Metallurgy in Romania
The global steel industry is facing an overcapacity in production of over 700 million t, and the governments of steel-producing states are looking for solutions to keep the companies and their employees under the circumstances of declining consumption. Moreover, the dumping price at which the steel produced in China is delivered forces the representatives of the European steel industry to ask for trade protection measures when facing the competition outside the Community.
Romanian metallurgy, unfortunately, after 1989 has suffered a total setback. The decline and involution of Romanian metallurgy has multiple causes, among which very high specific consumptions (both energy, and materials), significant reduction of the sales markets, replacement of domestic capital with the foreign and fraudulent privatizations.
In 2017 KeysFin, a company measuring the condition of Romanian business by collecting and analyzing financial data on active companies, conducted a thorough analysis, which showed that in 2016 the turnover of the metallurgical sector hit the lowest level compared to the previous 4 years of RON 33,5 billion, as the trading in metallurgical products barely passed the RON 6 billion threshold. In comparison, in 2013, the metallurgical businesses generated over RON 34 billion, and the trading of such products surpassed RON 6,65 billion.
The analysis finds a direct correlation between the sector’s evolution with the disappearance of more than 100 companies in the previous 3 years, and with a drop in the number of specialists of 1000 between 2013 and 2016.
In 2014, in the Romanian economy there were 7694 companies operating in the metallurgical industry, of which 948 in the trading sector, while two years later, the statistics of the Ministry of Finance and the Trade Registry showed 7592 companies, of which 798 active on the commercial side. The data also shows that, if in 2013 the metallurgical sector had 124 600 employees, of which 6287 in the trading sector, in 2016 there were only 119 000 left, of which 5400 in the trading sector.
KeysFin experts warn that Romania is on a challenging path and that, in the absence of measures to boost the manufacturing sector, the economy risks going into very shallow waters. KeysFin analysts explain that the metallurgical sector is a sensitive indicator of the real evolution of the economy. The decrease in export demand, the strategic decisions taken by the big foreign players, who own or have owned units in Romania, the absence of domestic sustained demand and last but not least, the increase in imports, have led to the decrease of business activity in this sector. The significant decrease of public infrastructure projects and the rising commodity prices have added to this already challenging landscape. If in the early 2000 metallurgy, from primary aluminium and alloys, to hot rolled steel sections, steel pipes, cold rolled steel sheets and strips, galvanized wires, and welding electrodes increased by over 10%, the 2009-2013 crisis marked the end of factories and the aftermaths are still visible.
The difficult conditions in this sector are also highlighted by the insolvency-related statistics. According to the data, over the years from 2014 to 2016 1258 companies became insolvent, as funding sources dried up. In the metallurgical production sector, the average payment period was of 187 days, and the collection period was of 93 days.
According to KeysFin, given the fact that foreign companies, have significantly reduced their investments in Romania, strategically choosing other destinations, the industry’s development opportunity lies in the restoration of past economic supply chains, and a key role in this approach lies within the state’s reach via investments, that would allow the functioning and development of Romanian companies.
Currently, according to the KeysFin analysis, the Romanian metallurgical sector has concentrated in areas with economic potential, such as Bucharest-Ilfov. Most companies are registered in the North-Western area (1485 companies, of which 1394 are involved in production-related activities and 91 are involved in trading) in the Centre (1189/63) and in the Bucharest-Ilfov region (1053/216). On the other hand, the North-East (719/64) and South-West (597/48) regions perform the worst in this respect.
The metallurgical industry has relied on foreign investments for years. Arcelor Mittal Galati is still the most important player in the market, with the largest turnover among all active companies. The Galati-based factory reported a turnover of RON 3,47 billion in 2016. It is followed by Alro SA (RON 2,14 billion), Silcotub SA (RON 1,23 billion), TMK-ARTROM SA (RON 761,9 million) and Alum SA (RON 556 million). They are followed, in terms of turnover by Arcelormittal Hunedoara SA, Bamesa Otel SA, TMK - RESITA SA and Faist Mekatronic SRL. In terms of trading in metallurgical products, the KeysFin analysis shows that the leader is Mairon Galati SA with a turnover of RON 819,2 million in 2016. Rottco Consult SRL, A-KEMI SRL, Baurom Construct SRL, Damila SRL and Miras International SRL come next with businesses worth between RON 170 million and RON 357 million.
In the following section we will present a short description of the main representatives in metallurgical sector in Romania in the steel industry, nonferrous metallurgy and metallurgical companies in the field of processing.
Targoviste Special Steel Compound
Targoviste Special Steel Compound is a company in the steel industry in Romania, owned by the Nikarom Invest Company in Bucharest. Targoviste Special Steel Compound was privatized in 2002; it was taken over by the Conares Trading Company, registered in Switzerland. Conares later became part of the Russian group Mechel. Since its opening in 1978, Special Steels Compound Targoviste was equipped with modern technology for the production of special- and high-alloyed steels necessary for the development of national, civil and defence industry.
The Special Steels Plant (COS), the largest employer in Targoviste, is struggling to survive insolvency. It is strongly affected by the export of scrap mainly to Turkey, which keeps the price of the main raw material with an average of about 80% of production costs at a high level and reduces the competitiveness of the plant for export.
The new shareholder from COS Targoviste took harsh restructuring measures. The management has taken steps to reintroduce special steels with higher added value into production; they made minimal investment in new compressors to reduce energy costs and geared towards technological processes, such as heat treatment, to obtain steels in order to reduce the cost to a minimum, while increasing market competitiveness.
ArcelorMittal Galati is the largest steel mill in Romania. Since 2009 until now, the company of Indian billionaire Lakshmi Mittal has invested in Galati over EUR 350 million. ArcelorMittal Galati, former Sidex Steel Mill, was bought from the state in 2001 for EUR 70 million by Indian billionaire Lakshmi Mittal. ArcelorMittal is the largest steel and mining company in the world, present in more than 60 countries, in 19 of them with their own production units. In Romania, ArcelorMittal owns production units in Galati, Iasi, Roman and Hunedoara. ArcelorMittal launched a plan, intended to improve the results on the five operational segments and to return to an operating profit of over 85 dollars/t.
Alro Slatina is the largest aluminium producer in Central and Eastern Europe. The Company S.C. Alro Slatina S.A. was established by the Romanian Government in March 1963, by building the first and the only aluminium plant in Romania, more precisely in Slatina, Olt County.
Vimetco N.V. The Netherlands is the majority shareholder in Alro S.A., holding at present 84,19% of the company’s shares. Vimetco is a private capital company, which carries out business in Romania, China and Sierra Leone and is listed on the London Stock Exchange. Alro Group comprises the following companies: Alro – manufacturer of aluminium (company listed at the Bucharest Stock Exchange), Alum (company listed at the Bucharest Stock Exchange), SMHL—manufacturer of bauxite, Vimetco.
Because of the difficult economic conditions in Romania, in 1990-1991, production decreased to 110 000 t/year, subsequently increasing gradually up to 170 000 t. The operating profit registered in 2015 went up to RON 198 million, six times higher than in 2014. The net profit of the company was RON 9,6 million in 2015, compared to a loss of RON 109 million registered in 2014.
The investment of over USD 550 million made in the past 11 years has helped Alro to consolidate and extend its product portfolio, to reduce its specific power consumption and final costs. The cost of raw materials has declined due to operation of the recycling waste aluminium capacity. About 10% of the primary aluminium produced in Alro originates from recycled waste. Electricity consumption for the production of this type of aluminium is by 90% lower compared to the consumption in the production of electrolytic aluminium.
Silcotub SA is a metallurgical company in Romania, founded in 1991. Silcotub is part of the company Tenaris – the largest pipe producer in the world. Tenaris is the leading Romanian producer of seamless steel pipes of small diameters used in various applications in mechanical engineering, automotive, oil and gas, chemical and petrochemical industries, the energy industry. Its manufacturing facilities are located in Romania, in Zalau – seamless pipes manufacturing, with an annual production capacity of 180 000 tons of seamless pipes, and in Calarasi – steel mill with an annual production capacity of 470 000 tons of steel. Gibraltar Tubman Holding Limited, the majority shareholder (controlled by Tenaris), controls 84,86% of Silcotub and Marketing E-Trading Taltal holds 10,86%.
CupruMin Abrud is a company in Romania whose main object of activity is the extraction of non-ferrous metal ores. The main activity of CupruMin is the extraction and processing of copper ore from Rosia Poieni mine, selling the copper concentrate and precious metals. In March 2012, the company Roman Copper Corp. Canada took over the whole capital of CupruMin owned by the Ministry of Economy.
Timken S.A. Ploiesti
Timken has 63 production facilities and service centres throughout the world, including eight production facilities in Europe located in Italy, France, Poland, Romania and Great Britain. Timken has registered sales worth USD 3,1 billion in 2014. The American Group Timken plans to invest RON 237 million (about EUR 54 million) in a manufacturing plant for components for the automotive industry near Ploiesti, in Aricestii Rahtivani.
Challenges and prospects to metallurgy
In 2015, the national statistics showed that there has been an increase of production capacities in almost all metallurgical sectors. The largest increases in production capacities were registered in crude steel produced in electric arc furnaces (+58,5%), cast iron and ferro-alloys (+19,6%), crude steel (+11,1%), long hot-rolled products (+10,8%), mixture making (+10,6%), as well as products obtained by cold-rolling (+10,0%).
Metallurgical sectors where production slowed down were continuous casting steel (-11,2%) and hot rolled products (-10%). But in terms of utilization of production capacities in 2015, it should be noted that in the coke, cast iron and ferro-alloys sectors, 96,2% of capacities were used compared to 96,8% in 2014. 66,6% of the capacities of crude steel production plants were used compared to 70,6% in 2014, noting also a slight decrease in both coke, cast iron and ferro-alloys.
Investments have increased by almost 70%. In 2015, the total expenses for investments in the metallurgical sector amounted to RON 337,4 million, increasing in nominal terms by 67,9%. Investments in most metallurgical sectors have registered growth, but predominantly these were rolling mills with 58,6%, rolling mills for cold rolling strips – 27,5%, steelworks with 23,8% and flat products with 20,3%. The expenses for environmental protection represented 4,9% of the total investment costs, registering a decrease of 10,3%.
The power consumption of the equipment and steel plants was 1605,3 GWh (76,8% of consumption), the energy used by the auxiliary facilities and internal services – 484,2 GWh (23,2%).
Per types of equipment and steel plants, the share of the electricity consumption was respectively 540,6 GWh or 33,7% in rolling mills, followed by the steel-making capacities (447,8 GWh, respectively, 27,9%) and electric furnaces for melting and continuous casting (441,5 GWh, respectively, 27,5% of the power consumption of steel-making equipment and plants).
The gross consumption of energy in the metallurgical industry in 2015 was 61 244,5 TJ, which was an increase by 11,8% compared to the previous year. Of this consumption, 52,7% has been used for the preparation of the load for blast furnace, 19,4% for other uses, 11,8% for the production of cast iron, 7,0% for the production of steel and 5,5% for rolling mills.
The impact of the global economic-financial crisis in 2008 reflected on the energy market, which affected metallurgy tremendously. The metallurgical sector had to face an uncontrolled and unpredictable growth of costs with the electrical energy, due to the increase in energy prices by producers; increase of prices for services (transmission, distribution, etc.); and the implementation of the energy legislative package for climate changes, renewable energy and cogeneration fee.
The Action plan for Sustainable and Competitive Industry included policies on energy, climate, resources and energy efficiency to boost competitiveness. To reduce the impact of the electricity price factors support measures have been taken for consumers (by reducing the number of green certificates, payment deferral until 2017, cogeneration tax reduction, etc.).
A legal framework has been created to capitalize the emissions of greenhouse gases, respectively, the use of the revenues obtained for financing projects aimed at reducing emissions of greenhouse gases, including financing research and development on climate change. One of the government’s strategic goals was to reduce disparities on prices and average costs of energy between the EU industry and its main competitors in order to create the regional energy market. All companies have ongoing investment programs for improving energy efficiency/reducing energy consumption and increasing the competitiveness of the products.
The social dimension of restructuring involves improvement of competencies to meet the skill needs. The government provided the legal framework for professional qualification and retraining workers by means of the Law on the unemployment insurance system and employment stimulation with the subsequent amendments and completions, the law on apprenticeship at work, as further amended and completed, etc. Training measures aimed to increase the adaptability of workers to the structural changes of the labour market. These have been proposed for additional funding from the European Social Fund through the “Partnership Agreement 2014-2020”. In the programming period 2014-2020 structural funds were also used first and foremost to stimulate people looking for a job.
According to the National Prognosis Commission industrial production forecast shows that recovery of the metallurgical/steel industry could be achieved if metallurgical companies in Romania pursue generalization of alignment to the best available practices and techniques in metallurgy in order to optimize their environmental performance. The path to recovery requires maintaining activity to a competitive level in relation to the progress made in the energy costs, increasing productivity by improving the use of materials and energy.
The government needs to continue the implementation of provisions on the establishment of a state aid scheme to exempt certain categories of end users from Law no. 220/2008 concerning the system for promoting energy production from renewable energy sources, with subsequent amendments and supplements as well as continue implementing the recommendations of the “Action Plan for the future of steel industry” on energy efficiency, to reduce CO2 emissions, to allocate funds from the sale of the certificates of emissions into research and development, and to provide better access to the structural funds for professional reconversion, etc.
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