By John Helmer in Moscow
Russia’s Prime Minister Vladimir Putin has announced through the Interfax wire service that as part of the improving relationship between his government and that of the newly elected Ukrainian President, Victor Yanukovich, the Russian government is prepared to accept a current import quota for Ukrainian large diameter pipes (LDP) of up to 260,000 tonnes. LDP is required for Russia’s major oil and gas pipeline projects being built by Transneft, Stroitransgas, and the oil companies.
Putin’s number is just short of the Ukrainian pipemakers’ request for this year; but well above the quota limit proposed by the Russian pipemakers. Still, the favour for Ukraine, if that is what Putin calculated it to be, has been greeted by respectful silence from the Russian pipemaking industry, whose sales and pricing are directly affected.
Ilya Zhitomirsky, spokesman for leading domestic pipemaker TMK, told CRU Steel News his company will not comment on the prime minister’s announcement, and he referred to the Russian Fund for Pipemaking Development, the domestic industry lobby group. Alexander Deineko, head of the Fund, said the precise volume of above-quota shipments has not yet been fixed, and he will not comment on the likely impact of the Putin move on the Russian industry’s sale revenues and profits.
There is speculation that Putin has deliberately acceded to the Ukrainian request as an anti-inflationary measure, putting a Ukrainian cap on price increases for the Russian pipemakers, who have been raising their prices in order to protect their profit margin, and defray the rising cost of scrap, coking coal, and other raw materials required to produce the pipes for sale. It is equally obvious that by squeezing the Russian pipemakers’ profit margin, Putin’s Ukrainian measure preserves, possibly increases the profit margins of the Russian producers and exporters of oil and gas. Since there are cases of the latter suing in court to deny they are the beneficiaries of prime ministerial favour, it cannot be so.
The timing is awkward for the Russian pipemakers. Severstal announced this week that LDP output from its Izhstal pipemill, near St. Petersburg, fell in the first quarter to just over 100,000t, a decline of 17% from the December quarter volume. The high-value LDP product line contributes about 33% of TMK’s revenues, and an increase of Ukrainian deliveries is likely to capture sales from TMK’s increased annual production capacity for LDP of 1.2 million tonnes, which was recently started at a new LDP production line at TMK’s Volzhky mill.
Vyksa Pipe, Russia’s leading producer of LDP, has been forecasting 3% growth in volume of procurement of LDP in the Russian market as a whole this year. Reporting a 25% lift in LDP output in March, compared to February, to the 200,000t level, Vyksa has been saying that it may increase its sales of LDP from 1.5 million tonnes to 2.1mt this year, with an annualized growth rate forecast of 40%.
Deineko’s Fund and its members, the domestic pipemakers, were able to lobby for the government to impose antidumping duties on Ukrainian imports of pipes for a five-year term, starting January 31, 2006, and running until January 30, 2011. The duty on oil and gas pipes was 8.9%, bearing pipes, 55.3%, casing pipes, 11.4%, and pumping and pressure pipes, 18.1%. In parallel, and reflecting special terms for the large-diameter products of the Interpipe group, a quota was fixed for duty-free imports.The tonnages covered by this allowance were 411,000t in 2007; 419,000t in 2008; and 427,600t in 2009. The duty-free Ukrainian imports, Interfax reports, are not supposed to exceed 5% of the Russian market in the type and function of pipe traded.
During the lull in oil and gas drilling and pipeline building in 2008 and 2009, the import volumes from across the frontier fell short of these limits by a hefty margin. According to the published numbers, just 230,000t of Ukrainian pipes were delivered to Russia last year.
The apparent trigger for Putin’s announcement was the halt by Russian Customs on April 1 of all incoming duty-free Ukrainian pipes. The move followed the expiry of the old duty-free quota agreement, and the failure to agree on a new quota limit for 2010, with the Ukrainians requesting 265,000t, and the Russians offering 217,000t. Interpipe told the industry press it has stopped shipping pipes to Russia because of the new duty level.