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Metallurgy can be helped out of the crisis

Nov 13, 2009

ALTERA FINANCE IG‘s international capital markets director Maxim Shynkarenko has commented on the situation in the metals sector in an interview to the First Business channel:

If we compare the last two crisis years, we can see that 2009, in general, has been somewhat better than 2008. This is mostly due to lower cost of production. Another important contribution was the government action to freeze prices and rates for the major cost items: railway transportation, power etc. There is a number of other factors as well.

However, as the metallurgists themselves predict, the situation might deteriorate within the next 4 months. The thing is, they’ve stepped up the production, but the demand still isnt there.

We believe that the country needs a set of specific measures to stimulate production. First of all, that would be the increase of domestic demand and consumption. We have Euro 2012, then we have major government projects: overhauling the railways, constructing bridges and low-cost housing, modernizing and mechanizing the agriculture. Again, all this must be associated with appropriate tax benefits from the government. Such measures would increase the foreign currency inflow, the employment and social standards, which, in its turn, would bring in more taxes. There is money in the country, it just needs sensible management.

By way of example, Ukrainian rolled metal exports in October-November last year were three times lower than the average amount in pre-crisis times. Before the crisis (1H 2008), the industrys export was 43.3% of the total goods exported from the country, bringing in 30.8% of the income on the current account balance. In 1H 2009, the figures went down to 32.2% and 19.9% respectively. If our metallurgists had retained their previous export volume, the country would have received $6bn more this year, even with the new prices. Thats a little less than half of the total amount of the IMF loan we've got.

Currently, our metallurgists face serious competition from East Asia. Other countries also have to mind the price of Chinese competitors. By the way, they have a high domestic demand. China and Korea have shipbuilding on the rise, which instantly increased the demand for high-quality plate steel. However, if we do take emergency measures now, at least in the amount Ive described, and keep supporting our economy, we will have nothing to fear.

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