Alchevsk Metallurgical Plant, the country’s fifth largest steelmaker, is planning to cut at least 1,600 employees.
Ukrainian steelmakers continue to cut their bulky workforces as part of a larger restructuring effort to remain competitive against more efficient Western producers.
Redundant manpower at the country’s Soviet-era mills is particularly vulnerable to the axe, as modern technology is introduced to offset the rising price of gas imports from Russia and Central Asia.
But Ukraine, the seventh largest world steel-producing country, also has high unemployment, inducing mill owners keen on cheaper labor costs to tread lightly with trade unions and public opinion.
Alchevsk Metallurgical Plant, the country’s fifth largest steelmaker, is planning to cut at least 1,600 employees, or 7.8 percent of its total labor, in 2007, according to a trade union representative.
Valeriy Litovets of the Federation of Trade Unions in eastern Luhansk Region, where the plant is located, told journalists on March 16 that as many as 5,000 jobs could be closed “in connection with the perfection of the technical process.”
However, he added, only workers nearing retirement age would be affected.
Alchevsk Metallurgical Plant is controlled by the Industrial Union of Donbass, one of Ukraine’s largest holding companies, which boasts mills in Hungary and Poland. In the past year, the holding has received $500 million in loans from the International Finance Corporation, the World Bank’s private-sector arm, and the European Bank for Reconstruction and Development to implement energy-efficiency upgrades and reduce operating costs at its steel mills.
The workforce reduction at the Luhansk plant, which employs 20,000 people, is expected to be part of an ongoing modernization program that is expected to reduce costs by 1 percent.
Alchevsk’s labor productivity is currently one of the highest among Ukrainian steel mills, but far less than the European average.
Andrzej Kotas, chief executive of SteelOnTheNet.Com, estimates that the average Western steel mill is two-and-a-half times more efficient than a Ukrainian one.
For example, Alchevsk produces around 180 metric tons of steel a year per worker, while for a typical European mill the figure is about 500 metric tons.
But the main advantage of European and other Western steel producers is high technology, which saves on expensive gas and labor costs.
Average wages in Ukraine’s steel industry rose 31 percent in dollar terms last year. Ukrainian steel workers currently earn anywhere from between $300 and $400 per month.
According to Dr. Farooq Siddiqui, senior vice president at the Donetsk-based mini Ukrainian steel mill ISTIL, labor in the country’s metallurgical industry comprises around 5-7 percent of production costs.
The introduction of technology can bring down labor costs, but it depends on the design of the plant, he said.
“In general, the bigger the company, the cheaper the labor costs,” Siddiqui told the Post.
That’s why tiny, foreign-owned ISTIL, unlike most Ukrainian mills, has actually increased its workforce from 2,500 to 3,200 since being launched in the late 1990s.
Siddiqui said the plant’s management decided to take care of its own electricity, maintenance, and other operational aspects of the plant.
Outsourcing of a plant’s ancillary services is normally cheaper, according to the Pakistani native, but in Ukraine there are no reliable companies to outsource to.
While small, ISTIL’s Donetsk mill is one of the country’s most efficient steel production sites.
In contrast, most of Ukraine’s Soviet-era steel mills are overburdened with workers, many of whom are unskilled in modern steelmaking methods or don’t do steel work at all. They also consume several-fold more energy than peers in Europe. Some plants support machine-repair shops, hospitals or even local football teams in a hangover from the country’s socialist past.
International steel giant Mittal Steel, which acquired Ukraine’s largest steel mill, Kryvorizhstal, in a state tender for a record $4.8 billion before merging to become Arcelor Mittal, is trying to break with that past, but Ukraine’s state privatization body isn’t making it easy.
When Arcelor Mittal floated plans early last month to cut Kryvorizhstal’s 54,000 workforce by 6,000, or 11 percent, labor unions protested and privatization chief Valentyna Semenyuk renewed harsh public statements against the international steel giant, which in the past have included threats to renationalize it.
Arcelor Mittal, the world’s largest steel producer, has been locked in a continuous dispute with the SPF over downsizing the company and reducing various employee benefits, which it had to accept when it won the landmark state tender in 2005.
Arcelor Mittal spokesman Frank Pannier told the Post that, like other Ukrainian steel mills, his company wants to encourage early retirements and incentive packages, not lay off able-bodied workers.
Of the plant’s 54,000 employees, “one core operation worker feeds six others.”
“It’s absolutely unhealthy. We are trying to increase efficiency in several ways, and manpower reduction is only one component,” he added.
Pannier said his plant’s production levels are currently lower than other Ukrainian mills, like Azovstal and Zaporizhstal, which have also been undergoing investment and downsizing.
Serhiy Kombushev, first deputy chairman of the central committee of the metallurgy and miners trade union, said the cutting of staff is happening almost everywhere, but it’s not a matter of people being put on the street.
Some get early retirement, some get severance pay, he said, “but we monitor the process, who left for what reason and what were the conditions of the layoff.”
The layoffs are necessary to increase efficiency in an increasingly competitive market, Kombushev said.
“If we don’t modernize today, we won’t have a steel industry tomorrow.”
