The Global Emerging Market in Transition: Articles, Forecasts, and Studies

Internationalization of Russia's Metallurgy Industry

INTERNATIONALIZATION OF RUSSIA’S METALLURGY INDUSTRY The Soviet Union was, and Russia continues to be, the world’s largest producer of iron, steel, almost all major heavy nonferrous metals, and platinum, and one of the leading producers of gold. In former days, the entire metallurgy industry, including the black and nonferrous metals, was given special priority because it was a basic necessity of the military industrial complex. The Soviet Union’s totalitarian economic mechanism, however, was not oriented toward the implementation of both scientific and technical advancements even in the lucrative metals area. During the 1980s, industrial technology in the Soviet Union fell far behind modern levels in developed countries throughout the world. Even the many technological achievements of Soviet scientists were not put into practice, except abroad. For example, Russian engineers developed continuous casting methods, but in the Russian black metals industry, it is used in only 25% of production and in the United States in about 80% of production. With the gradual opening of the Russian market in 1987 and 1988, Russian and foreign investors became interested in working cooperatively. As the first step, Russian companies began utilizing the know-how of Western technologists to produce a wider range and better quality of metals and products. World Markets Feel the Effect After the disintegration of the Soviet Union in December 1991, the central authorities started to lose their power over metal producers. As a result, metallurgy plants started searching for cooperation from Western partners to market their metals abroad and generate hard The Kvint Newsletter, 1, No. 12 (September 1994). 494 the emerging market of russia currency flow. Decentralization, along with its positive results, also created many problems in terms of the non-regulated export of Russian metals, very often at prices that bordered on dumping. This had a tremendous influence on world markets for steel (especially technology steel), aluminum, nickel, and many other nonferrous metals. The world was also concerned about Russia’s policy on platinum exports. Unlike other countries that have only small reserves, the Russian state owns the world’s largest platinum reserve. Western Technologies Are Adopted In the last few years, cooperation between major Russian and foreign players has taken on more stable forms, such as joint production and marketing arrangements. Companies throughout the world, such as Alcoa, ASARCO, Engelhard, Gerald Metals, and Sabin of the United States; INCO and Falcombridge of Canada; Outokumpu of Finland, Kwinana of Australia, and many more have become very active in the Russian market, through buying metal products as well as by purchasing shares in Russian companies. Alcoa, one of the world’s largest aluminum companies, has a longterm strategy and several goals with respect to the aluminum market in Russia. The first is to create favorable conditions for buying aluminum products in Russia. The company is currently purchasing at least 30% of the output of the three largest aluminum plants in the world, in Bratsk, Irkutsk, and Krasnoyarsk (all in eastern Siberia). Alcoa’s second priority is to sell alumina to Russia, the raw material required for aluminum production. With very few natural reserves of its own, Russia needs Alcoa to help regulate its market. With the help of companies like Alcoa, Alcan, and Trans-World Metals , Russian aluminum will enter the international market at optimal prices, thus avoiding a flood on the marketplace. Finally, Alcoa is looking to create joint ventures in Russia—through, for example, its Norwegian subsidiary, Elceim. The heavy metals in Russia, such as nickel, cobalt, and copper are also attracting the attention of the international community. For example, the Norilsk Mining and Metallurgical Company in Russia, the world’s largest producer of nickel, cobalt, and platinum, has created a joint venture with Axel Johnson in London for marketing internationalization of russia’s metallurgy industry 495 nickel. Meanwhile, Engelhard, the platinum producer, user, and marketer, is also in a position to play an important role in regulating the flow of platinum from Russia. Platinum Eases the Deficit Unlike Russia’s gold reserves, which Gorbachev depleted in an effort to build up the military complex, Russia has substantial state reserves of platinum. It is in Russia’s best interest to sell platinum on the world market, to ease the deficits of its budget and acquire hard currency. Russian executives in the industry know, however, that once they enter the marketplace, world prices will be driven down and the platinum and palladium markets...