Is the country’s metallurgical industry capable of coping with the growing crisis?
Despite the fact that in January this year, Kazakhstan was able to slightly increase the production of crude steel and ferroalloys compared to December last year, nevertheless, according to statistical information, the overall decline in steel production in annual terms amounted to 11.3%, and the volumes ferroalloy production, again year on year, decreased by 8.2%.
Thus, in the ferrous metallurgy of the country, the situation of “lack of growth” that had developed by the end of 2022 remained.
Actually, Kairbek Uskenbaev, who was then Minister of Industry and Infrastructure Development, spoke about this in the middle of autumn, and announced at a government meeting the data, according to which, if in non-ferrous metallurgy the volume index was 108.1%, then in ferrous metallurgy, production volumes for January – September 2022 did not increase compared to the same period in 2021, and the indicator of 100% was reached – that is, remaining at the same positions.
In principle, taking into account the abundance of various negative factors (general world recession in the metal market, increased competition, lower prices and other crisis misfortunes), holding positions was also not bad.
But now something else is interesting – whether the notorious “lack of growth” is a temporary phenomenon before the next development, or vice versa – this is the first harbinger of more serious crisis processes (after all, according to the observations of the executive director of the Republican Association of Mining and Metallurgical Enterprises Nikolai Radostovets, the specifics of the industry is the slow entry into crisis and the same slow way out of it).
And here, perhaps, it is worth looking at the prospects, or rather, at the actual fulfillment of some of the tasks and plans set earlier.
The ghostly outlines of factories
Our portal addressed the topic of analyzing the current situation in Kazakhstani metallurgy in June last year in the article “How Metallurgists Survive the Crisis”, in which, in addition to detailed statistical layouts, large-scale plans for the development of the industry were also cited.
For example, according to the MIIR management, during 2022-24, it was planned to build several ferroalloy and steel plants (the total capacity of the latter should be about 1.8 million tons of products per year).
Accordingly, it could be assumed that by this spring some production facilities had already been launched, while others were, if not at the final stage of technical preparation, then at least at a completely foreseeable stage of construction.
As for the plants for the production of ferroalloys, here the increased optimism of officials was due to a positive example of the opening of such a plant in the Karaganda region in November 2021, when Qaz Carbon LLP (which later changed its name to Asia FerroAlloys LLP).
“Qaz Carbon has extensive experience in implementing large investment projects. The implementation of this contributes to the execution of direct instructions of the head of state to attract investment, as well as increase labor productivity in the manufacturing industry. More than 300 permanent jobs have been created at the new plant,” Zhenis Kasymbek, Akim of the Karaganda region, rejoiced at the opening ceremony of the enterprise, adding that the company still has many plans to open similar production facilities in the Saryarka FEZ.
Perhaps that was the case at the time. But then everything suddenly began to change.
The fact is that all projects of ferroalloy plants had to be implemented through a family of companies directly related to each other. Three of them were located directly in Karaganda (YDD Corporation LLP, Asia FerroAlloys LLP, that is, the former Qaz Carbon, and QazFerroAlloys LLP) and one in Ekibastuz – EkibastuzFerroAlloys LLP (however, the main legal registration is with of this LLP was in the offshore zone of the island of Guernsey).
Until some time, the affairs of all ferroalloy LLPs were going very well.
There was a certain logic in the business plans as well. The new enterprises were supposed to focus on ferrosilicon, the production of which in the country frankly lagged behind. So, for example, in 2020, the share of ferrosilicon in the total volume of produced ferroalloys was only 3%, while ferrochromium was 85%.
However, already in mid-2022, the management of QazFerroAlloys LLP announced its complete withdrawal from the Saryarka FEZ and the abandonment of the project for the construction of a new plant worth 54.6 billion tenge, which was planned to employ more than 800 people. At the same time, LLP also abandoned another accompanying project – the construction of a thermal power plant, on which, by the way, the regional leadership had high hopes.
Observers then associated the change in production plans with certain problems that arose among the key shareholders of these companies.
Looking ahead a little, it can be noted that of all the strategic plans of the FerroAlloys family of companies, only the Ekibastuz project is currently being actively implemented, and that, apparently, because its construction, carried out by the contractor Imstalkon-Temirtau, has already reached that technological stage, when it’s easier to fix. Other large-scale plans for expansion remained only on paper …
Certain progress with the organization (more precisely, the revival) of production occurred in the Almaty region, where, not far from Ushtobe, exactly one year ago, a modernized plant for the production of high-quality silicon of KazSilicon LLP was launched.
“Today we have witnessed the restoration of the KazSilicon metallurgical plant, which has been idle for more than seven years. New investors breathed a second life into the enterprise. Modernization was carried out in record time. Thanks to them, 4 billion tenge of investments were attracted, more than two hundred jobs were created. The plant will produce 6 thousand tons of metallurgical silicon per year.
In turn, Marat Sarsenov, General Director of KazSilicon Metallurgical Plant LLP, assured that the plant’s products will be fully export-oriented and meet all international quality requirements.
Of the more distant projects, it is worth mentioning the possible construction of the mining and processing plant of Koksai Muzbel LLP (according to the project documentation, the processing capacity will be 25 million tons of copper ore, and the volume of required investments reaches 650 billion tenge), and a joint Kazakh-Singaporean project for construction of a mining and processing complex specializing in the processing and enrichment of tungsten. The timing of the implementation of these projects is still being clarified.
As for the organization of the rest of the ferroalloy production facilities (managed by other investors), here a relatively active project can be called a plant that the South Korean Mineral Product International LLP (a subsidiary of the South Korean company Mineral Product) intends to build near the Ekibastuz GRES-1.
It was planned to start construction in the first half of 2022, but in fact the capsule was laid only in October. In addition, many issues are currently being “shaken down”, including overcoming the objections of environmentalists about the inevitable grandiose water withdrawal from the Irtysh-Karaganda canal and power engineers, who are puzzled by the future growth of energy consumption in an already energy-deficient region.
Of the more distant plans (the specific date for the implementation of which has not been determined in principle), one can also mention the possible construction of a ferroalloy plant in the Taraz industrial park.
The Indian company Monnet Group and the Kazakh company Fincraft Resources (formerly called Sat & Company and part of the Fincraft Group holding owned by Kenes Rakishev) are working on this project. According to the original idea, the joint venture will be called TB Alloys Kazakh Ltd. The design capacity is 50-100 thousand tons of ferroalloys per year, the total amount of required investments will be 125 million US dollars.
However, it will obviously be too early to say something more definite here, since so far we are talking only about “pre-project work” …
As for the new steel foundries, then in the foreseeable future, serious “breakthroughs” should not be expected there either.
The Aktobe region has been determined as the location of the two future plants. Here we can recall how in 2009 the construction of a huge plant for the production of iron and steel technology of the third generation was already launched, which was supposed to be built by the Japanese corporations KobeSteel and Iron Nugget Exchange together with the Kazakh company SBS Steel LLP. The project was approved “at the very top”, the heads of Japanese corporations repeatedly met with President Nazarbayev, and the government reported on its readiness to immediately get involved in the work and contribute to obtaining a preferential loan from DBK.
Then it was announced that the construction of the plant had already begun in full swing, its design capacity brings the enterprise to the first place in Eurasia and the second in the world, and … all of a sudden everything calmed down. And, tightly and it seems forever.
The second attempt to create new steel production in the region was made only last year, but on two fronts at once.
One steel plant with a capacity of 650 thousand tons and a staff of at least 2.5 thousand people is planned to be built in the industrial zone of Aktobe. Its estimated cost is $600 million, of which $480 million is to be obtained through loans from development institutions. The initiator of the project is Aktobe Generation LLP, it is planned to start construction in November 2023, and finish around 2026. Actually, this is all that is known so far.
The second plan to expand the country’s steel production can be considered a memorandum of understanding, signed in October last year by Akim of the Aktobe region Yeraly Tugzhanov (appointed to this position in August of the same year) with QazSpetsSteel LLP, which seems to intend to invest $587 million in the project and build a plant with a capacity of 800 thousand tons of products per year.
“The uniqueness of the plant is the use of iron ore raw materials, ferroalloys and fuel of Kazakhstan production, which will completely remove dependence on foreign suppliers for the production of billets and rebar. The project is very important for the region and the country as a whole. We are ready to provide comprehensive support in its implementation,” the head of the region assured potential investors.
That’s all for now. By the way, if you look at the taxpayer registers, according to the information published there, QazSpetsSteel LLP was registered shortly before the signing of the memorandum, in August 2022, with the declared type of activity “Production of cast iron, steel and ferroalloys”. According to the list number of employees of the company (not more than 5 people), it is classified as “small enterprises”. In 2022, paid 154 thousand tenge of tax deductions; in the current – another 41 thousand. The estimated annual revenue of QazSpetsSteel LLP is 3 million 314 thousand tenge so far.
However, Roman Fedotkin, the first head of LLP, is not an accidental person in the metallurgical industry and probably knows how to attract the $587 million needed to organize future production…
SSGPO also has plans to build a plant for the production of briquetted iron, since the middle of last year it has been experiencing serious problems with the export of its iron ore raw materials, the main importer of which was traditionally Magnitogorsk Iron and Steel Works (MMK).
“Due to the risks of secondary sanctions, annual shipments to MMK of about nine million tons of iron ore concentrate and pellets were stopped. We don’t supply and don’t know where to supply it…” Alexander Mashkevich, Chairman of the Board of Directors of ERG, complained about the difficult situation.
As a result, by the autumn of last year, SSGPO’s revenue fell by 31% (compared to 2021), and by the beginning of this year, the reduction in volumes had already reached 44%.
Currently, one of the flagships of the Kazakh mining and metallurgical industry is trying to master the Chinese market (with varying success), and its management recalled a 2015 project to build its own processing plant.
The situation may not have the best effect on the economy of the Kostanay region, in which the share of the mining industry in the total volume of industrial production in the region is about 34%. Therefore, it is not surprising that in mid-January of this year, Kumar Aksakalov, akim of the Kostanay region, very urgently asked the leadership of the SSGPO to “present a vision and take measures to level the situation” in the near future. Including – to search for new markets and develop their own processing capacities.
“It is clear that a set of measures is needed on the part of the government and the country’s leadership. We all need to be helped. We have been exporting ore for a decade, but we do not process it ourselves. There is a shortage of iron in the country. The country’s economy will develop…” – the head of the region reflected during a special meeting…
Is the decline in production inevitable and logical?
The crisis with sales markets and the lack of own processing capacities logically led to a decrease in metal ore mining.
According to the Bureau of National Statistics, a drop in production in 2022 is observed immediately for a number of positions: iron, manganese and chromium ores.
Most of all, during the year, the extraction of manganese (-74%, total 352 thousand tons) and iron ores (-17%, total 53 million tons) decreased. The reduction in production volumes also affected chrome ores – by 8% (5.7 million tons).
As for secondary raw materials, “in order to support the metallurgical enterprises of Kazakhstan in the issue of raw materials supply”, the country once again intends to extend restrictions on the export of metallurgical raw materials, including scrap and waste of ferrous and non-ferrous metals.
Similar orders were issued by the MIIR last year, in April and October, causing sharp dissatisfaction on the part of the ALE of black and non-ferrous metal scrap purveyors and processors, who complained to journalists about the “voluntaristic actions” of the sectoral ministry and frightened them with a possible business closure.
The reason was the difference between export prices and domestic market prices.
“We are ready to supply raw materials to our factories, but three conditions must be met: market price, adequate acceptance at factories and timely payment. If these conditions are met, there will be no problems with the supply of raw materials to our factories, and illegal regulation by the ministry will not be needed, ”Nikolai Klobu, a member of the ALE, told representatives of the republican media.
“Today, we have a situation where we, entrepreneurs, are forced to close our enterprises due to these restrictions. Then the state will face a new problem – unemployment. Who will take responsibility for our employees when we close our businesses? There are about 1,000 living companies that pay taxes and maintain employees. Of these, the entire western Kazakhstan will stop, this is about a third of all scrap collection companies … ”- outlined the gloomy prospects of the chairman of the supervisory board of the organization Artemy Filippov.
In turn, Zhanat Igisinov, Head of the Department of the Industrial Development Committee of the MIIR, noting that at present domestic metallurgical enterprises are underloaded with raw materials in the form of scrap metal, suggested that there would be no mass closure of procurement firms
“In order to provide raw materials at the site of the ministry, an agreement was signed on strategic cooperation between MIIR, associations of raw scrap harvesting enterprises and metallurgical companies, which provides for the conclusion of long-term contracts for the supply of scrap metal, the stability of their supplies, payment for the supplied volumes of scrap, their conditions, technical requirements , monitoring of scrap-collecting enterprises and other obligations,” the official specified the measures taken.
And judging by the fact that no official notifications about the termination of the work of such enterprises have followed since then, the businessmen really somehow solved the sales problem …
During this year, some changes are expected in the activities of the largest steel production in Kazakhstan – ArcelorMittal JSC (annual steel production of which is about 3.3 million tons of steel, and more than 3.1 million tons of pig iron).
In September last year, a serious conversation was held with the head of the corporation, Lakshmi Mittal, in Ak Orda, and, as indicated in the communiqué, “the topics of the conversation were issues related to ensuring safety conditions at work, fair wages for local citizens, the fulfillment of social obligations and the modernization of material and technical base.
President Kassym-Jomart Tokayev pointed out to Lakshmi Mittal “the exceptional importance of the company’s compliance with these requirements and obligations” and “focused on the issue of meeting the needs of the domestic market through the supply of ArcelorMittal Temirtau products.”
In turn, Mittal promised to invest $1 billion in Kazakhstan, most of which will be directed to the modernization of production (that is, in fact, promised to do what they almost unsuccessfully tried to get from him over the past few years).
By the way, the issue of “meeting the needs of the domestic market” is also interesting in another aspect – the complaints of Russian metallurgists about the dumping allegedly carried out when exporting rolled steel of ArcelorMittal Temirtau JSC, which, in turn, causes problems for Russian producers who have lost their main export market in Europe and forced to export steel to Asia with huge logistics costs…
On the whole, judging by the trend and forecasts, this year will also turn out to be difficult for the country’s ferrous metallurgy and with a high risk of further recession (which, in fairness, is quite comparable with the global situation as a whole). And here, of course, there would be a way out in the transition from the export of direct raw materials to the export of products of deep processing. But how it is possible to implement such a “technological breakthrough” in a short time is a big question.
(By the way, the executive branch also took some incentive measures. For example, in order to increase the investment attractiveness of the mining and metallurgical complex, the government decided to exempt projects that begin operating after December 31, 2022 from paying tax on the extraction and processing of minerals for a period of five years).
“Of course, there is a decrease in the ferrous metallurgy, but I think that we hope to catch up by the end of the year and in the future we will reach the planned indicators …” – hoped at the end of last year the head of the department of ferrous metallurgy and coal industry of the Industrial Development Committee of the Ministry of Industry and Infrastructure Development Zhanat Igisinov. But so far, this year’s statistics are not very encouraging.
Thus, in February of this year, 199.3 thousand tons of pig iron were produced. Compared to February 2022, the issue fell by a quarter, and compared to the more successful January 2023, by 19%.
Steel output amounted to 264.4 thousand tons, reaching the minimum value recorded in May 2020. Flat-rolled products could not overcome the volume of 197 thousand tons of products, remaining at the positions of the spring of last year.
As for ferroalloys, the downward trend in production continued and the production volume of 137 tons can only compete with the failed figures of August 2015…
Obviously, representatives of metallurgical companies will solve some particularly urgent issues together, during the Astana Mining & Metallurgy congress scheduled for June this year. Moreover, unlike similar congresses of previous years, which look more like ceremonial events with the obligatory presentation of prizes from the Golden Hephaestus competition, at last year’s event they already talked more about various “challenges” and ways to overcome them …
Against the backdrop of the ferrous metallurgy, which is slowly but surely creeping into a crisis, the position of their colleagues specializing in non-ferrous metals today looks somewhat more stable and attractive. But there are also some disturbing nuances …