The Russian ferrous metals market is developing in accordance with the principles of the global economic system, and largely depends on global trends in the development of the metallurgy sector. Russia ranks fifth in global steel production (behind China, Japan, the United States and India), third in steel pipe production (behind China and Japan), third in metal product manufacturing (behind China and Japan) and fifth in terms of marketable ironstone production (behind Brazil, China, Australia and India).
To date, ten large holdings have formed in the sector: Evraz Holding, Severstal, Novolipetsk Steel, Magnitogorsk Iron & Steel Works, Metalloinvest, Mechel, Industrial Metallurgical Holding and the pipe-making companies TMK, OMK and ChelPipe. The enterprises are involved in all stages of the production chain, which allows them to minimise risks both on the domestic and foreign markets, optimise investment policy and ensure their own reserves of raw materials. The holding companies also actively develop their own services in the fields of metal processing and in the trade of metal products both in Russia and abroad.
In 2012, Russian exports of ferrous metal products amounted to $28.7 billion, which is $2.2 billion less than in 2011. The volume of imports in 2012 was $14.5 billion, which is $2 billion less than in 2011.
Domestic consumption of rolled ferrous metal products in 2012 amounted to 39.4 million tonnes, 100.2% compared to 2011. The domestic consumption of steel pipes in 2012 decreased by 13.9% to 8.9 million tonnes as compared to 2011.
In 2013 the production volume is expected to decrease by 1-3% as compared to 2012 due to a low demand on the domestic and foreign markets.
The volume of investments into ferrous metals enterprises in 2012 fell by 6.4%, to 176 billion roubles as compared to 2011 (188 billion roubles). At the same time, investments made in previous years allowed for lowering the level of depreciation of fixed assets to 40%.
The implementation of large-scale investment projects and measures to increase production effectiveness have made it possible to introduce new technologies, abandon inefficient facilities and increase the share of the value added products. All investment projects that have been implemented and are being implemented in accordance with the Strategy for the Development of the Russian Metallurgy Sector Untill 2020 are directed at, first of all, fulfilling the demand of domestic consumers: the fuel and energy industry, shipbuilding, aircraft building, energy, railway building, construction and others.
From 2011 through the first five months of 2013, domestic and global demand for steel was in decline, resulting in correspondingly lower prices.
As of today, metal companies work on a minimum level of profitability, which allows them not to take on loans and to pay for existing ones, including those taken with state guarantees.
According to estimates, no significant growth in the metal production volume is expected. The annual increase will not exceed 1-1.5%, with the exception of rail making, due to the launch of two rail making units in 2013. This forecast is based on the low demand on the domestic market and expectations for further lowering of demand on the global metal products market.
Some of the main problems hindering the further development of the ferrous metallurgy sector are:
· low demand for metal products on the domestic market, including products of increased operational availability;
· growing costs of energy resources and railway transportation;
· a low level of domestic market protection, which will continue falling due to the conditions of Russia’s accession to the WTO, existing difficulties in holding anti-dumping and special defense investigations within the Customs Union and the inability to carry them out retroactively;
· a significant additional financial burden on the enterprises related to excessive payments for pollution, and mandatory insurance payments which hinder the implementation of investment projects in the fields of environmental protection and energy efficiency;
· a lack of encouragement for investment projects in undeveloped and hard-to-reach regions, which makes the projects economically ineffective.
In order to resolve the existing problems, a series of state support measures is being implemented and is directed toward:
· encouraging the development of the country’s machine-building industry to increase domestic demand for metal products;
· ensuring transparency of the purchasing by natural monopoly entities and companies partly owned by the state;
· prohibiting the re-use of metal products, in particular, steel pipes, in construction;
· limiting the price growth on electric energy and natural gas for industrial consumers;
· providing the owners of hazardous facilities with lower general liability insurance rates (relevant to economically sound level) for accidents;
· adjusting the methods of calculation of harm done to bodies of water due to violations of water regulations, establishing the fact of the harm, and setting the criteria of polluting bodies of water;
· eliminating the repeated collection of fines for negative impact and compensation of harm, developing mechanisms of targeted spending of the collected money to compensate the harm done to the body of water;
· increasing effectiveness of the mechanisms of trade protection of non-financial sector enterprises in the open economic environment;
· setting beneficial tax rates on mineral extraction in the Far East and the Trans-Baikal Territory.