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. Last Updated: 07/27/2016

At 70, Magnitogorsk Steels for Big Change

MTMagnitogorsk Iron and Steel Works was built during Stalin's first five-year plan.
MAGNITOGORSK, Ural Mountains -- Alexander oversees the operation of a huge furnace smelting 9,000 tons of molten metal per day at one of the world's biggest steel mills in the Ural Mountains.

Like many of his fellow workers at the Magnitogorsk Iron and Steel Works, he's content with his lot despite the threat to Russia's steel industry posed by U.S. import tariff policy.

"Wages here are pretty good by our standards, metalworkers earn $300 or $400 a month, I know that in Germany they earn $2,000 but in Ukraine it's only 50," he said.

With an annual output approaching 10 million tons, Magnitogorsk is the country's biggest steel producer and in the world's top 20.

In its wartime glory days, it produced the steel for every second Soviet tank and every third shell at its 60-square-kilometer combine, built during Stalin's first five-year plan.

But 10 years ago, after the Soviet Union fell apart, the town and the steel mill that lie on either bank of the Ural River at the foot of Magnetic Mountain were struggling with old production equipment.

Choking fumes turned the sky brown in summer and the snow black in winter.

Magnitogorsk's traditional markets in the Soviet military-industrial complex had collapsed overnight and it was facing the wrath of European and U.S. steel makers accusing Russia of dumping cheap steel on their markets.

But today, in the mill's 70th birthday year, the old production methods are being phased out and Magnitogorsk's bosses say it is well placed to weather any storms that hefty U.S. import duties will cause in world steel markets.

U.S. President George W. Bush imposed the duties of up to 30 percent on some products in March to help the country's ailing steel industry.

Igor Vier, the mill's deputy financial director, said that in 1998, Magnitogorsk was selling around 1.5 million tons of steel per year to the United States.

But then the U.S. and Russian governments negotiated an export agreement that cut Russian shipments there to the bare minimum, and Magnitogorsk switched its focus to Southeast Asia.

"We have not been selling more than 1.5 percent of our exports in the United States since the start of 2001," Vier said.

He was confident that a possible glut of unwanted European steel in Asia would not hit the company hard because changes in railway tariff policies mean it will be able to use far eastern ports that were previously not an option.

"I understand that EU countries are not standing aside and are selling in Southeast Asia, but unification of tariffs will make the three far eastern ports accessible," he said.

Magnitogorsk currently moves most of its exports through Baltic ports.

Vier said the U.S. action has hit Magnitogorsk's plans to issue $50 million worth of additional Eurobonds this year as a follow up to a $100 million three-year issue at a 10 percent annual rate in January.

"The reason we did not hit the original issue target was because of the Americans, because of their politics. When they put barriers around their market, of course all the Western investors became pessimistic about the future," he said.

Vier said the company was on course to gain a listing on the Russian Trading System, by the end of the year.

The air in Magnitogorsk is still not clean, but is less acrid than when all the metal at the plant was produced in open hearth furnaces -- brick ovens melting iron ore at 3,000 degrees Celsius.

The process of phasing out the mill's 35 open hearth furnaces and replacing them with more modern basic oxygen converters began in the early 1990s. Today five open hearth furnaces remain.

"We are planning to completely halt open hearth furnace production by 2005," said Mikhail Buriakov, Magnitogorsk's head of target planning.

He said the plant would aim in future to sell more steel on the domestic market, sentiments also expressed by Vier.

"We export a bit more than 50 percent of what we make at the moment, we need to export less, probably to move to a 30/70 ratio like they have in Japan," Vier said.