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By Alexandre Gurov1
Some 200 enterprises make up the iron and steel industry in the Russian Federation, including 46 mining enterprises, 27 metallurgical plants, 13 plants producing special steel alloys, 14 pipe-manufacturing plants, 15 plants manufacturing metal products, four ferro-alloy plants, 18 refractory plants, five coke by-product plants and 79 enterprises collecting and processing scrap steel.
Production capacity in 1996 was about 75 Mt per year of crude steel and 64 MT of rolled-steel. In 1994-96, the Russian Federation produced approximately 49 Mt steel a year and 36-39 Mt of rolled steel. In 1995-96 about 65% of production capacity was used (table 1).
A sharp drop in the domestic demand for metal products led to a considerable decrease in rolled steel output. Apparent consumption of rolled steel fell from 65.6 Mt in 1990 to 17.2 Mt in 1996, as is seen in figure 1 (Gurov, 1996).
Table 1. Capacity, production and utilization rate, 1991-96
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1991 | 1992 | 1993 | 1994 | 1995 | 1996 |
| Capacity (Million tonnes) | ||||||
| Pig iron | 64.6 | 62.8 | 62.5 | 59.9 | 60.8 | 60.5 |
| Crude steel | 85.4 | 88.9 | 79.3 | 77.4 | 74.7 | 74 |
| Rolled products | 65.9 | 65.7 | 66 | 66.2 | 64.5 | 64 |
| Pipes | 13.2 | 13 | 11.8 | 10.4 | 10 | 9.8 |
| Production (Million tonnes) | ||||||
| Pig iron | 48.8 | 46.1 | 40.9 | 36.5 | 39.8 | 37.4 |
| Crude steel | 77.1 | 67 | 58.3 | 48.8 | 51.6 | 49.4 |
| Rolled products | 55.1 | 46.8 | 42.7 | 35.8 | 39.1 | 38.7 |
| Pipes | 10.5 | 8.1 | 5.8 | 3.6 | 3.5 | 3.5 |
| Capacity utilization (Per cent) | ||||||
| Pig iron | 81.8 | 77.4 | 77.2 | 71.1 | 76.1 | 68.2 |
| Crude steel | 81.2 | 69.6 | 68.7 | 59.9 | 66.3 | 62.9 |
| Rolled products | 85.4 | 77.3 | 68.5 | 61.8 | 67.3 | 63.8 |
| Pipes | 84.5 | 63 | 47.4 | 32.4 | 33.1 | 33 |
The decline in production would have been even greater if the metallurgical enterprises had not stepped up exports, which are currently virtually on a par with the domestic market in terms of share of capacity utilization and employment in the iron and steel industry. Net exports of rolled steel in 1996 were 21 Mt, all but 0.8 Mt outside the CIS. From 1994 the Russian Federation was the second largest net exporter of ferrous metals after Japan (Gurov, 1995).
Steel represents the second largest group of exports from the Russian Federation after the fuel and energy sector. In 1994-96 the value of ferrous metal exports exceeded $5 billion, amounting to almost 10% of total exports.
The Russian iron and steel industry lags behind many industrialized countries in terms of technology; over 50% of plant is worn out. Reducing smelted-steel output and taking some 50 obsolete open-hearth furnaces out of service has not led to any substantial changes in the structure of steel production. Even now, about a third of total steel output is smelted in environmentally unsound open-hearth furnaces and the share of continuous casting is only about 40% (figure 2).
At a time of sharply declining domestic demand and expanding exports, a major concern of steel enterprises is how to make their products more competitive at home and abroad, by improving quality and lowering production costs. In 1992-96 the iron and steel industry accounted for approximately 12% of the nations fuel consumption; 15% per cent of the electricity used and over one-third of raw materials' use. The industry accounts for 25-30% of freight transported by rail and 13% of the value of fixed capital. The proportion of labour costs in total cost is also high. Steel output per production worker averaged 120-160 tonnes per year in 1994-96. In comparison, output in European Union countries, for example, is 450-470 tonnes per worker per year (OECD).
The best production performance in the Russian Federation, in the Severstal Joint Stock Company, was 180 tonnes per worker per year, compared with over 700 tonnes in western countries.2
The sharp drop in rolled-steel production, coupled with insignificant reductions in employment, resulted in a substantial decline in productivity. The average output of rolled steel per production worker in the main joint stock plants of the Russian Federation fell dramatically between 1990 and 1995 (table 2) (Shevelev). Table 2. Productivity in major steel enterprises, 1990; 1995
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Output per worker per year (tonnes) | Worker hours per tonne (1995) | |||
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1990 | 1995 | change (%) | All workers | Production workers |
| MMK | 256.6 | 131.9 | -48.6 | 14.2 | 10.6 |
| NLMK | 207 | 177.1 | -14.4 | 12.8 | 6.5 |
| Severstal | 274.9 | 141.1 | -48.7 | 11.6 | 6.6 |
| NTMK | 143 | 406.5 | -25.5 | 17.8 | 9.1 |
In Japan, worker hours per tonne of cold-rolled steel are than 4.0; in the United States the figure is 6.9; and in European Union countries the figure is 5.2-7.4, which is almost half that of the main steel enterprises in Russia (Remizova). Table 3 shows the trend in the structure of production costs in the iron and steel industry in the Russian Federation.
Cut-backs in production output did not, however, lead to a corresponding reduction in fuel and electricity consumption and the sector's share of total energy consumption increased substantially. For example, at the Severstal Joint Stock Company, energy consumption in 1994 was 22.3% more than in 1990 (open-hearth furnace consumption was up by 34.3%, converter consumption by 12.4% and EAF consumption by 19.2%), while that of rolled-steel production increased by 27.9% (i.e. 240 kg per tonne). Energy consumption per tonne of output in Russian metallurgical plants exceeds that in major European Union plants by an average of one-third (Remizova; Isaev).
Table 3. Production costs, 1991-96 (Per cent)
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1991 | 1992 | 1993 | 1994 | 1995 | 1996 |
| Raw materials | 64.2 | 55.4 | 49.8 | 46.1 | 51.5 | 49.0 |
| Fuel & energy | 6.8 | 9.7 | 11.5 | 12.4 | 14.5 | 14.6 |
| Wages | 11.5 | 8.3 | 9.9 | 9.2 | 7.6 | 9.4 |
| Wage-related payments | 4.1 | 3.2 | 3.8 | 3.5 | 3.0 | 3.6 |
| Amortization | 3.1 | 1.5 | 0.5 | 3.9 | 3.7 | 7.0 |
| Other costs | 7.9 | 16.6 | 18.4 | 17.6 | 14.6 | 9.3 |
| Monopoly service costs | 21.3 | 33.2 | 40.2 | 44.2 | 49.2 | 51.6 |
| Profitability (% turnover) | 29.9 | 49.2 | 39.9 | 17.9 | 18.4 | 5.4 |
High production and transport costs curb domestic consumer demand and hamper exports. About 20-25% of metallurgical production is successfully competing in the world market (electric, shipbuilding and rebar steel, rails, pig iron, semi-finished products for re-rolling and hot-rolled coils) (Gurov, 1995).3
In terms of wages, steelworkers dropped from second place, after coalminers, in 1990 to sixth place among all industrial sectors in 1995-96. Wages in the Russian iron and steel industry in 1994-96 averaged about Rbl. 250,000 per month in 1994 -- about half those in the gas sector and nearly twice as high as those in machine building. The highest earnings in the iron and steel industry are still in the mining subsector (Rbl 411,000 per month in 1994), while the lowest are in the pipe and metal product manufacturing sectors (Rbl 205,000 in 1994).
The economically active population of the Russian Federation was 73.2 million persons at the end of 1996, or about 50% of the total population (148 million). Of these, 66.7 million persons (91%) were working in the economy and 6.5 million (9%) were without employment and classified as unemployed according to ILO methodology. In 1996 2.7 million persons were officially registered as unemployed (3.7% of the economically active population) (SEPR). Some analysts see the absence of mass unemployment as confirmation of the lack of real economic restructuring. However, this does not take account of important structural shifts, such as the growth of the service sector's share of GDP and the share of persons employed in that sector -- which increased from 37% in 1990 to 52% in 1995-96 (OESR).
It is important to note that the labour market in Russian industry is driven primarily by the machine-building sector, which employs over one-third of the industrial workforce. Thus, in 1994-96, out of a total industrial production workforce of some 15 million, about 35% were employed in machine building, and 7.3% in ferrous and non-ferrous metallurgy, of whom 4.7% were employed in ferrous metallurgy.
The total number of persons employed in ferrous and non-ferrous metallurgy in the Russian Federation fell from 1.36 million in 1993 to 1.11 million in 1996. A further fall to 1.1 million is forecast for 1997 -- a decrease of 19% in four years.
1 Marketing Research Services Centre Ltd., Moscow. Translated from Russian by Olive Müller (ILO).
2 See chapters on Australia, UK and US for further productivity data. Ed.
3 In no small part due to exchange rate effects. See chapter 2 on China. Ed.
