Memo from Moscow

Labour force dynamics

1st July 2010 Report

Russia

According to Rosstat, the total number of workers employed in the Russian ferrous and non-ferrous metallurgical sector in 2009 was ~1.1m. For reference: in 2000 this figure was ~ 1.258m and in 2005 the figure was 1.219m. The mining sector by comparison employs ~350,000 persons today.

The metallurgy complex of Russia consist of about 300 enterprises of ferrous metallurgy, including 46 mining enterprises (with about 70,000 workers), 40 steelmakers (with about 350,000 workers), 14 pipe plant (70,000) and others that include refractories (27,000), ferroalloys (15,000) and hardware plas (45,000). The steel industry share of Russian industrial production is ~8%, of export revenues ~8.2%, of tax receipts ~ 4.1%; and of industrial employment ~5%.

In actual numbers, ferrous metallurgy in the Russian Federation employs some 570,000 persons. This level of employment consistently declines year upon year. For reference: in 1995 it was about 860,000 persons; in 2000 - 780,000 persons; in 2005 - 670,000 persons. The loss of 290,000 jobs since 1995 undoubtedly overstates true changes in productivity because of the increasing trend to outsourcing. At the same time however it should also be remembered that CIS steel production has become much more downstream-oriented and more value-oriented (e.g. in production of coated steels) than it was a decade or two ago. The fact remains however that Russia's labour force dynamics are anything but static.

In the metallurgical branch almost 70% of Russia's metallurgical enterprises are in so-called 'mono-town' environments, meaning towns where the majority of inhabitants depend directly on the activity of the metallurgical company. In these 'mono-towns', the performance of the metallurgical plant is critical to the health of the local economy. At the same time however, marked improvements in the productivity of the metals plants mean that the central roles of these plants as employers diminish over time. These are significant trends in main 'mono-towns' such as Magnitogorsk (36% dependent on metallurgy), Cherepovets (28%), Novokuznetsk (22%), Lipetsk (22%), Stary Oskol (22%), Nizhny Tagil (20%).

Table 1 presents some of the historic trends in productivity and steel plant employment at the Magnitogorsk Iron & Steel Works (MMK) that illustrate the employment dynamics; similar trends are also evident at other big steel plants [e.g. a reduction in employment at NLMK from ~33,400 in 2000 to ~25,000 in 2009].

Table 1. Historic changes in MMK productivity and personnel numbers

Source: company data.

Ukraine

According to the Federation of Metallurgists of the Ukraine (FMU), the average number of workers employed in ferrous metallurgy in 2009 was ~358,800 people. In Ukraine, metallurgy sector workforce size has also been diminishing, with some estimates of the 2009-2010 employment downsizing approaching 120,000 layoffs. With labour costs at just 5-10% of total production costs, it is questionable what the impact of this on productivity will actually be. Nonetheless, the trend is also clearly very pronounced. In works such as Makeevsky - where in 2009 both blast furnaces and steel-melting furnaces were stopped because of falling steel production requirements - very large proportions of the workforce [almost 6000 metallurgists] were laid off in recent months; with some related metallurgical sub-sectors also seeing similar and profound changes in employment (e.g. 2009-2010 workforce downsizing of 27% in the Ukrainian refractories sector).

It is to be hoped that re-employment or possibly Government assistance with re-deployment of the affected employees will follow soon.

Memo from Moscow is a free regular steel industry news report provided for visitors to www.steelonthenet.com with the compliments of Metals Consulting International Limited.

Researched by MCI's specialist steel team, the report brings site visitors regular reports on topics such as Russian steel consumption, production, modernisation and investment, international trade, steelmaking in Ukraine, CIS steel prices, iron ore and metallurgical coal supply etc.

If there is a specialist steel-related topic in Russia or Ukraine that you wish our CIS team to brief you on, please e-mail us at MCI@steelonthenet.com or follow this link for further information about MCI.