Thursday, November 27, 2008

Effects of global economic crisis on Ukraine's metal-bashers

Over a month ago I mentioned how hard the global economic crisis would hit Ukrainian industry, particularly in the eastern part of the country. This topic is now raising interest in the western media too.

Today 'Kommersant' provides details of the state in which a vital Ukrainian company, one that "makes machines that make machines*", finds itself.

Here are some loosely translated portions of 'K's' article:

Crisis in heavy engineering - metallurgists cancelling orders

Ukraine's largest manufacturer of heavy engineering equipment, Novokramatorsk Machine Building Plant (NKMZ), yesterday declared they are terminating the dispatch of products to Ukrainian enterprises in the mining and metallurgical complex [because] they are unable to pay for these previously ordered products and are also cancelling equipment orders for the future.

As a result, according to experts, NKMZ it will be soon forced to substantially reduce production. However, the absence of major debts will, in their opinion, help the enterprise to survive the crisis.

The NKMZ limited company specializes in the manufacture of equipment for manufacturing rolled stock, for forged and pressed components, hydraulic, mining, lifting-transporting, and specialized equipment, as well as castings. The principal owner of NKMZ is considered to be PoR VR deputy Georgiy Skudar.

Yesterday the press service of NKMZ reported that on November 21st the plant stopped production for practically all Ukrainian customers because of their inability to settle their debts and their turning away of previously ordered equipment. According to the President of NKMZ, Georgiy Skudar, the equipment whose production is now frozen was intended for the likes of 'Azovstal', 'Zaporizhstal', and the Poltava ore-enrichment plant [some of the largest plants in Ukraine..LEvko]

Skudar noted also that deliveries to Russia have been halved. "As of November 21st NKMZ has finished products on its hands having a value of 700 million [about $150m], for which customers have not yet paid.

He expressed confidence that the soon Ukrainian metallurgists will find the means to settle their debts to the plant, and this will allow NKMZ to survive the crisis. The deputy chairman of the board of enterprise, Aleksey Voloshin, added that the plant has orders to the end of 2009, but only 18% of these were from domestic customers.

The failures of metallurgical combines to acquire new equipment from NKMZ is due to the freezing by them of investment projects as a result of the economic crisis. The drop in the world demand for steel has forced Ukrainian manufactures to close down 21 of 43 blast furnaces. According to [highly optimistic? LEvko] forecasts by the Ukrainian Ministry of Economics, the downturn in manufacturing should come to an end at the end the first quarter of 2009. Financial experts consider the company is financially sound and reasonably well placed to survive the downturn.

A significant chunk of the $16.5Bn first tranche of the recently negotiated IMF loan for Ukraine has been earmarked to assist the 'metallurgists' get through the crisis. The money will help them upgrade their plant, and will help finance national infrastructure projects, e.g. bridges, road and rail construction etc.

* Many years ago a wise lecturer told me to always keep an eye on companies that "make machines that make machines".

1 comment:

Toronto life insurance broker said...

I think this crisis came in the worst possible moment for Ukraine. This country has made some important steps toward stability and democracy (and thus prosperity), but still is on the razor's edge.
And now, this slowdown because of crisis can trigger citizens' impatience against reforms and bring old politicians back to power. And no matter Ukraine can hardly do something about current situation...
Best wishes