untapped potential and or maybe there were some other restrictive possibility to increase capacity by selectively factors, such as the political factor. The investing. Besides we’ll have surplus value situation nowadays has changed Q What is the investment envelop for this year? on processing of our semi-finished completely. We are becoming members of SA Taruta: It’s a rather big sum of money. products. We have a common border that the world market. And the world market has changed its attitude towards us, and towards the steel industry in particular. If Investments will include improved environmental protection we talk about the Industrial Union of Donbass, we have completed many planned tasks in the past two years. We have chosen the path of a public company. We are integrating ourselves with European partners. We participate in the privatisation of European enterprises. And this direction given to our activity gives us particular results, where we have the possibility to invest in the development of our enterprises. We are actively working with the company Duferco which is enlarging its trade net. We have a positive experience from cooperation with VoestAlpine Industrieanlagenbau, (VAI) who is helping us reconstruct our enterprises. We

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UKRAINE

allows us to supply energy resources, ie gas, partners. There were rules; and all the this enterprise to work, then they should electricity, coal and raw material. Besides members of the Tender Committee give us the possibility to privatise it. But if we plan to export some finished products proceeded using these rules, and they had a they don’t want (success), then they should from Dunaferr to Ukraine. I mean products genuine view while fixing the points of announce it openly. that are not produced here in the Ukraine. contention. In contrast, in Poland the Alongside with this company, we have also Polish government formulated the tender Q: In the Central and Eastern European steel bought service centers. They were of great rules. The rules were constantly changing. industry, there has been a lot of interest from interest to us as the creation of service That gave the ground to manipulate the key competitors, from LNM through to Corus centers in Ukraine and outside the country results. There were a number of financial, and US Steel. Here in Ukraine we have seen coincides with our conception of economic, and technical propositions. But Arcelor, Severstal and other major players marketing. when they compared them it was clear, that lining up for Kryvorizhstal… don’t you feel our proposition was the best. Hence further that you may be punching above your weight Q: It’s also a fantastic foot in the door to the changes were made (by the Polish in your own backyard? Or is it on the contrary European market. government). All this was done with the a sign that IUD is entering the First League of SA Taruta: When we started the sole purpose of giving LNM the works and global steel groups? privatisation of this enterprise three years there wasn’t a need for a tender at all. SA Taruta: I have already mentioned that ago, we didn’t expect that Europe would When the Privatisation Committee first nowadays Ukraine is quite an active player. come so fast. This enterprise has immense announced Donbass as the winner, the And the fact that we participate in the possibilities and perspectives. It’s the only Polish government reversed the decision, privatisation of assets outside Ukraine significant metallurgical enterprise in which concerned not only Poland but speaks for the fact that production volumes Hungary and 60% of its output is destined Ukraine as well. During the 10 years of in Ukraine are insufficient. We look for for its domestic market – it’s a very stable Ukrainian independence there had been energy, energy that will provide us stability position. The remaining 40% is sold on special relations between the two countries. in the future and will help us to compete foreign markets, to countries like Italy, Poland played the role of an elder civilized with new players. And the main player now Austria and Germany. We still have some brother, who told us how to live, where to is China. A few years ago we were all problems but I’m sure we’ll overcome them get an education, whom to love, whom to be looking at the US market, now we are very in a short time; and the plant will become friends with. And when all this story attentive to China. It’s very difficult to profitable. In recent years, the Hungarian happened everybody, even those ones who survive on the metallurgical demand of state had problems with the effectiveness of didn’t really like IUD, took it as a personal Eastern Europe. Especially for those who this enterprise. The programmes that are offense. And there was a common negative are far from the ports because transport taking place now in Alchevsk (Ukraine) attitude from the part of our President, costs and raw material costs are aim to produce products that will be government and public. And the demand to determinant factors. The level of delivered to Dunaferr as well. We have an explain ‘why?’ was natural. All this was just technology is no longer the deciding factor, obligation to maintain the number of a farce. The Polish arguement that they as it used to be. Having high standards in people working at the plant and objectively wanted to have only a producer of steel was the ecological sphere, having a high salary, they are more than we really need. That’s contrary to the idea of running this tender. plus expensive transport costs already make why we can cope with this obligation only They also mentioned that they didn’t plan it critical for the enterprise’s activity. If we by increasing production capacity and to increase the output of steel, ie openly take Arcelor, it produces more than 40Mt/y decreasing costs. As for production of saying that this enterprise was sick and they of steel, but its income is the same as that of crude steel we evolve within limits, meaning preferred it to die. This enterprise is now KryvorizhStal. This shows that Ukrainian that we can’t increase production as it will broke: It’s unprofitable because it doesn’t players have leading positions now. We involve a greater investment, notably work. And the government says that it is not have a favorable geographical position, a concerning the ecological aspect. But as for going to increase output – they took the well-developed logistic net and natural rolled metal we can produce in addition to position to let the enterprise die. There resources. Those are our advantages. And the present programme up to 800kt. And in were four official arguments. The first one I’m sure that step-by-step we’ll reach the this case the enterprise will be balanced. is that they wanted to see the players from ecological level demanded and we’ll secure We hope to put out 2.3 – 2.4Mt/y of rolled the ‘First League’. And the last argument better ways of living. This task demands metal (from Dunaferr). was that the origin of our capital was not more expense, and we’ll talk about another clear to them. But they had eight months to index – a ‘surplus value’. All our investment Q: Another story that was in the headlines is clear up all the questions during this projects in Ukraine are aimed at decreasing about Huta Czestochowa of Poland which procedure. So, as you see, not a single costs, and improving quality. All our you attempted to acquire. It has been a very argument was grounded and solid enough enterprises provide the possibility of controversial operation, and in the bid, to justify their decision. Today we have won creating a surplus in value. Nowadays we politics played a dominant factor. Could you in the Court of Justice and we have blocked see the process of globalization and tell us your views on what happened there? this process. And the new government consolidation of the metallurgical business. SA Taruta: There has been so much understands that the Committee’s revised We are not substantial players on this information published in the last six months conclusions were not right. I am sure that market yet. What we see now is a process of about the privatisation of this enterprise! they will make the right choice. If they want aggressive absorption by LNM of all the Even when I called a vice-premier of Turkmenistan, and that country has little to The Alchevsk steel plant is to undergoing a Euro 140M investment which will eventually do with metallurgy, he asked me what was replace its six open-hearth furnaces going on with Huta Czestochowa… so, it was a really burning topic of the day. According to statistics, this question even took first place as the most frequent and argued topic in the mass media. Actually Poland has created this situation itself. First of all they had to decide whether they wanted to sell this enterprise or not. I had a feeling during all this process that they were trying to create a deadlock. They didn’t want to sell it to anyone except LNM (who had already purchased the largest Polish steel group, PHS). And they didn’t expect any other company to participate in the privatisation. This so-called tender took place at the same time as the Hungarian one. The Hungarian state used Price Water House Coopers who clearly formulated and defined all the terms of the tender. They typified all the propositions of all the

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UKRAINE The Donbass group portfolio includes longs, flats and pipe

Eastern European steel producers. Q: Coming back to the situation in Ukraine. As you said Ukraine is a key player – it is the 7th largest steel producer in the world. And there are such major power steel houses as SKM and obviously the IUD. Are there any prospects of concentration here and of COST OF STEELMAKING witnessing the birth of one single major player? There has been a lot of concentration Coking Coal Iron Ore Scrap Labour Electricity Index Ukr. Cost already, and a lot of transfer of working ($/t) ($/t) ($/t) ($/h) (Mils/kWh) Total Advant. (%) assets. The next stage could be a Ukraine 30 30 75 1.5 25 161.5 - concentration between the actors of the France 57 37 90 31 50 265.0 39 concentration themselves… Russia 31 32 75 2.0 25 165.0 2 SA Taruta: I’m not sure that it may happen. At least not in the near future. Each group China 38 37 120 1.6 45 241.6 33 is independent by itself. Each one is USA 63 36 105 38 47 289.0 44 ambitious. The success of each company Brazil 65 23 110 11 40 249.0 35 depends on the right choice of strategy. But Japan 53 35 85 33 65 271.0 40 let’s wait and see what will happen in the future, maybe there’ll be a fusion of Australia 39 30 110 23 25 227.0 29 companies, on equal terms, or even there India 61 22 120 2.6 80 285.6 43 may be absorption of the weaker company Source: WSD, Hatch Research (Index calculated STI) by the stronger. Anything may happen, but we are independent from each other at this Table 1 Cost advantages of steel production in Ukraine stage. Besides we have partners in Europe, attention to the ecological factor and will at all the forecasts, seminars and programmes and we can’t take decisions without make them raise salaries. Then there discussing it with them. We don’t plan to of the last three years, they haven’t come true. shouldn’t be disproportion among the But the true fact is that the lower your costs buy new enterprises in Ukraine; we plan to branches. The energy costs are going up increase the output of the existing plants. the more chance you have to survive. And too, but that’s not going to be a crucial Ukraine is very competitive in this aspect. If Q: What would be an ideal scenario for the factor. We have reserves from we talk about IUD, we have increased slab steel industry here in Ukraine? Where do you implementing energy saving technologies. output to 5.5Mt/y for the last three years. expect to see this industry in the next 10 years? Ukrainian metallurgy will be profitable, Some of the slab will be sold here (1.5Mt), and it will be problematic for our SA Taruta: As I see it, there will be a and we will process the remaining 4Mt for competitors, mainly for Western Europe export in order to guarantee stability. We further process of globalization, and small and the USA, as our costs are lower. Any plants have no chance of survival, as there’s have joint-venture projects in the USA of increase of output in Ukraine may lead to 1.2Mt capacity. Some steel would have gone a process of globalization not only in decrease of output in Europe. capacity but in raw materials as well. All the to Huta Czestochowa in Poland. EU plants will pass a stage of technical Q: As the president of one of the organization regulations put strict limits on the amount of reconstruction: that’s of great importance that has taken the Ukrainian industry outside of public support a state can provide for its now. Ukraine is going to integrate the Ukraine where do you see IUD within the same companies. and Huta Czestochowa was not world market. Production of steel will be frame and where would you like to take it? included in the steel-sector restructuring competitive. The main competitors that we SA Taruta: I see a future expansion on the agreement signed between Poland and the see now are Brazil and China. Russia is our foreign market, both from the trade and EU. competitor only on the Russian market. production points of view. Unfortunately We still have some spare capacity, and Then I can foresee pressure from the state. Ukraine doesn’t consume as much as it’s now we are again thinking about what And here the situation will depend on growing output. As far as we have a strategy assets to acquire, where to process this events that will happen in our country. We of stepping up the output we’ll have to work surplus material. That’s why further don’t have state enterprises anymore. And in foreign markets. As for China forecasts, integration within the foreign market the government will make owners pay they are not favourable for us. But if we look continues. STI

world. Furthermore, a winner from abroad 00 Privatisation in Ukraine – Could they have done better?... would have been perceived as an controls companies such as the vast steel beating company in the country’s single encouraging sign to other potential foreign producer Azovstal, Leman Commodities, most strategic sector. investors eager to do business in Ukraine, Yenakievsky, Silur, Azovmash and Investment Metallurgical Alliance’s who might now be put off. But now it is left Khartzysk Tube Works. In a nutshell, the successful acquisition will ensure the two to the new owners to prove what they can consortium controls the lion’s share of the giants control most of the supply and do with the plant and given the rapid rise of steel industry in Ukraine from iron and production chain for steel and have a the two groups over the past decade, we steel producing (Azovstal), machine and plentiful supply of raw materials, especially should expect to be hearing a lot more heavy equipment manufacturing iron ore and coke. Iron ore and coke raw about them in the future. STI (Azovmash), Tube and Pipes materials are currently at peak demand Silur, owned by System Capital Management, manufacturing (Interpipe Group and levels. With the ever-increasing demand adds value by making finished product Khartzysk), ferroalloys production and from emerging China, companies and steel trading via the Leman Commodities countries, which control these support. Both groups have demonstrated resources, are well placed to assure their skill in turning around huge but themselves strategic leading positions outdated assets that they have inherited in the future. from the cash strapped state and each has The outcome should not come as a accumulated the vast amounts of capital surprise given the history of Ukraine’s that they needed to win the tender and that privatisation process. The foreign they will need to modernise their new plant. investors kept at bay denounce the Furthermore, the groups have become failure of the Ukrainian government something equivalent to national to seize an opportunity to increase champions and represent the very rare investment, technology and market example of Ukrainian companies with the access which will be greatly needed for strength to become international players. the consortium now in control of one This latest addition to their empires will of the most integrated steel- ensure that Ukraine will boast a world production infrastructures in the

1 Steel Times International October 2004