"Today we're going to talk about the existing options for the development of stainless steel production in Russia, seeing that the situation we now have in this industry is rather controversial. Stainless steel producers are insisting that in the current conditions stainless steel production makes no economic sense as getting the products to market is impossible.
On the other hand, consumers of stainless steel have to import it," said Grigory Mikrukov, the Head of the Department for Sectors of the Economy of the Analytical Center, as he opened the roundtable ‘Potential of the Russian stainless steel market for manufacturers and consumers in different sectors of the economy’.
"In 2017 the output of stainless steel sheets in Russia fell by 11.2% while their consumption went up 11.7%," said Analytical Center expert Daniil Nametkin. "The decline in the output of stainless steel sheet is only gathering momentum: -13.5% on an annualized basis in Q1 2018. The main reason for this latest drop in output was the cessation of stainless steel sheet production at CHMZ PAO Mechel." According to the expert, further decline in output is expected because of the shutdown of production at VMZ Red October in Volgograd for the duration of the FIFA World Cup. Meanwhile, the increase in the demand for stainless steel sheet is being met by imports: the share of imports in consumption went up from 88.3% in 2015 to 92.4% in 2017, Mr. Nametkin pointed out.
Because of the low competitiveness of stainless steel products, consumption in a number of segments can decline as imports of finished goods go up, the expert believes. "As for Russian products, whose costs to a large extent are made up of stainless steel sheet, they can hardly remain competitive on price due to very high cost of purchased materials. Here the risk is concentrated in such segments as kitchen utensils and surgery tools," Mr. Nametkin said.
"The high cost of materials and inability to compete on price with foreign products mean that the majority of companies making stainless steel medical items are now operating at a loss," Analytical Center expert Olga Skvirskaya said. According to her, in a desperate attempt to remain solvent many of the companies have been switching to other raw materials such as carbon steel or hard alloys, such as titanium alloys.
"Russia has no financing for debt transactions for purchases of raw materials. It's a major problem for companies. Meanwhile, in Europe, all major companies that make use of stainless steel as a raw material can buy raw materials on credit for up to six months in advance," said Yan Beloglazov, CEO of Yanberg Container Systems LLC. Consumers and companies that process stainless steel also believe that Russia needs to develop modern production capacity for making stainless steel sheet that could deliver consistent quality at the level of international standards. In addition, it's also important to create production capacity for making stainless steel slabs.