Situation in 1998

Production and its use

A half of final production of the Czech steelmaking is exported and more than 40 % of the inland consumption of rolled stock is covered by import.

As a result, steelmaking in the Czech Republic is markedly affected by the situation on world market as well as on some regional markets.

Should we describe present state and situation of steelmaking in the Czech Republic, then we see fit to introduce this paper with short information about its development in the past, because much what we may characterize as today´s state, has its roots in the past and is earmarked by these backgrounds both positively and negatively.

Number of present works celebrated its 100-years jubilee already a long time ago (e.g. Trinecke Zelezarny, a.s. celebrates 160-years˘ jubilee just in this year), some of them came into existence after the 2nd World War only. Within the context of approach to development of national economy, some of them continued to extend their activities in engineering metallurgy, mechanical engineering production, production of pipes and pipe products; close relationships have also been established with production fields following up immediately steel production (downstream processes), and processed steel products in order to achieve higher quality, i.e. towards drawing, grinding, polishing, production of chains, metallic meshes, tools, steel ropes. Also within the range of high-grade steels, acknowledgement of the registered trade mark has been practically world-wide achieved.

While steelmaking in the post-war period on territory of today s Czech Republic had been for a long time developed more or less with the prevailing aim to secure growth of production volume, already the eighties - especially their second half - lead to turn-over in opinions on further development. The doubts about useful continuation of the started trend of development came, in this way, with approximately 15 years delay in comparison with Western Europe and these were only doubts but no consequently asserted approach.

The enterprises established and developed their own research and development centres which solved in co-operation with a state research institute tasks having been ordered by them or by the State. Very close contacts were kept up also with the High School of Mining. However, there stood here, paradoxically, against each other very good qualification of the co-workers of these workplaces and snail s paces of the solution process which were affected by planned and, in this way, often restrictively allotted means. For all that, research as well as development and, undoubtedly, also education of graduated co-workers were successful and contributed to development of steelmaking under so defined conditions. For years, quality has been emphasized, namely also because the steel products were exported to advanced countries as well. Also thank to this fact, the producers were able after 1989 to stand up very soon for generally required quality certificates ISO 9000.

Having already described the situation in production volume, we must also mention the range of products. This is unambiguously affected by development of steel production in the former Czechoslovakia. We mention here Czechoslovakia as such because the post-war development took place so that steelmaking on territory of today´s Slovak Republic has been developed in the field of flat products owing to building-up new capacities, while new production capacities and production of new-built enterprises on territory of today´s Czech Republic have been rather orientated to long products.

Basic notion of regional density of steel works in the Czech Republic may be seen from the map wherein also regional distribution of steelmaking in the Slovak Republic is indicated for completeness sake. Here, all members of the Branch Federation of Iron and Steel Metallurgy are recorded; activity of the Federation is accomplished by Hutnictvi zeleza, a.s. for members from the Czech Republic parallel to rendering professional service to members from both States on the basis of concluded mandatory agreements.

Graphs in the part of this Presentation "Steel industry in Figures and Graphs" indicate the trend of steelmaking development in selected parameters. Therefore, especially more about current situation in 1998 in words.

Steelmaking in the Czech Republic did not by far take advantage of the possibility to increase rolled stock production like the other steel making countries when the growth of rolled stock production in 1997 attained 3.4 %, and export of the rolled stock increased, at the same time, at a rate corresponding to growth of deliveries to inland. Therefore, not even drop in demand on foreign markets in 1998 impinged markedly on it. At present situation in the Czech steelmaking, this lead, nevertheless, together with decrease of inland demand to considerable drop in steel production by 6.5 %. Both steel production and production of final rolling mill products dropped since the 1st quarter of 1998 steadily; in addition, development in the area of flat products was affected by modernization of the four-high rolling mill for production of plates.

Building industry still waiting for its revitalization has been already for many years a dull customer of the Czech steelmaking.

Macroeconomic development of economy of the Czech Republic in 1998 was unfavourable in all basic indicators. A signal of severe menace for steelmaking is especially the fact, that the hitherto corner-stone of its consumer sphere - industry - has got into serious situation especially in the last quarter of 1998 and, in particular, in the last month of this year, and thus the growth in the year´ s time achieved 0.6 % only. Though the inland steel consumption decreased during 1998, its total volume did not fall under the level of the foregoing year and consumption of steel products as a whole increased also in this year by 4.1 %. This is important from the viewpoint of the work done on the restructuralization study as well.

The steel industry management´ s opinion is still valid that 1993 was a breakpoint of drop in production volume and, in this way, space for strategy is being opened how to solve organization of production from the viewpoint of range of products, execution and parameters including economics and trade service making.

Brief characteristic of production development is completed with short evaluation of steel products export and import.

In order to characterize some parameters of the development having unambiguous content especially the group of long products and the group of flat products are given below.

The most important export markets for long as well as flat products are EU and Middle- and East-European countries. The same is valid also for imports.

As to direct exports, the Asian crisis was marked by drop in exports of long products to these areas roughly down to a third of their volume in 1997 (in absolute value approximately by 100,000 t). Export of flat products to this area is generally negligible.

At total drop in export of long products by 2.4 %, export of some items of the range of products increased on the contrary (by 10 up to 88 %). The most striking drop appeared in export of sections (by 15 up to 24 %). Export of flat products dropped by approximately 15 %. This development was, however, also affected by production stoppage in connection with modernization of the four-high rolling mill.

Growth of imports continued as a result of permanently open economy, which enabled a number of countries to switch over their exports to the Czech Republic. Import of long products increased nearly by 40 % (in some items of the range of products even by 80 %); import of flat products where the Czech Republic has more steady supply partners increased by 7 % (in some items of the range of products even by 70 %).

Further increase in import share in inland consumption in 1998 resulted therefrom. At the same time, it may be claimed that prime participaters both in decrease of exports and growth of imports were EU and East- and Middle-European countries. These more or less traditional territories of mutual trade only confirm again the fact that steelmaking in the Czech Republic does not endeavour for exports at all cost and respects the criterion of transportation expenses as a basic significant criterion of efficiency of business transactions. The main customer from EU-countries is Germany, which increases step by step its export of flat products to the Czech Republic. As to value, import from the Commonwealth of Independent States experienced the highest growth (index 2.68, 2.8-times in tons). Import from EU grew by 13 % at simultaneous decrease of export to EU by 5.9 %. Export and import values offer, in addition, view of considerable reserves in efficiency of steelmaking in the Czech Republic. Products having largely mercantile quality without enhanced value are still object of export. Just restructuralization takes interest in firming position on the domestic market by increased values of processing and in gradually replacing export volume by export value. This refers to 3 crucial steel producers as well as steel processors.

In 1998, the first business disputes emerged referring to export of 9 groups of steel products to Hungary and, on the contrary, the need to analyze development of import of reinforced bars and wire rod from Poland and plates from Ukraine was stimulated. Particular steps based on WTO and CEFTA legislation have already been taken in both cases.

Technical levels, ecology, investments, modernization

Share of open-hearth process in steel production, i.e. process consuming too much fuel and energy with substantial lower labour productivity and efficiency in general, decreased from 17.89 % in 1989 to 1.5 %. Share of continuous steel casting increased to 62.6 % and the target is to attain more than 80 % after 2000. Share of steel production in electric furnaces attaining approx. 11 % does not correspond to considerable share of long products. Miscarried privatization of the producer of high-grade steels Poldi had unfavourable impact hereon.

Like in steel production, modernization projects take place also in rolling mills. The largest modernization project is erection of the so called minimill in Nova hut, a.s. which will make the section of strip rolling more effective. Independent integrated unit under the name “Vysoke pece Ostrava, a.s.” founded by the companies Nova hut, a.s. and VITKOVICE, a.s. has been launched and put fully in operation. Consequently, pig iron production in the company VITKOVICE, a.s. was discontinued after 150 years in September 1998. This means stoppage of three blast furnaces, a sintering plant and a coke-oven plant. Concentration of pig iron production in a joint enterprise will bring, in addition to ecological effects for the town of Ostrava, also higher exploitation of blast furnaces and improvement in production economics.

As to continuous casting, achievement of 100 % share of continuous casting in Nova hut, a.s. till the end of 2000 is presumed, in Trinecké Zelezárny, a.s. it has already been put into operation in 1998.

The 3.5 four-high rolling mill incl. all subsequent finishing equipments has been modernized in VITKOVICE, a.s.

As to long products, modernization of main capacities for production of wire rod, rails (long-term programme of Trinecké Zelezarny, a.s.) and range of middle and fine sections is being realized.

This general overview of innovations is supplemented by the information about volume of expended investment means.

Capital costs (without financial investments)

Note: the figures represent the new material and immaterial investments (they don’t include financial investments)

Economics

Economic results in steelmaking as a whole did not get worse in relation to cut in production. From the viewpoint of value, growth of sales even by 4 % in current prices has been achieved in comparison with 1997 and that of added value by 1.6 %. During 1998, economic parameters have got worse quarter by quarter and, for instance, the gain decreased by 14 % at increase of liabilities by 3.4 %. Claims after terms of payment increased by 16 %. Labour productivity from added value increased by 8.6 % even at drop in production. 1998 was not a good year for steelmaking in the Czech Republic as to economic results. This may be stated particularly from the viewpoint of some companies.

Effect of recession shows itself markedly also in the first six months of this year. In comparison with the same period of the last year, production of steel decreased, for instance, by 11 %, that of rolled stock by 20.5 % and of pipes by 30 %.

Privatisation, changes in setting-up steel industry in the Czech Republic

At present, all steelmaking companies in the Czech Republic are either fully or partially privatized. Partial privatization refers to two big steelmaking companies - Nova hut, a.s. and VITKOVICE, a.s. In their privatization, the buyout method has been used with guaranteed option of management for acquiring further share after fulfilment of the defined obligations orientated to enterprise development, which the management has accepted.

Present stage of steelmaking development in the Czech Republic may be characterized, from the viewpoint of property sharing, as a phase of ownership sharing based, in particular, on domestic origin. Joint venture is pushing through, for the time being, in big companies rather than direct capital interlocking - see the blast furnace joint enterprise. In long-term development, efforts to seek strong foreign partners may be rather expected than interlocking. One of the reasons is the fact that interlocking of present subjects from the same country could meet with anti-trust law - for instance in case of wire or reinforcing bars.

Ecology

11,890 millions CZK have been invested in total in 1989-1998 into the projects of ecological character including 9,560 millions CZK into air protection, 1,770 millions CZK into water protection and 560 millions CZK into waste disposal. These amounts do not include sums for disposal of old ecological loads.

Initial estimates of old ecological loads based on audits made in 1994-1998 in some enterprises amounted to 9 thousand millions CZK; after taking inflation into consideration, they are now on the level between 12 and 15 thousand millions CZK.

Total volume of financial means, which must be invested for the purpose of ecology in structures for environmental protection, is estimated at 14 thousand millions CZK; additional 5 to 10 thousand millions CZK for removal of ecological loads from previous activities should be included. Besides, the enterprises pay charges for environmental pollution.

Employment

Employment of about 53,000 persons after 2000 and, at present, of about 70,000 persons, respectively, in steelmaking in the Czech Republic are often quoted even abroad. These data include, however, number of employees in enterprises producing pipes and pipe products, in engineering production and workers performing other activities. From the number of workers given at present in organization schedule, approx. 30,000 workers has, in fact, nothing to do with steel production proper and this distorts the view of labour productivity approximately 1.5-times.

In 1998, number of jobs in the organization schedule of steelmaking was further reduced from 62,586 to 58,447.

Strategy of the present and of development
An important building stone of development strategy is indisputably development of steel products˘ demand on the domestic market. Table of the so-called apparent steel consumption (production plus import minus export) enables to judge its development.