Created: 10/24/1978

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SUBJECTi USSR* Outlook for the Steel Industry



This brief report was prepared in response to a

ER, by Mr.


had asked for information on the

for the Soviet steel industry through0 for use in preparationnational paper*


,; teel: industry Outlook0

' The Soviet steel Industry, although securely established as the:world's largest, has experienced difficulties in recent years. Increases in production of crude steel67 were less than the annual increases maintained during tho previous quarterentury as well as short of targets for the current plan. Even the increases in ou'-put earlier inere not adequate to keep pace with domestic needs for steel. Imports of steel in the past three years haveillion tons comparedillion tonshough exports have remained steady atillion tons during. The major share of imports in recent years has been from the industrialized West. Annual outlays of hard currency for steel imports have averaged moreillion. <

vSteel industry; difficulties can be traced mainly,-to'inadequate investment. Annuel allocations to the m

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steel industry,have been increased gradually, but have been less than planned and needed. Construction of basic iron-making and steelmaking capacity has lagged as well as construction of,rolling and finishing capacity needed to

broaden the assortment and to improve the qualityteel products, in the iron ore sector,the growth in output has slowedontinuing decline in the quality of the ore bee'necessitated heavy expenditures for raw ore mining capacity as well as for facilities to upgrade the ore. Some domestic operations have been hampered by shortages of ore, and exports have dropped off somewhat in the past two years from their peak level6 million tons

Prospects are not favorable for an early turnaround or early solution to Soviet steel industry problems. Production is rebounding this year from the poor performance


of the two previous years, but it is not certain yet that the targetillion tons can be attained. The targetillion tons for crude steel0 is clearly beyond reach. The USSR will oven be hard-pressed

to attain the lower end of the rangeillion


tonsthe more informal goal for crude

To compensate1 for inadequacies in domestic capabilities

to manufacture metallurgical equipment, the USSR is relying

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more heavily on imports of equipment. Most notable is the major contractest German firms and possibly other Western suppliers for construction near Kurskargo integrated steel plant basedirect reduction

process rather than the conventional blast furnace process. Various other types of equipment are being imported for expanding and improving operationsumber of existing[Steel plants. However, it will ba several years before full benefits will be realized from these acquisitions.

Moreover, as helpful as these imports will be, they representmall share of Soviet needs in the0 years. There is no evidence, as yet',

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of Soviet intentions to import massive amounts of equipment. Nor is there any indicationajor program to expand and improve domestic capabilities to

manufacture metallurgical equipment.

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n short, the outlook isolicy of gradual amelioration ratherramatic and urgent campaign

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to deal with .problems and needs of tho steel industry. Given the constraints on investment resources and the magnitude of.tho task/ the Soviets probably have little choice in the matter. Withf Soviet steelmaking capacity still accounted for by the traditional open hearth furnace, for example, the USSR will be occupied for many years jin gradual steps to modernize and update basic steelmaking capacity. Tho dominant concern, however, is to concentrate investment as much as possible


ajor plants where large-scale blast furnaces,

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oxygen converters, continuous casting installations,

and rolling mills are in various stages of planning,

design, manufacture and installation. Persistent Soviet

difficulties in carrying out these tasks and coordinating

them with related construction activities has led to a

steady increase in the volume of investment funds tied up

in uncompleted projects. During the remainder of this

decade the USSR is Jnot likely to benefit from any

significantly improved performance in reducing this

backlog. esult,the near term outlook is for

continued reliance on imports of steel from the

industrialized West.

Original document.

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