Vítkovice Steel future threatened says government representative

13-03-2015

The government’s special representative for Moravia-Silesia says there is a real threat that steelmaker Vítkovice Steel could close and operations could shift to Russia. The company has rebuffed the comments but there’s little doubt that the steelmaker has still to recover from the sector's downturn.

Photo: Czech TelevisionPhoto: Czech Television The government’s special representative for the Moravia-Silesia and Ústí regions, Jiří Cienciala, made what amounted to a bombshell announcement when he said that Ostrava steelmaker and major employer Vítkovice Steel could move lock, stock, and barrel to Russia.

The threat to shift all activities eastwards is contained in the former minister of industry’s report for 2014 which was obtained by the Czech Press Agency (ČTK). But the news has met with immediate denials by the steelmaker, which dubbed Cienciala’s statement as ‘nonsense.’ Whatever the denials and real nature of the threat, legitimate questions can be posed about the steelmaker’s future.

Last April, steelmaking group Evraz sold off its near 100% stake in Vítkovice Steel to a group of Cyprus based investors. They paid the owner since privatisation in 2005 89 million US dollars and undertook to pay debts amounting to around another 200 million dollars. According to the normally well-informed Russian paper, Kommersant, the new owners are from the Ukrainian steelmaker, Průmyslový Svaz Donbas.

Vítkovice Steel has been through a rough few years recently. It’s main production are the sort of heavy still plates that are used in the engineering, shipbuilding, construction, and car manufacturing sectors. Most of the above, perhaps with the exception of car makers, have seen their markets and profits shrink in the last years. The manufacturer is the biggest supplier of such steel products on the local Czech market after cornering around a third of demand.

The latest results for Evraz Vítkovice Steel, those for 2013, show turnover slipping to 442 million US dollars from 637 million US dollars a year earlier and a final net loss of 31.7 million US dollars, slightly better than the 38 million dollar loss a year earlier. On the upside, the company said that cost cutting and other improvements meant that the overall figures were improving and pointed to operating profits before tax.

The steelmaker will close its rolling mill, with the loss of around 250 jobs, by the end of September this year. This is not really a signal one way or another about the overall plant’s future since deliveries of heavy slabs can easily be made by other producers. At the same time though, it says ongoing investments in technology are continuing with around 300 million crowns being invested this year.

From another perspective too, Cienciala’s comments about the threat of closure raise some eyebrows. Over 90% of Vítkovice Steel’s production at the moment is directed west to European Union countries. On the other hand, Ukraine steelmakers are facing a real headache, exports to Russia, one of the main markets, have been disrupted by the ongoing conflict. And the weakening of Ukrainian and Russian currencies have made exports to the West that much more attractive to both Ukrainian and Russian producers.

Faced with the loss of around 750 jobs this year from the hard coal producer OKD and around the same number of jobs likely to disappear from suppliers, the closure of Vítkovice Steel would be a very severe blow indeed to the Moravia-Silesia region with other heavy industries still struggling to recover and adapt to high energy costs.

13-03-2015