Hundredth life of Rustavi metallurgy

Maka Ghaniashvili

Global financial crisis considerably affected construction sector. Naturally, on its part construction crisis inflicted damage to building material production and market.

How far global recession affected steel market and what are the development tendencies.
World’s steel producing giant ArcelorMittal experts forecast that demand on steel increases in China by 15 percent in 2009 and 5 percent next year. Despite the fact that demand on the product has decreased by 35 percent in USA, Western Europe and Japan, experts are anticipating 15 percent growth of demand in these countries either.
Representatives of world’s leading French steel producer company – ArcelorMittal and its Ukrainian daughter company ArselorMittal Krivoi Rog met Georgian consumers on Nov-11.
Representative office of ArcelorMittal in Georgia is managed by its daughter company ArselorMittal Krivoi Rog. Company Ferum Plus is importing products of ArcelorMittal to Georgia over four years. General marketing manager of Ukrainian ArselorMittal Krivoi Rog, Pascal Mako declared that the company is holding 65 percent of reinforcing steel market in Georgia. In the pre-crisis period, the company was importing fifteen thousand tones of reinforcement per month in Georgia, but with crisis the volume decreased by 50 percent – six-seven thousands. ArselorMittal Krivoi Rog is producing and selling steel, coke, cast iron, reinforcement and other metallurgic products. The company holds 70 percent share of market in Azerbaijan and 95 percent in Armenia.
ArselorMittal Krivoi Rog is mainly exporting in South African region, Middle East, Europe and Persian Gulf countries. Company products can be seen at Russia, Kazakh, Turkish, Belorussian markets. “Demand on this product is constantly increasing in world market. Consequently, competition among producers is rising. We offer the quality of product that is constantly tested and thus makes our company competitive at metallurgy market” – declared the company’s general manager Pascal Mako.
The company ArcelorMittal was founded in 1986Y. Its head office is located in Luxemburg. ArcelorMittal operates in more than sixty countries in the world. Together with metallurgy products, the company is producing motor cars, household appliances. Another activity of the company is constructions. Annual income of the company in 2008 made up $124.9 billion. ArcelorMittal is producing 103.3 million tons of steel that is 10% market share. Stocks of ArcelorMittal are presented at stock exchange of New York, Amsterdam, Paris, Brussels and Spain. Global Oil and Energy, which is owner of two license blocks of mining oil and gas at Supsa mines, is a property of Mittal Group in Georgia. Global Oil and Energy entered Georgian oil and gas market in Apr-2007.
Steel market of Georgia is supplied from Turkey and other steel producer countries, but as we have already mentioned ArcelorMittal is the biggest player with 65 percent of market share. Georgia is a steel producer country also. Our country has three metallurgic factories, two of them located in Rustavi and one in Kutaisi.
The president of Georgia opened new factory in Rustavi on Nov-9. Geo Steel is producing reinforcement. Over $60 million investment has been made in the company Geo Steel.
There is another metallurgic factory located in Rustavi – Kartuli Foladi (Georgian Steel). Though, only two workshops are operating today in the factory.
Kutaisi metallurgic factory has been constructed by means of Indian investment on the basis of old reinforced concrete factory. Eurasian Steels implemented the $30 million project. Investor is anticipating that the Kutaisi factory products replace imported Turkish and Ukrainian steel and holds 60 percent of market share. Factory is planning to produce one hundred thousand tons of steel products at initial stage.
Amendments made in tax code of the country by the governments are connected with operation of metallurgic factories. Amendment implies increase of excise duty on scrap metal of ferrous and nonferrous metals. Ministry of Finances names operating metallurgic factories as the main reason of amendments. Metallurgic factories are working and scrap metal is needed for local production, says the ministry. The rate of excise duty on scrap metal today is GEL 50 per ton, but it will be increased up to GEL 80.
We already mentioned that one of main players at Georgian steel market is the world giant “ArselorMittal”. Despite this, metallurgic factories operating in Georgia do not consider the world giant as a competitor. Kutiasi metallurgic factory representatives declare that they are oriented to production of construction reinforcement, while ArselorMittal is not producing this product in big amounts. Thus, they are proving that there are no underlying conditions for considering French company as an actual competitor.
Kutaisi metallurgic factory will start production of building reinforcement in Dec-2009. It is planned to manufacture about 50 tons of reinforcement at the first stage, but afterwards, output will be increased up to 200 tons in spring. The management hopes that manufactured product will enter local and foreign markets as well. The construction pace and demand on the company’s product are the factors determining the share of the market that the company might hold.
Just like Kutaisi metallurgic factory, company “Georgian Steel” does not consider ArselorMittal as a competitor. Management of Georgian Steel explains this by the fact that ArselorMittal is oriented toward import of its own products, and thus in their opinion, consumer will give preference to truly Georgian products of Rustavi metallurgic factory.
At present, steel melting electric ovens are being mounted in Rustavi metallurgic factory and works are temporarily stopped. After completion of repairing works, Georgian Steel is planning to enter local and European markets.
Steel prices are increasing at world markets and especially in Turkey. Demand is stable in Black Sea basin countries. The companies operating in this field declare that as the demand is stable, the prices correspondingly are steady or increasing. 4.58 tons of steel has been manufactured in Ukraine, in Sep-2009. The figure is 3.9 percent more than that of last year. Seventy percent of manufactured products are sold in Ukraine. Only China has managed to improve last-year showings like Ukraine. China increased steel production by 28.7 percent in comparison with the last year and manufactured 50.7 million tons of steel in a month. It is anticipated that China will produce 530 million tons of steel over the year. (
The part of biggest steel manufacturers connects increased sales with revival of construction sector in Asia. Fifteen percent growth in demand on steel is anticipated this year in Asia and five percent next year. The company Georgian Steel hopes that world tendencies of increasing demand will be reflected in Georgia too and thus export will be increased. At present, Georgian Steel is exporting in biggest Asian countries, including India and Turkey. The company declares that increased demand on steel caused price rising of scrap iron. The company emphasizes that the price of scrap iron is increased by 20 percent at Black Sea market and the price of a ton amounts $220. However, current year started heavily for Georgian Steel. The company representatives declare that due to financial crisis the company incurred serious losses in the first months of 2009. The company’s loss made up several million GELs. For instance, the company has purchased raw materials for $1200, in the times when the price of reinforcement was only $1600. However, the price of reinforcement fell to $500 in the beginning of 2009. Only these figures prove how big might be the company’s losses. The company’s expenditures have been decreased by 5-10 percent due to financial crisis. $90 million investment has been made in the company from 2007 or its origination.
Overcoming of global recession and revival of construction industry will be logically followed by activation of steel market. Positive changes in construction sector are noticed both in Georgia and in whole world. However, the future shows how far these changes might encourage development of national industry or maybe this would be beneficial only for imported products.