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. Last Updated: 07/27/2016

Russia Says Will Not Cut Steel Production

Russia will cut neither steel production nor capacity, contrary to media reports last week that producers would slash output by 10 million tons, deputy Economic Development and Trade minister Maxim Medvedkov said Friday.

At the Organization for Economic Cooperation and Development meeting of 39 leading steel-producing countries in Paris last week, European, Asian and U.S. producers agreed to reduce surplus and inefficient capacity by up to 6.5 million tons by the beginning of 2003, by 9.5 million tons by 2005 and by 23 million tons by 2010.

"We have practically no inefficient capacity, which all other countries are planning to reduce. Almost all of our capacity is profitable," Medvedkov said at a news conference Friday, responding to media reports that Russia would slash production by 10 million tons.

Instead, the country's steel producers played the same card oil producers used with the Organization of Petroleum Exporting Countries -- promising what was likely to happen anyway.

Domestic producers pledged at the OECD meeting to restructure 10 percent of existing capacity over the next eight years, continuing a process that has been under way since about 1995.

"Russia is among the few countries in the world that restructured capacity from 1995 to 1999," said Medvedkov, who is also the government's chief negotiator with the World Trade Organization. Total steel production dropped from 77 million tons in 1991 to 59 million tons in 2000, according to the OECD.

The pledge foresees obsolete capacity being either modernized or closed without setting out the breakdown.

"Russian enterprises have 'sufficient' inefficient capacity to comply with the possible agreement over the next 10 years as they would have gotten rid of it anyway," according to Raiffeisenbank's weekly analysis.

Many of the other major steel countries, however, also have significant capacity lying idle, so capacity cuts may not alleviate the severe overcapacity of up to 200 million tons that has pushed prices to their lowest level in almost two decades.

Furthermore, the measures are purely voluntary. Governments cannot force companies to make cuts, but can refuse to keep loss-making enterprises afloat, Medvedkov said.

For the first time, the delegates agreed on the need to drop trade-restrictive measures and keep a vigilant eye on governmental support for industry.

"Delegations ... indicated that they are committed to play a full role in the discussions and address the issues identified at the September meeting and that the exercise could only be successful if it tackled excess and inefficient steel capacity wherever it may be located with a goal of promoting free and open trade in steel," reads the OECD summary of the two-day meeting.

European steel producers threatened to back out of their pledged capacity cut of 13 million tons if the United States imposes harsh protective measures that could raise import tariffs by 40 percent and tighten quotas. U.S. President George W. Bush has just under 75 days to decide what protectionist measures the United States will take. Russian steel producers have been fighting for exemption from the U.S. list of countries that the new measures would hit.