SOVIET EFFORTS TO MODERNIZE STEEL PRODUCTION: DEPENDENCE ON WESTERN EQUIPMENT

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00313R000200110007-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 22, 2016
• Document Release Date: August 3, 2009
• Sequence Number: 7
• Publication Date: August 1, 1984
• Content Type: REPORT

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Directorate of Secret
Intelligence
Yom' {~ /~~'~~R
Soviet'-Efforts To Modernize
Steel Production: Dependence
on Western Equipment
NGA Review Complete
Secret
SOV 84-10134X
August 1984
COPY 4 7 6
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Intelligence
Soviet Efforts To Modernize
Steel Production: Dependence
on Western Equipment
This assessment was prepared byl pf
the Office of Soviet Analysis, with a contribution by
Comments and queries are welcome and may be
directed to the Chief, Soviet Economy Division,
SOYA
Secret
SOV 84-10134X
August 1984
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Soviet Efforts To Modernize
Steel Production: Dependence
on Western Equipment
Key Judgments The Soviets are modernizing their steel industry with the help of Western
Information available equipment and technology. The USSR is the world's largest producer of
as of 30 June 1984 crude steel and rolled steel products, but steel production faltered in the
was used in this report.
late 1970s and early 1980s. More important, the quality and assortment of
steel products have not kept pace with demand, and the Soviets have
become increasingly dependent on imports, primarily from the West, for
many types of steel products.
The modernization effort is concentrated at two major facilities-the
Novyy Lipetsk and Oskol steel complexes. Two new cold-rolling mills are
being built at Novyy Lipetsk, and an entire steel complex is under
construction at Oskol. In addition, a minimill is being built at Zhlobin
using Western technology and equipment.
These three complexes, when completed, will improve the quality and
assortment of steel products, lessen raw material requirements, and reduce
the need for imports of many rolled steel products:
? The Novyy Lipetsk facilities will produce annually 480,000 metric tons
of dynamo steel and 2.5 million tons of sheet and strip, including 500,000
tons of galvanized sheet. The Soviets report that the first stage of the
Oskol complex is expected to produce annually over a million tons of
rolled steel, and the Zhlobin minimill will add 500,000 tons a year of
bars, rods, and sections.
? The direct-reduction process that will be used at Oskol uses no coking
coal and little scrap-resources that are in short supply in the Soviet
Union. It will, however, require a steady supply of iron ore.
? The Soviets will be able to reduce, if not eliminate, purchases of many
types of Western steel.
A consortium that includes the Soviet Union, Japan, West Germany,
France, and Austria is building a rolling mill at Novyy Lipetsk, which we
believe probably will reach full-capacity production in late 1984 or early
1985. The mill will increase Soviet cold-rolled sheet and strip production
by about 25 percent and galvanized sheet production by almost 70 percent.
Although Soviet press reports claim that this output will be used in the
manufacture of automobiles, we judge that some of it may be used in the
production of military vehicles.
iii Secret
SOV 84-10134X
August 1984
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France is supplying a second rolling mill at Novyy Lipetsk, which is
designed to produce dynamo steel sheet. When full-capacity production is
reached, probably in the late 1980s, this plant will increase Soviet dynamo
sheet output by about 50 percent. Dynamo steel sheet-an electrical-grade
steel with properties that limit energy loss-is used in the electric power in-
dustry and has some military applications, such as in motors for military
ships and tanks.
The Oskol complex is being built with West German assistance and will
use the direct-reduction process, which eliminates use of the blast furnace.
We expect the first stage of the complex to begin full operation in late
1985, and the production probably will be used in construction and
machine building. Over the next decade, the Soviets plan to build
additional facilities for the output of sections and plates-products that
have a variety of uses. Because of the high quality of steel produced using
the direct-reduction process, some of the complex's output probably will be
used in production of armored vehicles and military ships.
The Zhlobin minimill is being supplied by Austria and Italy. It probably
will reach full capacity in late 1985 and will produce bars, rods, and
sections for use in construction and machine building.
The assimilation of Western technology in these three complexes will
facilitate production of high-quality steel using processes that would have
otherwise taken the USSR years to develop. However, the Soviets will need
years of developmental work to duplicate much of this technology for use in
additional plants.
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Key Judgments
Oskol Electrometallurgical Complex
6
Resource Savings
12
Outlook for Diffusion of Direct-Reduction Technology
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Figure 1
Rybinskoye
Vodokhranilishche
2hlobin
minimill
~ 1 5 l
"a ~8~ No el
Complex
(OEMK)
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Soviet Efforts To Modernize
Steel Production: Dependence
on Western EquipmentF--]
The USSR is the world's largest producer of crude
steel and rolled steel products. In 1983 it produced
153 million tons of crude steel and 107 million tons of
rolled steel. The United States, by comparison, last
year produced 76 million tons of crude steel and 61
million tons of steel mill products.
With the backing of a leadership determined to
support a broad range of ambitious military and
industrial programs, crude steel production grew
without interruption during 1951-75. Annual incre-
ments were steady, averaging about 4 million tons in
the 1950s and about 5 million tons from 1960 through
Table 1 Million US $
Total Soviet Steel Imports
Total
568
3,197
4,335
4,263
5,049
Rolled steel
289
1,356
2,428
2,071
2,055
Pipe
279
1,841
1,907
2,192
2,994
1975.
However, steel production faltered in the late 1970s
and early 1980s. Crude steel output in 1983 was only
1 million tons above the previous peak level of 152
million tons in 1978. More important, the quality and
assortment of steel products have not kept pace with
demand, and the Soviets have become increasingly
dependent on imports, primarily from the West, for
many types of steel products. In 1970 the USSR
imported about $600 million worth of rolled steel
products and pipe, of which 52 percent was from
Western countries; by 1982 this figure had increased
to over $5 billion, 83 percent from the West (see table
1).
The main cause of the recent poor performance of the
Soviet steel industry is inadequate past investment in
all sectors of the industry-from mining to rolling and
finishing steel products.' Additionally, Soviet rolling
and finishing technology has lagged that of Western
countries, resulting in lower quality products. To help.
overcome these problems, the USSR plans to invest
almost one-third more in the steel industry in 1981-85
To reduce dependence on imports of Western steel
and to help modernize their steel industry, the Soviets
have sought Western steelmaking equipment and
technology. Since 1975, Moscow has spent at least $2
billion on imports of technology and equipment-
primarily from West Germany, France, Italy, and
Japan. About one-half of these expenditures have
been earmarked for the Novyy Lipetsk and Oskol
steel complexes. Two new cold-rolling mills are in the
works at Novyy Lipetsk, and a whole new steel
complex is planned at Oskol. In addition, a minimill is
being built at Zhlobin by Austrian and Italian firms.
Completion of these plants is critical to future Soviet
steel production. This report describes Soviet efforts
to develop these three complexes, with the help of
Western equipment and technology, discusses the
prospects for their completion, and assesses their
potential impact on the Soviet steel industry and
economy.
than it did in 1976-80.
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Novyy Lipetsk Steel Complex
The steel complex in Novyy Lipetsk is a large, fully
integrated facility. It began operation in 1934 but was
destroyed during World War II. Reconstruction be-
gan in 1949, and by 1951 the complex was operating
again. Major facilities include:
? A sinter plant.
? A coke plant.
? Six blast furnaces.
? Two basic oxygen furnace shops.
? An electric furnace shop.
? Continuous casting machines.
? Hot- and cold-rolling mills.
? A control computer center.
The Novyy Lipetsk complex was the first in the world
to use the continuous casting process exclusively and
is the largest facility of its kind in the world.' The
Soviets report that current production from Novyy
Lipetsk includes about 11 million tons of pig iron, 9
million tons of crude steel, and nearly 7 million tons of
rolled steel. The complex ranks third in the USSR in
crude steel production and fifth in rolled steel produc-
tion. Rolled steel products include flat sheet and hot-
rolled strip produced in coils. The flat sheet is used in
the construction, automobile, shipbuilding, and elec-
trical industries. The coils are shipped to the Urals
and southern USSR for the production of large-
diameter pipe for use in gas pipelines.
the Novyy Lipetsk complex
has an odd mixture of modern and obsolete steelmak-
ing methods and equipment. Much of the equipment
used in the initial processes of steelmaking-coking,
sintering, and smelting-is modern and principally of
Soviet, West German, and French manufacture. The
continuous casting machines are of Soviet and West
German design. In the past, some functions of the
Soviet-made continuous casting machines were poorly
designed and, consequently, lowered the surface quali-
ty of steel produced at Novyy Lipetsk. New Soviet
' In a continuous casting operation, molten steel is poured directly
from the steel ladles into open-ended, water-cooled molds in which
the molten steel solidifies from the outer, cooled surfaces and is cast
directly into a slab, bloom, or billet. This process, which is widely
used in the industrialized West, saves energy and labor and
increases both the efficiency of the steelmaking process and the
quality of products
casters are now producing higher quality steel.' The
laboratory equipment and instruments used in chemi-
cal analysis are US-made and of recent manufacture.
The Soviet computers-although big and unsophisti-
cated-perform the required functions well. However,
the complex lacks high-quality steel strip and sheet
mills and finishing processes.
The Soviets have been continually expanding and
modernizing the Novyy Lipetsk complex. Since 1974,
it has more than doubled its crude steel production-
from 4 to 9 million tons. However, the Soviets realized
that they could not substantially improve the quality
of their steel products without Western assistance.
Therefore, they now are building-with foreign assis-
tance-two new cold-rolling mills at Novyy Lipetsk
that will increase the quality and assortment of steel
strip and sheet.
Sheet Mill
An international consortium comprising the USSR,
Japan, West Germany, France, and Austria is build-
ing a cold-rolling mill at Novyy Lipetsk that will
produce steel strip, sheet, and galvanized sheet. The
Soviets are responsible for the preliminary processing
of the steel. They are supplying the continuous casting
equipment, which will be fed by crude steel produced
at Novyy Lipetsk. The Soviets are trying to resolve
their deficiencies in the quantity and quality of sheet
production in a single stroke by bringing in the best
technology for this internationally built mill (see table
2)
The cold-rolling plant will produce thin, low-carbon
sheet and strip with a thickness of 0.5 mm to 2.5 mm.
Some of these sheets will be galvanized-a process
whereby a thin zinc coating is applied to the steel
sheet to provide protection against corrosion (see
figure 2). The rolling mill is designed for an annual
' Indeed, the USSR is one of the world's leaders in continuous
casting technology. Many continuous casting machines in Western
plants are based on original Soviet designs. Moreover, the Soviets
have sold their equipment and technology to companies in over 30
countries, including Japan's Nissan and Kobe Steel Companies and
Italy's Terni steel plant.
' Soviet cold-rolling technology is less advanced than that of the
West. As a result, the thickness of Soviet steel sheet has been more
uneven and, for comparable applications, the average thickness
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Table 2
USSR: Purchases of Western Equipment
and Technology for Novyy Lipetsk
Cold-Rolling Sheet Mill
Year Contract
Was Signed
Supplier
Value
(million US $)
1976
Schloemann-Siemag and Siemens,
West Germany
Continuous five-strand tandem cold-rolling mill
with capacity of 2.5 million metric tons per
annum (tpa) of low-carbon sheet and
strip steel.
Schloemann-Siemag and Siemens,
West Germany; Rutner Industrie-
Anlagen, Austria
Two high-capacity pickling lines for steel strip.
Joint capacity of 4.5 million tpa.
Equipment for continuous annealing of cold-rolled
steel sheets by the Nkk-Cal process, capacity of
500,000 tpa.
52
Continuous galvanizing line for sheet steel.
Capacity of 500,000 tpa.
Carbon steel longitudinal and transverse cutting
line for steel strips and sheets, and lines to make
steel bracing strip.
output of 2.5 million tons of sheet and strip, including
500,000 tons of galvanized sheet. The Soviets are
purchasing Japanese galvanizing equipment and tech-
nology for it.' When the plant reaches full capacity,
Soviet cold-rolled sheet and strip production will
increase by about 25 percent and galvanized sheet
production by almost 70 percent.
construction of this cold-rolling mill began in the mi -
1970s The mill was externally complet-
ed by Febrr 1981 and three additions have since
been built. ua most of
the equipment for the mill has been installed and that
some sheet production has occurred. However, parts
of the project-under the,direction of the Nippon
Kokan Company of Japan and Creusot-Loire of
France-have not gone well, and replacements for
Soviet galvanizing technology also has lagged that of the West.
The first continuous line for zinc coating was introduced in the
Soviet Union in 1964, using Austrian equipment and technology.
At that time there were already 50 such lines in the United States
and 21 in Japan. Because the Soviets have done less developmental
work and have less experience with coating technology, they
probably would be unable to produce quality galvanized steel sheet
some Japanese equipment had to be ordered during
1983. Given the problems and delays, full-capacity
production at this mill probably will not be reached
until late 1984 or early 1985.
galvanizing line and a color-coating line.
Additional capacity will probably be added to this
mill in the future. As of 1983, the Soviets also were
accepting bids from Western firms for an electrical
The second new cold-rolling mill being built at Novyy
Lipetsk will increase Soviet output of dynamo steel
sheet by about 50 percent." Under the original con-
tract for the mill, Armco Steel Corporation of the
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Dynamo steel is an electrical-grade steel with properties that limit
energy loss. Although the USSR now operates, some cold-rolling
dynamo plants, the Soviets lack the 25X1
technology needed to ensure an even distribution of the magnetic
properties during the rolling process-the critical element for high-
quality electric sheet production 25X1
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Figure 2
Sheet Production Process at Novyy Lipetsk
MAJ
Scrap
Lime
Flux
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United States was to supply the technology, laborato-
ry testing equipment, and general engineering skills,
and Nippon Steel Corporation of Japan was to provide
the equipment. Both firms were prevented from carry-
ing out their contract when US sanctions were im-
posed in early 1980 after the Afghanistan invasion,
however, and the Creusot-Loire Group of France was
awarded the contract in September 1980.
We believe the French contract is essential) the same
as the original US-Japanese contract
current
production of electrical steel, including dynamo steel,
is 1 million tons. Under a contract worth $350 million,
Creusot-Loire will provide the Soviets with:
? A tandem cold-rolling mill.
? Twenty-four processing lines, including 11 continu-
ous annealing lines and lines for pickling, heat
flattening, slitting, and coating.
? Support equipment.
The existing facilities at Novyy Lipetsk will be used
for preliminary processing-the melting, continuous
casting, and hot rolling-of the steel that will supply
this mill.
Creusot-Loire probably is also supplying most of the
technology for the mill. When the United States and
Japan withdrew from the project, the Soviets claimed
they had developed the needed technology to produce
high-quality dynamo steel without foreign assistance.
The US and Japanese withdrawal from the nroiect
has delayed plant construction.
initial groundwork for new con-
In the direct-reduction process to be used at Oskol,
concentrated iron ore pellets are reduced to sponge-
iron pellets, with an iron content of 90 to 95 percent,
using natural gas as the reducingfuel. The pellets,
together with 'scrap, are converted to steel in an
electric furnace. This process eliminates the need for
coking coal and blast furnaces because the intermedi-
ate product, pig iron, is not required. Steel smelled by
this process has better technical and mechanical
properties than steel produced using pig iron and steel
scrap.
The Oskol Electrometallurgical Complex (OEMK),
located near Staryy Oskol, is planned around the huge
iron ore basin known as the Kursk Magnetic Anomaly
(KMA).' According to a Soviet technical journal, the
steelmaking production chain will start at the Lebedin
mine in the KMA, where iron ore is currently mined.
The ore will be concentrated and transported through
a 27-kilometer ore slurry pipeline to the OEMK.F-
The Oskol complex will be the only plant in the USSR
using direct-reduction technology and will be one of
the largest plants of its kind in the world (see inset).
According to a Soviet journal, the USSR decided to
purchase Midrex direct-reduction technology because
of the corporation's experience in the operation of
existing installations in West Germany, Canada, and
the United States; the advanced development of the
technology and equipment; and the comparatively
large unit capacity of the installations.' The few
s ruc ion was under way in the rolling mill section of
the complex in June 1982. By September 1983,
footings were being constructed for what is probably
the dynamo plant. We estimate that construction will
not be finished before 1985 and that full-capacity
sheet production will not be reached until the late
1980s at the earliest.
16.7 billion metric tons-roughly 26 percent of total Soviet iron ore
reserves. We estimate current annual KMA production of iron ore
at over 40 million metric tons. Because of a lack of local metallurgi-
cal facilities, ore from the KMA is trans rted to various plants
beyond its boundaries.
The Soviets obtained a license for the technology in 1975 from
Midrex Corporation of the United States. At that time, Midrex was
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Western firms that dominate the market have invest-
ed substantial capital and development work in this
process, and most of the technology is considered
proprietary information. Therefore, the Soviets proba-
bly will save time by importing direct-reduction tech-
nology for assimilation at the Oskol complex rather
than waiting for development of their own.
The West Germans are providing most of the equip-
ment and technology for the Oskol complex
The continuous casting technology will be based on
Soviet engineering designs and West German equip-
ment. The complex will be highly automated. The
Soviets report that all the operating processes of the
section rolling mills, beginning with the storage of
semifinished steel and ending with the binding of
bundles of finished rolled product, will be marked by
a high level of automation. ASEA of Sweden is
providing computer and control technology for the
steelmaking plant and probably the rolling mills. The
Soviets insisted that ASEA buy Soviet computers for
incorporation into the steel plant.
The first stage of the steel complex is being built in
three phases:
? Pelletizing and direct-reduction plants.
? Steelmaking and continuous casting plants.
? Rolling mill.
According to a Soviet journal, the first stage is
designed for an annual output of 2-2.5 million tons of
iron pellets, 1.7 million tons of sponge-iron pellets,
and 1.5 million tons of structural, alloy, and bearing
steel. The Soviets report that annual output from the
West German-built rolling mill is planned at 1.2
million tons of sections and semifinished pipe 50 to
180 mm in diameter'
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' Steel sections consist of structural steel and steel bars. Structural
steel includes large beams and angles. Bars resemble structural 25X1
shapes but are smaller. The are shaped in the form of rounds, I-
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round, square, hexagonal, and flat bars will be produced at this
rolling mill. Semifinished pipe probably refers 1.0 round bars or
billets that are later formed into seamless pipes at piercing millsF--]
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Figure 4
Section Production Process at Oskol' Electrometallurgical Complex
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The first stage of the Oskol steel complex has been
under construction since the late 1970s. The Soviets
report that the facilities are several years behind
schedule. Labor resources were diverted from the
construction of the Oskol complex to help prepare for
the 1980 Olympic games. As a result, the Soviets were
forced to put many of the plant components into
storage when they were delivered.
At that time, only the pellet plant appeared to be 25X1
m rial production. Additionally, a possible iron ore
slurry pipeline was under construction at the com lex
in late 1983
At the current rite o construc-
tion, we estimate it will be about two years before all
production facilities in the first stage begin operating.
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Table 4
USSR: Construction Chronology of the
Oskol Electrometallurgical Complex
1978
August
1980
September
1981
February
1982
September
1983
July
1983
December
Pellet plant
O
U
U
U
X
OP
Direct-reduction plant
O
U
U
U
U
U
Electric furnace building
0
0
U
U
U
U
Rolling mill
0
0
0
U
U
U
Administration buildings
U
U
U
X
X
X
Steam plant
U
U
U
U
X
X
OP-facility operating.
X-facility externally complete.
U-facility under construction.
0-facility not present.
The Soviets report that two more construction stages
are planned for the Oskol complex. During the second
stage, they plan to add:
? One or two additional plants for producing iron
pellets.
? Six or eight Midrex direct-reduction installations
that will increase annual sponge-iron pellet produc-
tion to 5-5.4 million tons.
? An expansion of the electric steelmaking and con-
tinuous casting shop that will increase crude steel
capacity to 2.4 million tons.
? Two mills that will produce a wide assortment of
sections.
? A plant for finishing 1.8 million tons of rolled
section a year.
In the third and final stage, current Soviet plans call
for a new electric steelmaking and continuous casting
shop and a rolling mill to produce plate with a
thickness of 5 to 40 mm. The mill's designed annual
capacity is 1.6 million tons.
The additional construc ion robabl will involve for-
ei n artici ation but
The Soviets' past construction record suggests these
stages will take at least seven to 10 years to complete.
In 1982 the Soviets signed a contract for $540 million
with Voest-Alpine AG of Austria and Danieli S. p. A.
of Italy to build a minimill at Zhlobin.10 The mill will
consist of two electric arc furnaces with a designed
annual capacity of 750,000 tons of crude steel, a
continuous caster, and a combined bar, rod, and
section rolling facility with a capacity of 500,000 tons
per year. Much of the equipment for this mill is to be
supplied by Western subcontractors.
the mill was in the
middle stages of construction in late 1983. It will
probably start production in early 1985.
10 For Soviet planners who have developed the steel industry around
concentrations of production facilities, the concept of building
minimills is new. A typical minimill contains electric steelmaking,
continuous casting, and rolling facilities. Annual production capaci-
ty is usually between 50,000 and 500,000 tons of rolled steel but
can be as high as 1 million tons. In addition to Zhlobin, the Soviets
are building two minimills in Moldavia and Komsomol'sk, but these
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When these projects are completed, they will have a
large impact on both the Soviet steel industry and the
economy in general. These effects include:
? Improvement in the amount, quality, and assort-
ment of steel products.
? Hard currency savings from reduced steel imports.
? Reduced requirements of Soviet scrap and coking
coal supplies.
The Soviet Union has lagged considerably behind
Western steelmaking countries in the production of
high-quality cold-rolled sheet.
shortages of steel sheet for the automobile
industry and of magnetic steel sheet for the electric
power industry. The two rolling mills being built at
Novyy Lipetsk should help alleviate these shortages.
The Soviets report that the steel sheet produced from
the internationally built rolling mill at Novyy Lipetsk
will be used in the production of automobiles, trucks,
and agricultural machinery. Galvanized sheet is par-
ticularly useful for the underbody parts of vehicles.
The zinc coating provides protection against salt and
helps prolong the life of vehicles."
The Soviets report that the Volga automobile plant
will be the main customer of both the galvanized and
uncoated steel sheet from Novyy Lipetsk
automobiles and jeep-type
vehicles are produced at the Volga plant.
small trucks also may be
produced there in the uture. Both galvanized and
uncoated steel sheet are used in the production of all
three vehicles, many of which may be used by the
military. an
armored vehicle plant may be located at Volga.
Uncoated steel sheet is used in the production of
armored vehicles.
" Galvanized steel sheet has been used by US automakers since the
mid-1970s because of increased levels of road salt in this country.
The Zinc Institute, Inc., estimates that the average US car model in
1983 contained 273 pounds of galvanized steel. The increased use
of galvanized steel in the United States has allowed domestic
automakers to offer warranties of three to five years on some car
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German-built rolling mill will produce standard large
steel sections. These sections probably will be in the
form of bars for use in construction and machinery,
axles for cars and trucks, torsion bars for armored
vehicles, and beams for ships. We believe the Zhlobin
steel products will have similar end uses. The Soviets
report that the Oskol mill will also produce semifin-
ished pipe. This probably will be used to make
mechanical service pipe used in construction and
pressure tubes for boilers. The type of production that
might be expected from the other section mills
planned at Oskol includes beams used in the construc-
tion of buildings, machines, and ships. Production
from the plate mill planned for the final construction
stage has applications in the production of machines,
ships, armored vehicles, and large-diameter pipe. Be-
cause of the high quality of steel produced using the
direct-reduction process, we believe that some of the
rolled steel will be used in military production. F
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Shortfalls in domestic steel production have led Soviet 25X1
planners to increase markedly their imports of many
steel products from the West. In 1970 the Soviet
Union was a net exporter of steel, but by the late
1970s imports and exports were roughly in balance-
about 7 million tons each. In 1982 the Soviets spent
over $5 billion on steel purchases; 60 percent went for
pipe and 40 percent for rolled products.'Z The USSR
is especially dependent on imports of cold-rolled steel
sheet and large-diameter pipe. The Soviets also im-
port steel plate and sections, as well as tin plate for
canning and packaging.
Dynamo steel sheet, to be produced at the French-
built rolling mill at Novyy Lipetsk, is used in the
production of electric motors, generators, and dyna-
mos-primarily for use in the electric power industry.
Some grades of dynamo steel have applications in
motors for military ships and tanks, but we do not
know how much of the production from the new
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tary use.
When Oskol is completed, the complex will produce
steel products that have a variety of applications.
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When the Novyy Lipetsk rolling mills, the total Oskol
complex, and the Zhlobin minimill are fully opera-
tional-probably not before the mid-1990s-the Sovi-
ets may be able to reduce, if not eliminate, purchases
of many types of Western steel, especially cold-rolled
sheet and section steel. The Soviets have indicated
that the entire production from the Novyy Lipetsk
dynamo facility will be consumed domestically, elimi-
nating the need for imports. If plate from the Oskol
complex is used for large-diameter pipe, further re-
ductions in imports can be expected.
Substantial hard currency savings can be expected
with this reduction of steel imports. For instance,
although we do not know how much cold-rolled steel
sheet is imported, the cost on the world market of the
2.5 million tons of sheet to be produced annually at
the Novyy Lipetsk sheet mill is about 40 percent of
Soviet expenditures for imports of all rolled steel
products in recent years (about $840 million annual-
ly)." We believe that hard currency savings from the
production at Novyy Lipetsk, Oskol, and Zhlobin will
start during 1986-90. Because the USSR probably
will not be able to increase hard currency imports
substantially in the second half of the decade without
a sizable increase in credits, a cut in its steel imports
would help its balance-of-payments position.
Resource Savings
The Soviets are planning a 50-percent increase in
electric furnace capacity during 1981-85 in an effort
to modernize their steelmaking capacity. Every 10
tons of steel produced in a conventional electric
furnace, however, requires about 1 ton of coking coal
and 11 tons of scrap-resources that are subject to
supply interruptions in the USSR. Though the USSR
has enormous reserves of coking coal-65-70 billion
tons-production has stagnated since 1976. Similarly,
localized scrap shortages have occurred in the USSR
because of limited equipment to sort scrap metal,
shortages of labor, and poor coordination of scrap
collection. The limited availability of scrap metal
probably has slowed the pace at which the Soviets can
" Prices for a metric ton of cold-rolled sheet and galvanized sheet
were taken from the 2 March 1984 issue of Metal Bulletin,
multiplied by the expected production at Novyy Lipetsk, then
totaled. This value was divided by the average dollar value of all
Soviet rolled steel imports for 1978-82 as reported in Vneshnyaya
install new electric furnace capacity. The direct-
reduction process that will be used at the Oskol
complex for electric steelmaking uses no coking coal
and little scrap.
The direct-reduction process does require a steady
supply of some resources-iron ore, natural gas for
the reduction of iron pellets, and electricity. The
Soviet steel industry as a whole is currently faced with
a leveling off of iron ore production due to mine
depletion and declining ore grades. Soviet data sug-
gest that about three-fourths of annual gross additions
of new iron ore capacity now simply offset mine
depletion in older basins. Meanwhile, the average
ferrous content of working deposits declined from
about 50 percent in 1950 to 44 percent in 1975 and 35
percent in 1980. Because of the steady fall in ore
quality, the Soviets have had to divert increasing
amounts of investment to building beneficiating facili-
ties. Almost nine-tenths of Soviet iron ore must now
be enriched compared with only one-third in the late
1950s. About 70 percent of investment in the iron ore
sector currently is going into beneficiating facilities.
Consequently, there are fewer rubles left for construc-
tion of new mines and modernization of older facili-
ties. The Soviets need to guarantee a steady supply of
iron ore-by increasing production, trimming exports
to Eastern Europe, or boosting imports-in order to
expand use of direct-reduction technology beyond that
planned for Oskol.
Outlook for Diffusion of Direct-Reduction Technology
The Soviets have promoted the idea of using the
direct-reduction process in conjunction with minimills
to reduce capital investment requirements and shorten
construction times." This idea is particularly attrac-
tive because:
? The capital investment required to achieve a 1-ton
increment in steel production has grown sharply at
large-capacity steel facilities.
real capital investment per ton of additional
creel increased from 431 rubles during 1966-
70 to 761 rubles during 1976-80.
" Minimills can use either scrap and/or directly reduced iron
pellets as the principal feedstock for steelmaking.F__~
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? Construction periods and timetables for commis-
sioning the huge blast furnaces, converters, and
rolling mills have increased substantially. For in-
stance, construction of a blast furnace with a de-
signed annual capacity of 4.5 million tons of pig iron
began at Cherepovets in 1981.
the furnace was still in the
beginning stages of construction in early 1984.
Minimills offer flexibility because they require less
capital than larger facilities, and the mills can be built
more rapidly to meet demands for specific nonflat
rolled steel products. Moreover, the Soviets have
indicated that they may build minimills based on the
direct-reduction process as a means of meeting the
iron and steel needs of the Soviet Far East and eastern
Siberia-areas where scrap metal and coke are in
short supply.
We believe that the Soviets will not be able to
incorporate the direct-reduction technology in Soviet-
produced equipment for use at other plants for several
years. Historically, the Soviets have been slow in
diffusing Western technology." Soviet research and
development work often does not begin until assimila-
tion of imported plant and equipment is well under
way or has been completed. The Soviets would require
years of developmental work to duplicate Western
direct-reduction technology. Thus, if they intend to
build new direct-reduction plants within the next
decade, they probably will have to rely on continued
imports of Western technology and equipment.
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