a*
Modernization of the Soviet Steel Industry: What Lies Ahead?
Modernization of the Soviet Steel Industry: What Lies Ahead?
An Inwlliaeec*
ol Sovietornmenu and queries are welcome and mty be directed lo ihe Chief.
Judgment? Irformetlea tntllaUi
si of If rVaxinVr VS un( In Ikii report.
ihe Soviel nee! industry ll crucial to the success of Gorba-chc.'i industrial tTwderniraiioo effort Without majorancnu in the quality and variety of steel products, ibe General Secretary's program to develop and produce modern, lechnologically sophisticated machinery and equipment will be seriously tampered Accordingly. Moscow haside-ranging program for reequipping tbe Soviet steel industry and expanding the mix of outpui. specifically by:
Recoto trading older steel plants.
Replacing open-hearth stceEmahing furnaces trith basic oxygen orfurnaces.
Mote than doubling Ibe share of siecl conlinnously cut0
The steel modeniiMiion program focuses on element! tbat could lead to major improvement! in product quality and cost roductioris. Gorbachevirong incentive to push for progress in ibis important industry, but the cost of effectively carrying out ihe program duringh Five-Yearay outstrip the resources available for it. Replacement and renovation of sieclmaking furnaces and rolling mills will require large investment outlays for new equipment and. in many cases, for new facilities to house the equipmentime when national inrcatmeat resources will be stretched thin by other cSemsrvdt of Gorbachev's economic rcvits lira tion effort. More important, domestic machine builders will be unable to meet the demand for more reliable and sophisticated metallurgical machinery until an improved mix of high-quality steel products starts rolling out of ferrous metals plantsarge scale
Turning abroad for help. Moscow win find little near-term relief.of modern Western equipment will be limiled by reduced bard currency earnings, probably for tbe rest of this decade. Nor can the Soviets depend heavily on iheir East European client states for much additional machinery. These countries already supply Moscowarge share of ibeir machinery production and are ill prepared, and probably iirrwilling. to meet heavy new demands for more and beiter rrachinery exports
TTius. Oorbachev will huvc to assign nt high an investment priority for the
steel Industry as for (he machine-building and energy sectors if he hopes to make much progress in modernizing steel production, large-scale domestic investments, if susuined for the next few years, would assure progress, particularly in raising Ihe share of steel produced in modern furnace or by continuous casting techniques. Completion of some of ihe new and
- Secret
ooo.*
renovation projects plannedould belp meel demands for higher quality products in key sectors of the economy, notably seamless pipe for the oil and gas sectors
On balance, we expect some proems in these ateas. For example, greater use of modern furnaces and continuous canine will improve Ihe efficiency of the steelmafcing process during thend help the Soviets meet their goals of increasing rolled steel output without increasing production of some inputs. In addition, leas dependence on outmoded furnaces will give the Soviets more flexibility to produce additional quantities of specialiiod alloy steels.
Despite these improvements, however, the Soviet steel industry will face loo many obstacles to meet the demandi of the economy folly, ai least for the remainder of the decade.esult, wc can expect to see:
Continuing complaints from various ministries (especially the machine-building ministrier) about inadequate variety and quality of steelwhich, in tarn, will inhibit progress in modernizing the machine-building sector.
Machines that continue to ouiweigb their Western counterparts, perform fewer functions, and need to be repaired or replaced morescarce resources away from modemieation and into capital repairs.
Continued need for imports of many Western steel products, such as plate and ihcel for ihe machine-building branclies and pipe for ihc oil and gas industries, adding to the strain on dwindling hard currency resources
In view of Ihc USSR's hard currency limitations and its need for modern equipment, Soviet planners will have to weigh carefully ihe irade-offs between purchasing Western plant and equipment to upgrade thelevel of the steel industry and importing Western steel products to meet the immediate needs of key machine-building sectors. Cutbacks in Western equipment purchases in favor of steel products, however, would further slow Ihe pace of steel nvodcrntzation and lengthen the Soviets' technological lag. Thelready behind Western Europe, Japan, and the United States in the development of innovative new technologies that vill fundamentally change ihc way steel is made in. Many of the new processes would be panicularly beneficial to the Soviets because they offer flexibility in ihc use of raw materials, save energy, end cost less
Ktrtni Blanl
ion of tiuinlled capacity than convcniional processes Moscow may well decide) to initiate within the next few years an aggressive program for the acquisition of these riew processes through joint venture* or other arrange-mcnts that minimize the up front outlay of hard currency. Out the payoff fromrogram would not materialize until well into
In the meantime, the Soviet steel industry will achieve only rnoderate improvements and will continue to come up short in terms of both tbe regime's expectations and the needs of (he machine-build ing sector. The failure to make major improvements in tbe steel Industry over the neat few year* will make industrial modernize tioo more difficult and protracted. As the Sovietble lo assess bo*ating, be may beosition to better plan improvements that could behe
. Prolonged delays and setbacks to current niodeaTuaalion plans, however, will also increase pressure on the regime either to back: off itsprogram or to make more fundamental changes in the system thai might provide both the incentives and ibe resource slack necessary for meaningful improvements to occur
Modernization of the Sotiel Steel Industry: What Lies Ahead?
I laaortaace of Slool la Gorbacbe*MoeWeMrattM Program
AJIrr all. even today Ihe lag of the metallu'ti>.il Industry Is affecting other seelort. If we da noirattle Improvement in tht auallly of metallurgical Industry output. If the range of goods It pcoduirt does not meet present-day and future reqidrementt. then we will ta unable lo achieve the necessaryIn machine building andther sphetei of ihe national economy.
Pravda editorial
is .wm-
Central Seer claryndnstrialrocram requires tht ferrous tnctalinprovt sharply the quality and expand the variety of
tteel ptvducu provided lo key sectors of the economy, particularly the machine-building and energy Indus-triet- Specifically.rocram bat raited Ibe demand foe hundreds of new and better steel product* -frorr. drill rape for thend its iadei-Irica, lo hu^-performs nee dectricjl sheet for trant-formert. and to special alloy ileeli for lighter,pieciiion machine tooli
Tbe cuchinc-biiildtrtg ind amy is the Largest eootum-er of it eel. and Peeling its demand fee ttcelill be crucial to achievinggoali. The iocrcaacd rale of growth planned for machine building output duringh live-Year, coupled will) Moscow's call forIhe quality of tJcanesik etjuipaieot andmetal, requires iteelmakers to both raise Ihe quanlity el otiipel andarger iht re of new hiuality ttcel products and products with special properties, such as uin.ru tlecl
Sharply growing demand fur more and better quality Heel product! in the oil and gat Industrie* will add to Ibe burden on the fee rout metals industry in ibe coming yea ri. TV oil ministrytanaragre!mbtiinUaiiy the pace of derreloprrttot drilling and
the number of oil well simple tkrni duringdemand for drilling rigs, drill pipe. casing,will grow iccoedingly. la addition, plansihe deep tour oil aad gas condensatespiar Deaxeaiieei wiD iropoteon tbe needs uaed ia the fabricationand processing equipment that canextremely high pressures and temperature*ti ream the corrosive cerviaxaanicat found In
Finally, the defense tectce will continue lo demand more and better sled products as weapon systems now in the ficW are replaced with new ones whose perfor-nance characteristics require closer tolerances, lighter weight, and greater itrcaglh. Some weapon lyMcrm. apeoiDj armored vchicies, have iradiliotul-ly exwiamcd enormooi quantities of steel, and CIA projections of growth la Soviet procurement of these tystemi suggest that ttcel cMtiimption will be even greater In (he future. Output of weapon systems requiring specialtyas advanced fighter aircraft, which use alloys fee wing brutes and linrting gear and new type* of tuaatritvaM. which coot* in specially ttcelalso projected to grow and will require the .Soviel sled industryroduce larger quantities of advanced, higher quality ilccls.
A Troubled Industry
Tbe ileel industry ts ill prepared lo meet the challenge of Gorbacbev'i call for more and better products, because of both oatareded prodactkaa facilities and
perverse incentives that define success (aad bonus allocationi) more on the baiii of tonnage than on type or quality of fmitbed product. Indeed, the overall record of (he sieel industry during the paalears
lit* been one of traditional failureeel etpecta-lions, despite substantial imports of Wesiernand technology (see' Previous regimes have called for Steel mill! to Introduce hundreds of new varieties of high-quality rolled products, but the preponderance of poor-quality, out-of-date domestic metallurgical machinery has foatcced low quality, narrow assortment, and shortages of steel products. As one leader in Soviet machine buildingtbe siUntioa
The Ministry of Ferrous Metallurgy each year provides no more than IS toercent of Ihe new forms af rolled steel required by our Indus-trial branch, and the actual delivery record Is still worse.ty&Q. the enterprltet of the Ministry of Heavy Transport Machine Building received onlyforms of rolled product that they required.
The United availability and variety of quality (teals, in turn, result in poor reliability and low effieieiiery of domestically produced machinery and equipment- For instance, transformers built with poor-quality elicet have high energy losses, while new rolling equipment for steel mills suiter* from frequent breakdowns, litis results in luge amounts of resources being allocated to capital repair instead of replacement. According lo Pravda. lot example, onlyillion rubles were spent oa the development of metallurgical machine builda the last five years. In contrast, five times lhat amount was scent on the repair of metallurgical equipment during tbe tame period.
Metal input and production costs for machinery and equipment are also higher because of Ibe poor quality and narrow assortment of steel products. Tbe Soviet press reports that replacement of unavailable shapes and sizes of rolled steel products tvith larger size*idespread practice at raachiirc-buUdingdditional waste occurs when equipment designers,istrust of steel quality,orrection
Figure t
USSR: Planned Versos Actual Production of Ferrous
rani
n
fa doe" lo their designs. Largely because of these practices, machines in the USSR outweigh theil Western counterparts by as much asercent.
Gorbachev seized the opportunityonference on science and technology inS tocritictic soundly Ibe it eel industry's past performance, putting the blame on inefficient allocation of capitalHalf of the SO billion rubles of investmeot spent by ihe industry during the past IS years wasinto new construction, largely to expand basic lectors such as iron ore mining and pig ironal ihe expense of reconstructing downstream
production facilitiesmprove ihc qui III*aiMiri-menl ol finished Heelull, the USSR hai had lo rely increasingly on imroiti tots domestic require metis foe finished Heel1
Gorbachev followed up taicxiiicnm of the mdattry by tacking tbe Miniiicr of Ferrousaraneu. inis replace meal. Scnfimiofirst deputy of ibe Mmiiir)1as promised lhal modeifiliation by "technical rccquiprnepi" vrouM be ihe wave ol (he future (see Inset).'
Th* Current Steel Modern!ration Program
We have recently taken tame /ar-reachsntwith retsseet lo Ike cardinal issues ot economicean ike resolutions ealliat
for ilw.5amer.lol reartamiaiton of meial
Mikhail S. Gorbachev
m IHt cnt/Cwl raw-an
mod eniiia lion ofed Induslry almost as important as rnodcrniring machine building itself. Moscow haside-ringing program fot roequipprng the industry. The goals are to more than double the share of steel continuously eastC. and to expand sharply the range of steel jeoductt manufactured. In compariaen wiih past efforts lhat foctrsed on increasing prcdaction capjc.ua. tbe eair> rent plan emphatitea plint renovation and replace menl of ou invaded equipment, apocifically by:
Reconstructing older steel plants.
Replacing old coke plants.
Replacing open-hearth steelmaklng (urnscot with basic oxygen or electric furnaces.
1 The"rteonnrwtVaa- la need bcarti hy Ihi Sf-ttu and
wcludea replacement of CQulprntnl and (aetlika. nnminn ol
etlitlag tttutsnmtil. and mailt* af eoaftarlilaciliUet 10
conetl diapreporllom I* uracMIn nl airloui ttita ol theintnitaat,ht SevtM mat
tve-year ptinik riant Of InvtalaaaMlooted icpTaetic iren-mel'Jng. itMl-tnaallMg. and rolling ear-city. Tie few mctal-
hrgaetl machines taken mrl of atrvlce Uace HIS "ftalf timet older ihaa ttirlr dulgn llli
' The vilae of haul currency Impott of hniihcd tteet (reditu
Isrraied fro- aboutuaaaaan durla|o itm
According lo the Soviet press.ercent ofio ferrous metalsill be used to renew existing plants.ercent Will go toward improving product variety and quality, and onlyercent will finance capacity expansion.n sharp contrast with past five-year plans, whichup toercent of inrestrocnt to capacity expansion (sec table 1',
lan provides further details on the new program's implementation. Overall gains in output are to be achieved not with increases in production ofas coke and pigIn the size of ihe labor force, but with trecreates In laborand resource savings (see inset, pagebe emphasis on resource savings is illustrated in Moscow's caD for average annual increases of 4Vi peretnl in industrial production andercent in
table I
USSR: Capacity Additions ia Ferrous
Annual
irM
redly
cnierprUn uct uiiiU
t'1
<
and eifaiulga
caaaclrr
.ol cifdniha
fvodioyi kkotycyitvo SSSItailow
chine-building and metal working output wilh lesserant average annual increase in rolled iiecl products during the plan period'
Arxording to statements by icoior Soviet oOkiak. priority in reconstructing atecl plantsai be given to fadltties constructed before World War II. inch as those at Magnitogorsk (see table 2
fZ Si
The Soviets plan to replaceniHion tons ol" open-hearth capacity with-basic oxygen or elect ticover the next fiveccordingestern metals journal, former Minister Kara nets staled ihat the widespread use of open-hearthare more costly to operate and
During 1WI-IJ, tbe uaol eoicat ef refied ncet prod-cu roweteeat piehile tndeiulilaC-lr*-
l-'tle-irrrenatedad IV) perera.
' Tatfo are three beile tjpet e* ateelmahing lurirtcet:iyrea. and (leetrie. In geeectl. tulle eaygea and eJectrle fum.cei permit ihr ircaiat control of irrapettiiie tad eheeUnry and an beit rilled teeah^utiiy itcd Iht Smteu Hill rrly oa ihc oMmeckH eot-licirih fumiee fee meat than ena-totfe/ i'dr[coduttlon. Inihirpccntwt alii. Wat era counirta.he Untied Sum predDerdorccat a' ha iietl In coca'branh ftvaaces, tad aene tie now btlni ned In Wai Ocrmiey tnd Jipir.
more restrictive Intbe biggest bottleneck to improvement of the steelvcrall porfotcuinee. Mew facilities to boose Ibe cew furnaces will have io be built at most, if not all. of these plants because existing structures are too una II.
All new iteelcukjog shops, including those at plants undergoing ovocJerntutioti, are to be equipped with continuous cud rig equipment.'
e.ii. Wireound from
furucea tola krgt reeuDtvUr reoldi lo form icaou. Ann ceollag,
Ibe tnfota ire careenntled any from ibend plated
into namot tbe lempertten ol lit racial Ibtca rx raUMprimarywy and
III He eoaUauou cutlnithe Se-kudirectly Imo mcW. (remprimary
iiteelbjeorede
ihajra an directi? car: asd then rotled- lab rteeoi tarn corny
and labor and pndaca Hurtote bnrootama.
The imvant oT cornltocoaly eau lo the USSR hu been irevrlni at rileoorrlawre
(ban1 (atomtwk rtorl revvdaeUonl. the tut jar for nhkh data art ariilibk. Tblihe Waiatoet one-ihhdletl andeMrdrtfand Wen German Meal la roaiMiieeily ctn. Beetate die aubrnvm benrtVu of coubtoueutant artreatUedealy-bro I- I, .hukt oeytea or tkcuk farnieet, the ike rti*eeement of ocvrrhcartt (unacrtUaltmlledlrrrof dui leehaokey. Ihekc I. ImroJoctoi note roallniom cullai entiameai hai tho hampered Sodu etlotu ia imprgvc yteSS-the raiteot retkd-oedacilor. loovte urd predimiWi-ln iteelmtWni orertiiom
Savings of Rolled Steel Products
I lib Fivt-Ytai Plan colli foi total saving!4 million torn af rolled sletl. mostly In machine building and const ruction- If this target Is achieved, total consumption0 unitillion ions less than that which would have been obtainedi efficiency standards had prevailed. Resource conservation has been espoused before, and ihehave achieved some recenteading Soviet Journal repotted, for example, lhal the use eg new types of steel for the walls and roofs of ralltoad freight cars during Ihe last it) yean has reduced metal consumption by at muchilograms per car. In addition, design changes have reduced ihe weight of the load-bearing structures affreight ears byoercent. According lo the official Soviel statistical handbook, ihe USSR achievedercent af the rolled I'errata metalsmillionforth Fire-rear-
Four recurrent themes appear In the Soviet press as wayschieve0 goal of reducing rolled sleel ccvumpilcnc
the iiructure af rolled meial output and Increase the relative share of "progressive forms" of steel products. Including cold-rolled sheelt. heal-
:reared steel, low-alloy steel sheets with pec*ear* coatings, and high-precision shapes.
hfodernlte the technology for ihe manufacture of steel products
Design stpttpmem and facilities thai moke more efficient use of maiiHals.
Devtlop the use of substliutts for steel such as ceramics, plastics, chemical fibers aluminum, and eornposlte materials
Greater use of numerically controlled machine tools and mlmcompuler-conirolltd. metal-ctaitingwould reduce waste from cutting steel snrei According to the Soviet presi ihe use of heanreaied sleel In machine building reduce! sleel consumption
b,ercent, andoercent of demand for this ttetl it being satisfied. Although substitution pottibiliiiei In machine building are limited, the Soviets wont lo make additional use of aluminum and planus to decrease weight andincreaie resis-lance lo corrosion. According io another Journal article, under Sovieton af platllc structural mat trials can replace as muchens of rolled steel In machine building.
Soviet press comment! Indicate that subtlliiition will be the main method for saving metals In construction duringh Fire-Year Plan. Greater use of ceramics, composites, and ceriain types of concrete not only can reduce consumption cf steel, bul can retail In lighter, stronger structures. The potential for saving meial through other methods alio Is high. Forurvey recently done by the USSR State Commuter for Construction and ihe hllnttlry of f1 Metallurgyesigns for ptpe systems inranches of Industry and found lhal many planned to use thick-walled pipe when it was not necrsiary. The Soviets estimate lhal moreuse of ttcel pipe would result In an annual savings ofons
The USSR, however, probably will not be able lo tap enough of ihlt existing potential io reachh Five-Year Flan savingsey lo the success of the program Is for the ferrous metals Industry to provide ihe proper mix af steel products, bulestift. article In6 repeated thatmirrprisrs hod noi fulfilled plan targets foe the production of almost one-third of the economical types of metal this year. In addition, enterprises art unlikely to experiment wtth new designs, given the tremendous push for increased machinery production For example, several machine-building mimitrits were crit lilted for backlogs In producing newlyequipment ihat use lessuestion also exists as io whether steel-consuming industries can handle certain high-quality sleel shapes. Fora change In the composition cf metatworUng equipment will be needed to make use of increased production of flat steel
Table 2
USSR: Sleel Modern! ration Object!
M*rniTorN*ri'e
or Build Coke Piano
Capaclti
Ol Btait Furnacci
Viplior Oi--Munl,
Caminveui
Me-
or
ItatJine Milb Una
Ke-edlpeUt
Urpajt*
sawveiJo* project* ue ipeO&allr wiotowi
lolan Clraina ipc-rc-nd b) ii< Suc-orr* So-iil if Jum IVI*
Ruti-i
A Soviet journal report* thai toiling oiilis and pipe*bop* "rill be upgraded byiditcd equipment, reconstructing tome ciiMing uniti. and creating new facilitiei Chairman of ihe Council of Minlitcrt. Nikolay RyihVov. hai(hatolling mill! will be rr conandill be decoranuuioced. lrapcovemcn( of rc-flmg millsey to pecr-iding the WO (ypet of new steel pioditcU called for in Ihe rive-yeer plan
Allhougb Soviet officials have indicated thai Weiiern firms would supply equipment and (echrtolocy for many of the reconstruction and ee-odeemratio* projects, ihe US role il likelye minimal. US equipment docs notlear advantage in most
itccIntaking processes, and often Italian, Austrian. Jirune-ic. and West German firms caa offer itrervw equipment on more favorable fcuncial terms '
'tsce luuniinouarm-maion vil* Woeou Sn-ndarugvl nn large renlneu laa -leriaukieiodinoloeyaarn Urned auk US Bruit lioc* tbe corneal! ttaild IS*raditlam al tverolipeuk "ai diawlrad Ua-acr tbti noiraaU
l*a snra
mi -ildltwnl
enOr
acMM lemmou It* CMC-act ika USvan
enal of rk* Saavn la* iaioa olr
Cnai'laii |impra"ike ronliariSeplcnilgr
Table i
USSR: Wanned Capacity AdditionsSelectedsing Wctcetn-Odgja
l*
.iniet 1lorn rcr mt Piul:cmiW tarn.
ubebofW
i
n] {under n. mi ruction)
plrni -flli rapiflii of MJ
millkelpy
durcipUnuloiil
aoKii,flenw
(Wul Cb-minn
pum -Ui aoidr,mllliooipT
(sntnl wipmrM
anileiUko ipy
(aedcr KcMiilionl
Vcol-AlpiM (AUUUX Italimpuali. tad QeClut (Fimno-I
oop. eocUtHffol caitkecoll fteW miDH0JXVJ.IC
(ur-lcr CDuliHtionl
Dankli Hut.)
(oim ihoc moJiHaoon,unitUdlr forucc, coMlnoui
ill
. rocnioc -coiling mid. nttUcttka ol
auii.ai tolO.OOTepy (of
r^oiiiMconl and bad for dm
tt the emphasis on reconstruction, ionic nc capacity ii to be addedsecas: ol ibese protects sic ilited to us* Western equupamL Additioaal output is plaaned lo eocneill al Komsomol ik in tbe Soviet Foi East lhal uws Soviet and East German equipment and. l. imi i. electrical-grade steel shop at
Both plants arc scheduled to start produciioo Ibis year.lan also Includes clans to evTnici uioo nn manganese and iron ore raiolng capaaty to help offset production declines caused by falling oce grades and mine depletion in older basins'
A mlmmlll nrctail'dy imtl Meet plulecirk
lunuoa ind eoutnoeuind re-Hintent. Bcuoh il* riwIMmill li necmillr nn? Unit
do no lux iS<hiu or Win rnKiieo .mlAr ptl Ironully tmeiraied lied tiint TV annual picdKiVxiinimi" Ii luuilly bo-re*on oilkl> of relied1u
Roadblock* lo Mr^erttlxellon iDie-eCrneat Constraint
Tbe current Ked mulctnl/ation program seems to bebe tight elements to improve Soviet steel production, but the cost of the program may outstrip tbe investment reioureea available for it:
EaugaWsfa co renont-on and repliccmeo: of ittd-making furnaces aod reeling mills could improaeuality snd variety buluire Urge outlays for new rquipmeel and, in many eases, unplanned eipenditurea for oonitrucuoa of new pUnt facilities lo houie ihe equipment.
- Witt teen-tupolied iwnkty projects could be put into operation more quickly than either domestically supplied or Western supplied nonli/'ntey fncilities. but hard currency conitrnlnii probably will limit the number of such projects
- Stressing resource savings ind increased use ol Mccl scrap could limit ihe use of icarcc raw rruierialt. such as iron ore and coking coal, bul substantial savings must await acquisition and ins (illation of costly new. more efficient metallurgical equipnieni. Moteovcr. as in ihe past, invealment may havee diverted from improvement of roiling and finishing processes lo tbe iron ore sector.lmost JO percent of investment In tbe ferrous metals Industry had to be allocated lo iron ore production and beneficiation to offset tbe declining quality of ore.'
Thus, while the Soviets seem to be attacking key problems that have long plagued (be steel industry, success ts dependent largely on how much investment can be made available quickly for renovating old plants and building new ones at well as fce acquiring modern metallurgical equipment. Investment inmetallurgy was slightednd will have to increase sharplyo provide for the sector's modernliation. Alihough Moscow rJinned to increase investment In ferrous metals by aboutercentt is doubtful lhat such an increase can be sustained. Iricreaxes in total investment throughout tbe ecooomy are stated lo averageercent annually, and competition among the variouseen.ccenl speech to Ibe Supreme Soviet. Ryzhko. slatedercent of tbe total increase In Investmentill be allocaicd to support the Food and Energy Programs, the development of civilianbuilding (presumably including metallurgical machinend expansion In output ofand chemical products
Production Constrain!
Improving metallurgical machine building will be particularly difficult because the Soviel eompfcs o! steelmaking and machinery-producing industries are lockedicious circle of backward technology, poor quality, and inefficiency. Modern metallurgical machinery requires high-quality steel products lhat. In turn, rely Heavily on improvements in the slock of metallurgical equipment. Making improvements in either industry, however, willood deal of slack in (he system lhat gives reducing enterprises und research Institutes Ihe lime, the resources, ond
Ihe incentives lo develop, retool, and learn how to use new equipment and processes effectively. Outemphasis on an immediate acceleration in economic growth leaves little or no slack in any facei of Ihe machine-building or steelmakins industries. Indeed, ihe increased pressure on plant managers to boost current production will inhibit innovation thai car ries any risk of failure and will reinforce the tendency to reproduce the same pattern of output thai hai prevailed foe years, only fastermajor gains are made inlipshod manner.
Moreover, qualitative improvements in metallurgical equipment production will be further inhibitedsuch equipment is not produced at spcdalircd plants, batideline at heavy-iradurae-buiMing enierprises. Pravda reports thai, at several of those pistils, the proportion of metallurgical equipmeot io ihe total volume of output is declining. Workers and mansgemeoi at machine-butiding plants generally lack appropriate incentives for producingequipment, especially tbe complex and labor-imensive machinery rsocded for rolling mills and finishing operations. Consequently, some machine-building rninistriea reportedly refuse lo accept orders for ihe more productive machinery required bymetals enterprises. At6 party congress, ibe First Secretary of Chelyabinsk Oblast, theof one of tbe largest Soviet steel coaspttscs. ipeciftcally complained about the diOlculty inequipment
Special Problems ofaddition to the difficullles of supplyingrogram based ontechnical reequlpment poses particular(he iteel industry. Managers ofprefer to manufacture serial,bul, under thecurronl rnoderaiiaUonmuch of (he new equipment must belo fit into existing buildings at plantsMoreover, the renovation strategybeen resistedsteelmak-
ing cnlerpriies because Ihe downtime required io
repl.ce old machinery, as well aa ihe uncertainly inhcrcni in new production rwoeetiex. threaten* tbeir ability lo achieve ihorl-ierm perronnance goals Ren-ovaiion of rolling mills, for instance, usually requires thai Ihe faciliiy be shut down."
Of equal concern lo enierpriie managers may be how quickly workers adapthe use of Ihe new equip-rneni. which often is more complex and requires more (rainingperate aod maintain. Tooviel radiobroadcast, the Ministry or Ferrouiintends to strengthen the training of ihe labor force by means of handing over experience from one workernother and by sending, people to specialcourses. Bul intentions may not be enough, For example,
^somc workers atlant ihsi included io5 industrial uis nave men:eat and it currently being modernited. slill lack the tivMivation and proper trainingake care ofequipment."
Appropriate incentives must also be givenocijlruc-tion firms, which, accordingravda article, have generally steered clear of renovation projects because ihey lend to be more labor intensive Ihan when construction is started from scratch. Manytrusts arcalready suffering from laborovjei broadcast Ineported thai the Zhdanov Metallurgical Construction Truit, ihe main contractor for renovation work at the Arovxtal' plant, was behind schedule indling mill becauseanpower shortage. Earlierhe Sovieishortage of wortcri for assembling new rolling equipment at the Karaganda steel plant
" lanoH. ihulde-rn UroMtrcd.cioufu indbfucd ioCciLm
rhe Sovieti -ill br. .ble to continue.irel prodwi.cn im
beiclj|il they are te-dy foruic oxygen furnace* are bellitiioeorrt. lo-er.mplt, tbe Se-ieu repot that an open-hearthat the dam MB be pburdeul. AtiaOugh Ihi. -Ill help leepoaamrty up dull",
vHII donoit-a,
ibe uiual dianoai eocatroetioa rerioa
Tbenert menduiual nan aiemini lau-chedAndrorv I* laauary
r-omcie lancalica. androduct anahiyhrm.Inrani.r.
Untiled Help From Abroad
Given the difficulties (be Sovieis are likely luwith ibe domestic supply of modern metallurgical machinery. Moscow almost certainly will lum to ils allies in ihe Council for Mutual Economic Assistanor.articularly East Germany and Ctwhwlo-valcin. to supply additional equipment. The Sovieis have been iritporting East European metallurgical eo^iprneoi for years, particularly for rolling mills, which generally is of be((er qtiaCiy than domeslicolly produced equipment (seeast Germany's Sket bas supplied aboutolling mills lhat mamifac-lurepercent of Moscow's lolled steel products and it slaledenovate nine Itghl-scciion rolling mills in Ihe USSR. Sket currently isthe rolling equipment for the minimilii at Rybnilst and Komsomol"sk-da Amurc. Tbe Western prcii reports lhal Ihe design for ibis equipment is similar lo Ihe rolling mill buitl by an Austrian firm at the Zhlobin mini-lull
We are not sure how much additional high-quality equipment Eastern Europe ran provide.rge share of Easi Europeanproduction, and moat of these countries lack the capacity lo expand exports lo Ihe USSR much further without culling into ibeir exports lo ibe Wesi. Thus, it is unlikely thai Moscow will be ableepend On ils CF.MAompensate fully for ihe sbcetcom-ingi of Soviet domestic machine building
Undoubtedly, tbe Soviets will mm to theio purchase equipment fot some of the projeeis under way or planned, bul they simplyfeed to import all Ihe needed equipment. The Wow dealt to Moscow') main touroe of hard Currency revenue by Ihe collapse of world oil prices will It mil Sovici foreign exchange spending lo items of the highest priority, probably for the rest of the decade. In tbii contetl. moil of ihe sieel industry's projectshat are slated to uic Western equipment are loose ihat
Tabled
'. ol Metallurgical
I
Ml
titalaaaltla
l.nei,
r?o
1*1
in
ai_
Ml
IM
184
it)
lit It
III
?i7
in
it
1)
abdiltoeis ot newridjeexs, on ihc otherto be more vulnerable lo eaticdUlion.for Western satis
lance lo modernlie the Zaporozhye steel pl.nl. foi example, bate been canceled, and reporting oa talki for reconstruction of oiber Heel plants hai tapered off in roeeoi mootbt.
The volumearc irnpons of Westernlel, to depend largely on the icrtnible lo rvegotiaitWestern firms Moscow hat in eieelkni credit riling and may posh for nddnraoal loan, -ilh lower interest rales and looter repayment termt for pendint projects. For example.
1 ihe USSR waa able to pressure the Italian)oin with an encoded
maturity date and lar<er than that originally negotui. ed for ihe new tiecl plant al Voiihskiy.
_
rrenvetiuH, Ay.uu.ii hrm in oil. Ajetl thai U.
p^oebij-.rtcirriKyci
Even if aD scheduled prorects -ere fully funded, pan ctperteoce abowi thai nol all application! of Western equipment have cone imoothly. Tbe Oskol Electrome-lallurgical Complcj (OEMK) at Staryy Oskol. under conttruciion by West German nnd Swrdjth fir mi,ood example of bo- nol to apply Westernbe OEMK is tbe only integrated itcelfacilities for proceuing iron ore to peodoc-ini finished rolled products -ibnt hai been tuned in ihe USSR in IS yean. The eotraplex. origiaally sebed-nled io be coenpleieds only putiallyaad probably will aot be finished
jAlthoogh UK reaxrat for the delay* are numerous, many were because of ibe lackefeated. Western general conn actor. Problems in. eluded oeierioratioo of equipmeni already delivered bul dm yei installed and conilruction delays caused by Soviet worker bonus lyitcmi thai discourageinitallation and opeislion of new machinery.
t- OL'MX -til rrroOWalihquM,at teniae nad.raa itli IV ik aiab a> conauwiiaa. a
Moreover, (be Soncu arciftKuli lime adapt inn lo couipment that li already operating al
Jthe tap-to-taplime between pourings of liquid steel from the elect rie fur mm wlee lhat of new electric fumacea in the United Statu, ptcsumably because of poor worker discipline Inepresent aliveetal* equipment firm indicated
thai Western engineers at the complex are fearful lhat Soviet technicians will not follow recommended equifrrncnt installation procedures, thereby increasing the risk of accidents and future technical problems. Similar Western equipment was damaged when it was improperly installed by the Soviets at the Neyvolipeisk
/ POOR QUALITY PAGE
sieel compter, in laic
2 the first electric furnace ant) dticci reduction module at OEMK are not performing upovic
tn ii i. (be construction and startup of ihc Zhto-bia mininiitl by Western firrnturnkey balu hat been ft lamelyoctI-Alpine ot* Aaatiiaibe general coo tractor, and fircis (torn wen Germany and Italy supplied equipment anitlo the mill, which wat com missioned iwo monlbi ahead of tchcdule. Accordingeslem meiala jouinal, (be plant was due to be opcraiing neat capacity iaThe Sovieti repotiedly are io pttetrd with the Zhlobin mill that itey have cool/act ed with Vocal-Alpine and (be Italian firm Darnell to eipandurnkey batis."
Theit illustrated by these two examples nuy have Influenced Moscow's leccnt decision lo silo* greater Western participation io future joins-venture projects, including foreign equity, increased mansre-txot and quality eootrol, rcpatriatioa of ptofiii. and otherlo make such ventures attractive io Weslem firms. Such arrangements could bare several advantages for the Soviets:
A oumictncol role for Ihe Western firmthe transfer ofrelated
i sanitation and management ofd ibe ate of advanced technokejy. knowledge not catily tiansferred through traditional equipment pur chases.
A lont-tctineqully relalionthipe.tlctn firm CSMH allow (or auionulie lapdaiiiig of productioc lines to beep up wiih changing Western tiectrriaking tccajaraofT-aated interest by tbe Western firm- backed by sustained on-tile picsImprove the use of Weslem equipment and leebncjogy.
Quality control by the Western partner could help assure thai Heel products eorne close to. If not meet,standards.
Such arrangements would allow forster of Western technology at Utile ee no hard currency eosl to the Sovieti until after' production begun
Despite these poteniial advantages to Moaoow.ileal fir mi arc unlikely to rush to enter into such yoint ventures. Years of dealing with the cumbersome Soviet bureaucracy, peor-quality Sovici raw maieriali and semifinished goods, and nejqrialiens tbat goiteitniaatJi win make most Western basinesimenMoreover. Ibe Soviets themselves are apt lo apceoaeh teach acgoraalJeaascaBiicn.tiy.Groa ibe atnount of coo nol over protloction peexxases that would probably be required by ibe Western firms would go against the grain of most Soviet managcri. At preaent, il appears that there isontidcrablc amount of uncertainty among rnJdlevel Soviet ofliciali over exactly wbai such joint ventures would enlnil
No^tiixut lUelalae(uett by aaaraanateeuei and lb* taaMitf si Sc-itl enfineen to aiarfliaatc new Western imbnolory
i newii ill.l
Wealihi.ll.o.utaoaae beeaaaa nf tW iboddy aolmaaasie ttfo-
TXaohU faeJey Millf tat aSararte-aat Iwaaoa aMtra-goad annual canaCiVouot flutetiei. and abar. rod. ltd,
capaHir olni net year.'
* Haunt Soviet rrrorUni Infaeatra lhal oparaUan cf iv Zblotuar nee beea i>uindl* (ida^Mj< bivad ia laa-sst**'< msViUaa ifbi|>iiilm Pan tStrd af iSr raaafcman crtiiaitad lor ataleUni mhiUial dlan^iv aotBefoul**Purine lb' *rilnaanlUcffiileOulfill about IJfOO orders tor Satibed nrodwli
Outlook aad Imnlieatioerj
Un balaace. wc believe lhal the Soviets will fall tbort of meeting the modem!ration goals fee tbe ticel ir-Josiry. althoagh we cxpeel some progretieree let ibarc of tteel arifl be produced iobasic niygen and elect no- -inii more of ihii noel will be continuouslyest slept will improve ihe efficiency of ihe iltwlmnfciog tiroce.si and help the Soviets meei Iheir goali of
t)
Secre(
rolled Heel output without iacrcaslncof tomehich it essential if invest-ment ii going to be concentrated on upgradingequipment. Moreover, leu dependence On outrnoded open>hcarth furnaces will (ive the Soviet! more fiexibiliiy to produce addiiional quantities of cpedalired alloy steels, which cannot be produced in ihese furnaces.
Completion of some of Ihe new plants and (cnovat ion projects planneday help oicelof key sectors of tbe economy. For example, when the new plant at VoUhskiy reaches full capacity, il will provide almost It) percent more seamless pipe to the ecooomy than was prodoccdoreover, pipe from this plant should prove more reliable in Ihe oil and gas iridustriea and could leadewer delays in drilling and developing new oil well*
Despite wetie unprovements. the Soviet steel industry will face too many obstacles to meet fully ibe de-rnso-ds of tho economy. In addition to problem* with domestic mschinery supply and factors wiihJa ibe system that are likely lo inhibil rcnovaiioo. Moscow will oot be able lo count oo much help from its CKMAharp upsurgerch.urs of Wcslem equipment and tcebflceogy. If the stock of metallurgical plant and equipmcoi Is not rocderrrlxedarge scale, the industry's ability to conserve raw materials will be limited, and investmeni will have io be channeled into expanding iron ore productioo and bcaefidaiixrn-isuh. (he amount of new and bettercts flowing from the industry win fall well below (bat demanded, and wo oo aspect (o
ConiiDulog complaints from various ministries (especially (he machine-building minisiries) aboui inadequate variety and quiEty of steel pt^octs,In turn, will Inhibit progress In luodcrnlziag (ho machine-building scctor-tho centerpiecendustrial modernization program.
Machines (hat continue to outweigh their Western counterparts, perform fewer functions, and need io be repaired or replaced moresiphoning scarce resources away fromat ion and into capital repairs.
Continued need for imports of many Wet torn steel products, such as plate and sheet for ihe machine.-building branches and pipe fee ihe oil and gas indusiriea, oclding lo the strain oo dwindling bard currency resources.
Moscow's continued deieetdence on Western imports for quality steel products will be particularlyhe leadership In view of lis hard currency limitations. In Ihe past. Moscow has been able to afford both steel Products and ttcelmaUng equipmenthe USSR has ordered overillion worth of Western steetmaldng equipment and technology and has spent moreillion oa imports of Wcslem steel sheet, plate, lube, and pipe.barp decline in hard currency earnings facing the regime for the foreseeable fa tore, susUiniag these levels of purchase) is likely lo be difficult. Soviet planners will have io weigh carefully tbe trade-offs between purchasing Western plant and equipment to upgrade thelerd of the steel industry and importing Wester, sled products to meet Ihe immediate needs of key macUne-beiildmg and energy-prcrfucirtt tectors
7
Cutbacks In Western equipment purchases In favor of steel products would further slow tho pace of steel mooerolzalion and widen'tbc gap between Soviel and Western tteelmaking technology. Even if the Soviets opt to continue purchases of Western itcelnuldng equipment, progress in modernizing the USSR's steel industry is'oot likely to proceed fast enough to keep pace wilh developing technologies in Ibe West. In-eked, research now under way in Western Europe, Japan, and (he United States promises inncvaiive new technologic* that will fundamentally change the way steel is made iasee tabic SI" Thus, the Soviets are likely to remain well behind the West in steel making technology and will need io continue playing "catch upither through (heir own
r
TibltS
cbtrciixf electric
ri* nt'iit Aft
MLt
HQ IniTCiK ittU*^
rn-aittioo In- ii in-1
ii[lvkra
Mm IM tdvtiLjja of
l(H)ilp-.ffi oittoi
vi.
ritlurul
dimil* fromftirutur.mdrrJ tte-1
ijL>
Ufa* mliicUifer
IM ciimfrcly for
be LM^tdacaK
tm -Bootttti*
rotlmi mill Dim tfearfirif pny ocu nrkAi tiebyl diwUjIkehl>:
m rottta* rucbiw withal
Arfv.^RAO
Iniliac co.li
Rc-iiictjoo lit0
t loft rn Ctfttd OMU
Imm
WklkM Mi* 4
{rommrroil MBtataof Uum
ot. thin ttnp
r .
rr.it development) ot by efforts 10
acquire ihtechnologies from (befforu bave only icratcbaf ibesome ofhen Soviet
efforts aie lucceuful (fot cumplc. borixonlal oominu-ouihe ptu( record luggciu (hi(docs not quickly lead to widespread aunties tion. Mocoovcr. because some of (bete advanced itcelmik-ini leeanologiet require tophinicated computersystems. Sovkt IadigetvJui developmeeit eC" (be process technology would have to awaitte de^lotwicot of th* control tyiteou. lame e< artvich would probably fall under COCOM Coulrob.
Nevertheless, the SorieU will want lo pursue (bese new technologies because Ihey offer fleiibilily to use more abundant resources or tare on energyirect iron uncltlng would be especially beneficial for the Soviet Keel Industry because i( eliminates (be need for coke. Shortages of coking coal have con-sUBined Soviet Heel production for some lime, and we etpect this problem win grow worse In (he future. Technologies such as neat-nc(-chape casting, eoolinu-ous-charging electric fursscet. and hot or direct charging for rolling mills teomlse substantial energy savings. Moreover, many of these new (cchraalogiei cost less per ton of capaaty ihta convent ions ISenriet steel istVerities are likely to be auractod lo any technology lhal not only cult operating ceeu but also strcicba limited Inveslment funds. Thm. witfcj; the neat tcvtral yean we can probably eapect Men-co- to initiale aa aggressive program lo acquire (hue technologic* through joint ventures or Other(hat limit (he u^ front outlay of hard currency. But (be payoff fromrogram would not rjiaierialiic until well Inio
" The Sc-ltu arc already vrtckttl vrfcb Weil Orrmanri *jwp
lulunrimcbml loCOfantnt wnp-burid bailc our'"
(truer lo limit Ik* uk of Iron or
In ihe meantime, (he Soviet Heel industry willio come up short in lermi of both (he tegimc's cipceutioru and (he ncedi of (he macbioe-build ing lector. The failure lo make major improvement! in (he iteel mdotrry ewer (he aetl few years will make indeiliul moderciiatioo more difficult ind protract-ed. increasing the risk that Gorbachev's ambitioui modcrniraiion goals fot the remainder of Ihc decade will net be met- As tbe Soviet leader Is able lo auess ho* rnoderniutioo is firing, he may beot it von to beilei plan impeovemems that could be implement ed in. For eaaraglc. be could doubleJ imports of Waternirvotated boriow'iag in theroolciaiit it eel nuking without iocTcasing (he ikare of domestic inveaimeni reaourtct for iteelmaklng aad finishing'rolonged delays and sclbacfcs to current modernoeb. ho-evcr. win alio increase pressore on tbe regimeack offlis ambitiovr. program or make mote fandarneniat changes in the systeca (hit mghl peende beeb (be incentives and (he resource slack aecessiry for meaningful imrxrrrcrnentt to occur
K-i( of Imparii if Wratara laagtaktalafar
akwlof Irrmunl laritol far ibr noclmatiaf iixl haabiifajiuij. TVarrr>ed fromaat la luima amboalourd uaaaWaatrrawwirift iWv itX antBaa aiad UK rvBIa laHir nwimulla^inlbaaad an aa omitMed aad SNd ivcry. b - were rtm adjuilrda pcrlwmarta taaablliUii. qaitltf.ar "call of rauluo f
J
Secret
Original document.
Comment about this article, ask questions, or add new information about this topic: