The State Property Fund of Ukraine has announced the sales of 93.02% of the ¡°Krivorozhstal
¡±, JSC shares at the starting price of 10 bln. UAH. The sales will take place on October 24.

The last day of submitting inquiries is 7 calendar days prior to the sales, the last day of submitting the draft purchase and sale agreement is 3 working days prior to the beginning of sales. The price offer and company development concept are submitted on the date of sales, registration ends 10 minutes prior to the commence of sales.

According to the information, a step of price increase is 1% of the starting price.

There are special qualification requirements to the participants. They are to have at least a 3-year experience either in the ferrous metals field, or in manufacturing products for ferrous metallurgy, or in manufacture using ferrous metallurgy products. Moreover, in order to participate in sales, it is enough to directly control the above-mentioned enterprises for a year. Offshore companies and participants, who haven¡¯t provided enough information on persons connected with them by control relations, are not allowed to participate.

Among the economic requirements to the buyer is the provision of profit from product sales for 5 years from the date of purchase on the level of not less than 9.5 bln. UAH of the 2005 prices taking into account the inflation rate; primary realization of products for domestic market at market prices; paying taxes and levies in the volume, not lower than on the average level of 2003-2004.

Among the innovation-investment requirements is provision of manufacture with self-manufactured iron ore raw materials and coke with drastic improvement of their qualitative characteristics; retaining capacities on the existing level of 6-6.3 mln. t with drastic modernization of the main rolling modules, as well as completion of the energy development program in order to decrease fuel consumption.

The terms of sales also state specific measures to be taken in the field of modernization and reconstruction of the enterprise till 2015, and 18 years are given for modernization of 12 sintering machines. The total cost is not determined, although earlier the representatives of the sales commission have estimated it at around 12 bln. UAH.

Among social requirements is retaining staff members number for 5 years, avoiding salary debts, supporting social sphere of the enterprise with financial volumes on the same level as or higher than the existing ones, continuing building houses to give them for free to the workers, providing medical insurance and pension.

According to the terms of sales, until all requirements of the purchase and sale agreement are fulfilled, the buyer is unable to increase the Krivorozhstal charter fund, change the par value or the organizational and legal form of the enterprise.

Krivorozhstal¡¯s net income from sales of products in January-June amounted to 5522.74 mln. UAH, net profit ¨C 790.26 mln. UAH. Last year Krivorozhstal increased the sales volumes by 34.1% - to 10099.85 mln. UAH, its profit ¨C 2.3 times ¨C to 2012.61 mln. UAH. In the first half-year the accounts receivable decreased by 14.4% to 669.97 mln. UAH, while the accounts payable increased 2.5 times to 1573.66 mln. UAH.

The size of the enterprise is 12.15 th. hectares, on July, 1st, it had 56.89 th. employees, and the number of working places was 35.02 th. (Ukrainian Metal)

August 16th saw the Statute of Ukraine, which freed bank metals from the import duty, coming into force. This Statute cancels discrimination of gold suppliers from the EU countries, and the legislation is brought in accordance with the European norms.

In September 2004, the State Customs Office began levying state duty at the import of bank metal of 2%-5% from the cost of metal depending on the exporting country. The duty was implemented without any changes to the legislation and lasted till this day regardless of the corresponding explanations from the Verkhovnaya Rada, Ministry of Justice and decisions of the Court. (Ukrainian Metal)

The national joint-stock company ¡°Ugol Ukrainy¡± is initiating a special investigation about the import of Russian coking coals to Ukraine. According to Anatoli Strovoit, general manager of the association of the by-product coke enterprises of Ukraine ¡°Ukrkoks¡±, this has been done because of decrease in consumption of Ukrainian coking coals. 360 th. t of Ukrainian coking coals are left unneeded every month.

Coke manufacturers agreed to decrease the price level for coking coals in August-October for NJSC ¡°Ugol Ukrainy¡± by 18% of the existing prices (with VAT) for 1 t, namely, for grade ¡°J¡° ¨C to 524 UAH/t, grade ¡°K¡± ¨C 584 UAH/t, grade ¡°OS¡¯ ¨C 500 UAH/t, grade ¡°G¡± ¨C 382 UAH/t.

In January-July Ukrainian by-product coke enterprises decreased output of coke by 13.8% in comparison with the same period last year ¨C to 11.248 mln. t, in July the output amounted to 1.401 mln. t, while in June it was 1.367 mln. t, and in May ¨C 1.609 mln. t.

In January-June Ukrainian metallurgical enterprises increased coke import from the Russian federation by 7.8% in comparison with the same period last year ¨C to 384.1 th. t.
(Ukrainian Metal)

According to Yuri Putrya, the deputy to the management chairman of the Association of mining enterprises of Ukraine ¡°Ukrrudprom¡±, Ukrainian mining enterprises initiate limitation of the iron ore raw materials imports, suggesting to implement quotation of these products or other ways to decrease the volumes of import of these products to Ukraine.

According to Yuri Putrya, now mining enterprises store the maximum quantities of iron ore raw materials for the past 15-20 years ¨C 2.4 mln. t. In the meantime, some metallurgical enterprises still import these raw materials.

The Ministry for industrial politics of Ukraine supported this suggestion.

For the past months sales of iron ore raw materials in Ukraine have decreased because of the fall in metal products market situation. (Ukrainian Metal)

(Ukrainian Metal)

The EU has raised the quota for import of rolled steel from Ukraine to 980 th. t in 2005 and 1004.5 th. t in 2006, says the Ukraine¡¯s representation in the EU.

According to this report, the stated quotas are set given that Ukraine has an export duty for ferrous metal scrap on the level of €30/t. If the duty is lowered, the quota level would rise, and in case the duty is cancelled, the quota would increase by 43%. Moreover, in case the Ukrainian operators open new service centres throughout the EU, the agreement provides for the increase of the quota.

Ukraine has obliged itself not to implement additional restrictions on the ferrous metals scrap exports. Quantitative restrictions don¡¯t affect the EU import of Ukrainian rolled metal for use in ship-building, construction and repair of drilling and manufacturing platforms.

Nowadays there are independent measures in the EU that allow Ukrainian rolled metal exporters to the EU in 2005 to supply 703.07 th. t of rolled metal without signing the agreement.

In order to decrease expenses, Arcelor SA, the world¡¯s second largest steel manufacturer, is going to increase the share of its non-Europe capacities from the existing 25% to 50% by expanding the manufacturing base in China, Brazil, Argentina, India, Russia and Ukraine. Guy Dolle, the head of the company, says Arcelor is still interested in purchasing a company in China and is going to reach an agreement on this matter within 3-4 months, despite Peking¡¯s new policy that limits the ways for foreigners to purchase controlling packets of shares of steel complexes. Although the name of the company hasn¡¯t been announced, it is believed to be Laiwu Steel, according to The Wall Street Journal.

According to the Bloomberg company, Arcelor SA can also think about buying minor packets of shares in iron ore manufacturing companies in India, Russia and Ukraine if it decides to do business in those countries. ¡°We prefer to expand our involvement in steel manufacture by investing into new regions, - says the head of the company. ¨C If we were active in the ex-USSR, Ukraine or Russia, or in India, we would need to have access to raw materials, as it¡¯s difficult without them¡±. (Ukrainian Metal)

According to the U.S. Geological Survey, balance stocks of iron ore in Ukraine are around 30 bil. t, and prospected stocks ¨C 68 bil. t. Ukraine is followed by Russia, China and Australia.

Stocks of pure iron contents in this ore are lower (Ukraine holds the 3rd place): balance stocks are 9 bil. t, and prospected stocks are 20 bil. t. Russia is the leader in this field, followed by Australia. Ukraine mines only rich deposits of ore with over 50% iron contents. (Ukrainian Metal).

Due to decrease in demand for iron ore raw materials in Ukraine the ¡°Severniy mining-concentrating complex¡±, JSC, and the ¡°Central mining-concentrating complex¡±, JSC, are planning to supply them to China in the near future. Decrease in sales of iron ore raw materials on the local market reached 150 th. t per month. That is why mining-metallurgical enterprises would try to sell their products on the world markets. Supply of the iron ore raw materials might commence in the third quarter. Previously these enterprises haven¡¯t sold their products to China.

The Severniy and the Central mining-concentrating complexes are going to supply iron ore raw materials not only to China, but to the Eastern Europe and the Russian Federation as well. At the end of June warehouses of these enterprises stocked around 200 th. t of pellets and 200 th. t of concentrate, while usually the stocks are not above 100 th. t of each product. (Ukrainian Metal).

Ukraine holds the 7th place in the world steel production after China, Japan, USA, Russia, Germany and South Korea. Metal manufacture yields the fifth part of the GNP, half of exports, and over half a million citizens are involved into it. A part of this sector in the industrial manufacture accounts to 30%.

Metallurgy of Ukraine was built taking into account all the USSR, and it¡¯s not surprising, that after its collapse over 80% of products began to be exported. Now Ukraine, even though not the main player on the world market,l isn¡¯t the last, - its share is 4% of the world production and 8% of the world export. Ukrainian metallurgy orientation on the Soviet republics is no more: the CIS share is only 4%, the main stream goes to Asia countries.

Over 60% of Ukrainian manufacture is based on the out-of-date open-hearth (Martin) technology. That¡¯s why, the products are of low quality and require twice as much of energy consumption as in the Western Europe. According to the experts from the Edinburgh University, Ukrainian enterprises use only 50% of rolling capacities, and 17% of tube manufacturing capacities. The labor efficiency is low. For example, the steel output of one worker in Ukraine is 75 t, while in SAR ¨C 350 t, Brazil ¨C 430 t, and the EU ¨C 590 t.

But low quality presupposes low price, and because of that Ukrainian metal is in demand. On the market of such a cheap steel only Russia and China compete with Ukraine.

12 enterprises yield 80% of the exports. Among them are Krivorozhstal, Makeyevka metallurgical plant, Azovstal, Donetsk metallurgical plant, Alchevsk metallurgical plant, and Dniepropetrovsk steel-manufacturing enterprises. All of them are situated in Donetsk, Dniepropetrovsk and Zaporozhye regions.

Western economists believe, that Ukrainian manufacturers have a great market potential. But export to the Western countries is limited by their economic policies: as a whole it¡¯s only 8% of exports, and the Ukrainian products take up only 1% of the EU needs, and 0.3% of the needs of the US and Canada.

In the export structure rolling metal takes up the greater part (about 50%), then follow semiproducts (about 30%) and scrap (about 20%). Pig iron£¨ÉúÌú£©, ferroalloys and other products take up insignificant shares of export. In January-February 2005 increase in earnings from ferrous metals export accounted for over 60% (in comparison with January-February 2004), or $1.96 billion (almost 40% of Ukraine¡¯s currency earnings). As a whole the cost of ferrous metals export would grow by 4% (to $11 billion). This is less than in 2004. In 2004 metal products export rose by over 10% in weight ratio and by 60% in cost ratio.

If we speak of groups of products, in the beginning of the year the pipe export rose by over 45% - to 0.2 mln. t, rolled metal ¨C by 15%, to 1. mln. t, and the export of steel semiproducts decreased by almost 8% - to 1.6 mln. t.

Increase of deliveries would be the result of increase in prices for metal and increase in manufacture, as well as the new politics of the EU towards Ukraine. Moreover, according to the new agreements between Ukraine and the EU, the Ukrainian metal export should grow to 1 mln. t by 2006, while now the quote is only 0.18 mln. t. If the customs duty for scrap export is lowered or canceled, then they promise to increase the ¡°million quote¡± in 1.5. The Cabinet of Ministers of Ukraine has already prepared a draft of quote decrease from €30 to €18-25 in a year or two.

According to Russian and British experts, two absolutely different features characterize Ukrainian metallurgy: government subsidies and Western antidumping pressure because of these subsidies, which accounted for $0.5 billion. The government began providing metallurgical enterprises with subsidies after the collapse of the USSR ¨C mostly in the form of immunity from taxes. In 1999 the program of metallurgy support by the state was adopted. This experimental program covered almost 70%, that is almost the all the sector. Ecology tax and other taxes (profit, into the innovations fund) were supposed to be decreased, and some taxes to be canceled at all, as well as all tax fines to be written-off. The state care did have a clearly positive result.

But not many people abroad are happy with the development of Ukrainian metallurgy and the cheapness of its products. That¡¯s why about 50 of antidumping investigations have been started since 1993. That¡¯s because the state subsidies contradict the GATT-WTO conditions. As a whole over half of these investigations were begun in USA, Central and Eastern Europe. In 2001 American and some other countries began 15 ¡°anti-Ukrainian¡± investigations. As a result, the export decreased by 1.3 mln. t ¨C almost by 50%.

When joining the WTO (presumably in Autumn, 2005), Ukraine will have to give up subsidies, but the antidumping pressure would also lower.

Ukraine has 14 major metallurgical and 11 mining enterprises. In the beginning of 2005 the metallurgical enterprises increased the volumes of production only by 4.6%. The overall decline hasn¡¯t touched only the pipe manufacture (increase by over 25%); pig iron processing products (increase by 10-14%). The experts note that even such an increase (last year it was 16.5%) is the result of increase in prices: metal products got more expensive by 7-10%. When measuring products in tons, we can even see the decrease in production.

Thus on the edge of joining the WTO the steel industry is on the brink of major changes. (Ukrainian Metal)