Active even in critical times Makstil

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ACTIVE EVEN IN CRITICAL TIMES

Mitko Kocovski, Sc. D

The best way to understand the current situation in the Macedonian steel industry and its involvement in the modern European economy is with the transitional experiences of ‘Makstil’, the country’s leading steel producer that is now a member of the Duferco Group.

Although the production of steel in the Republic of Macedonia has a 50 years long tradition, in the late 1990s, when the transitional processes in the region were leading to significant system transformations from public and parapublic economies to modern free-market economies, the Swiss corporation Duferco showed an interest in becoming the major shareholder in the leading operator in the Macedonian steel industry. It was the first significant acquisition of a an important industrial company in the Macedonian state economy and the relationship between Makstil and Duferco has become a measure for Makstil’s successful positioning in the multinational production and trade structure of the Duferco group and a guarantee for its future growth.

The aim of Duferco was to extend the production cycle from their own steel semi-products to final rolled products in order to achieve optimal economic production and to become financially stable. It was the only logical response to the privatization of the big steel producers in the industrially developed countries and to the later privatisation of the national steel industries in the central European countries. Therefore Duferco managed to establish Makstil as a solid business by taking over the arrangements for financing the technological and ecologic restructuring, improving the processing equipment, providing basic production inputs, product marketing and retail credit facility.

Meeting EU requirements

Part of Duferco’s strategy in taking over Makstil, along with the objective of increasing the group’s production of steel semi-finished products to provide the necessary balanced quantity, was to comply with the EU regulations for the steel and steel products trade.

It was also important to improve the production quality through implementing new technological solutions and to upgrade the processes of the whole production line, to expand the range of products (in both dimensions and quality) in accordance to the new standards and procedures in metallurgy and according to the future expected needs of the consumers, and to adjust costs in accordance with the current cost standards in the world steel industry, Duferco was also guided by new European standards for environmental protection, that is to say the realization of the environmental and regulatory demands of the integrated environmental permit. This last concern was a key business imperative in the implementation of the transformation strategy in accordance

with the best available techniques. All of these changes are to be implemented in two consecutive investment cycles (the first is estimated around 15 million dollars, and the second is estimated around 39 million euros); this investment will provide the necessary level of competitiveness that Makstil will need to succeed in the highly competitive market of today.

With a credit support of 15 million dollars provided by the European Bank for Reconstruction and Development and a warranty provision by Duferco, a whole range of elements of the plan for reconstruction and modernisation of the manufacturing facilities have already been realised.

National strategy

This reconstruction programme is entirely in harmony with the aims of the Macedonian national strategy at the beginning of the new century to reconstruct the country’s steel industry; this strategy was one of the requirements in the Agreement with the EU for association and stabilisation, whose basic intention was to establish the conditions in which a functioning market economy could thrive in the region and throughout the world.

At the beginning of the new millennium, the rise of the world economy set new business imperatives, so there had to be a suitable response with a new investment cycle in order to increase produc-

tion capacity and then to enhance energy efficiency and to optimise cost structures. Thus the new development goals centered on the new investment programme (as mentioned above, of more than 39 million euros); this was a precondition for the company to be able to sustain its operations not only in the immediate crisis but also in normal business conditions in the long run.

In the period before the crisis, serious measures had already been taken towards the necessary preparations for meeting the deadlines and conditions to obtain the integral environmental permit through the implementation of the best current practices required by the environmental standards.

Surviving the crisis

However, as the crisis has continued, business conditions have become increasingly difficult, while expectations for the following period are still unstable and disturbing. For

the past five years the world steel industry has been facing the biggest crisis since the beginning of the industrial manufacturing of iron and steel and in recent history there has not been before such serious and long-lasting disruptions in the global economy plan.

Therefore the situation in the Macedonian steel industry and at Makstil, as its leading producer, has been even more difficult than that of the global industry because of the various specific problems (for instance, problems with energy, transport, politics, additional burdens preceding the period of the acquisition, property issues and technologically neglected process lines).

Nevertheless, the problems thrown up by the world economic crisis have not deflected the company from its long-term strategy to face the challenges and to confront the problems through its new development programme. Instead of accepting the current situation, it has set out a proactive and creative approach which has been directed towards discovering new development options, new possibilities and practices in solving the problems which certainly would have been fatal if the new investment had not been realised. As it is, Duferco’s commitment to the restructuring of Makstil has enabled the company to withstand the immense pressures of the crisis and to gain a position in the international markets with a range of high quality products, short deadlines, and the commercial advantages arising from a relatively low cost production base. n