OREANDA-NEWS. November 30. Russian Union of Metal and Steel Suppliers: in 3-4 years Russian metallurgical companies can go bankrupt and the world is threatened by a global crisis of metal overproduction. This was predicted by Alexander Romanov, President of RUMSS, and directors of the largest Russian enterprises at the briefing "Russian metal: is the overproduction crisis coming?" on November 16.

Directors of the Russian metallurgical plants are alarmed:  If nothing changes in the world, in the nearest future we’ll face an overproduction crisis that will have a heavy impact upon Russia. The most pessimistic forecasts predict a complete standstill of metal producing plants. The reason for that, according to Alexander Romanov, President of RUMSS, is China, Russia’s neighbour, a metal importer that has rapidly become an exporter.

Romanov quoted the figures that best illustrate the events coming in the near future:  the world consumes 1.2 bln t of metal products per year. 37% of this amount is traded on the global market (about 450 mln t). This year China has produced 540 mln t and is to export 11% of it. USA and other countries started to press China to slow down the supplies growth rate that is too big. The reply was: “We’re doing everything to decrease the export flow.  Besides, your share in the international trade is 37% and our share is slightly more than 10%. We actually work for the domestic market!”

The President of RUMSS believes that such argumentation - China’s alleged lagging behind other countries – is used by the Chinese to prepare the world for an increase of metal supplies to the external market. In short, with such tempo of production increase in two years China will dump about 250 mln t into the international trade that means that it will take 50% of the world market. That also means that the Russian enterprises will virtually have nothing to do there and will have to turn to the domestic market. However, such metal volume is excessive for Russia and the market capacity is not enough to accept it.  It will be followed by negative margins, collapse, buy-up and closure of Russian metallurgical companies. Such situation is to be expected in 3-4 years if no measures are taken now.

- The interference of the government as a protector of our interests on the international and domestic markets is necessary, in Alexander Romanov’s view. - Everyone who speaks about free international trade is insincere. Actually other countries introduce restrictions to import of metal products. They pursue their policy and put spokes in the wheels of our industry.

Pavel Ashrafyan, head of the External Economic Activity department of the managing company ESTAR, agrees with that:

- We’re witnessing the feebleness of the state authorities that are here to protect the national manufacturers. Only one significant measure was implemented in the recent years: introduction of an export tax on stainless sheet from Europe. And what it is the result? Stainless sheet is now imported from China and, by the way, keeps coming from Europe. Foreign standards are much softer than the Russian state standards.

As an example Ashrafyan quoted a case from his practice in ESTAR: when the managing company had an urgent need of stainless sheet, the 304 steel grade was purchased from Chinese suppliers. The grade is to contain 18% of nickel but actually it had only 5-7%. The reply was: it was you who wanted a low price… It was just like the old tale: can you make 2 hats from this piece of fur? Yes. And seven hats? Yes. And this is what you’ve asked for…

At the same time, as it was said at the briefing, the state not only insufficiently protects the national metal manufacturers in the international trade market but also allows favourable terms for foreign companies on the Russian market. One of the industries with the largest metal consumption is the motor industry.  In the recent years car assembly plants have been springing up all over Russia. Apparently, it’s a good market for metal products. Ashrafyan explains why this is a deceptive impression:

- I’ve called all the enterprises and offered the products of our leading plant - Zlatoust Metallurgical Plant that is authorized to supply metal roll for the needs of the motor industry. They answered me quite sincerely: We won’t take your metal roll in the next 1,000 years. Why so? Because we are a car assembly plant.

So, the scheme is as following. Russian manufacturers supply their metal roll to Europe where it is processed and used at enterprises in Italy, Germany and France to produce transmission, gears, motor parts, etc. Then the assembled parts are supplied to, say, the Ford plant  in Vsevolzhsk . That means that we supply our own metal to ourselves through Europe!

Nikolay Zaytsev, director of the tubes and pipes division of CJSC United Metallurgical Company, also realizes the threat of overproduction crisis. But he’s mostly worried not about China but about metal overproduction inside the country. According to forecasts, by 2015 steel production in Russia will reach 90 mln t. Besides, the needs of the domestic market that amount to 36 mln t today will grow only to 47 mln t.

- We’re facing a serious taks of cost reduction and quality improvement. In these conditions the sales margins will decrease considerably, predicts Zaytsev.

Finally, Pavel Ashrafyan narrated an instructive story:

- I heard that in 2000 stibium cost $3 per kg and was produced by only 3 manufacturers: Russia, Brazil and China. China reduced the price abruptly to $2. When both Russian and Brazilian manufacturers "kicked the bucket”, China raised the price to $7...

President of RUMSS agrees that such scenario is also possible on the Russian metallurgical market. Alexander Romanov says:

- Domestic metal market in Russia is about 40 mln t per year. China produces 540 mln t and is capable of supplying 50 mln t to our warehouses. China can do it even to their own detriment: they will reduce the price. But that will ruin our industry unless we introduce state restrictions for metal import. And later, when all Russian metal industry comes to a standstill, China will raise the prices and skim the cream from the Russian market.