O. K. Sergey: Ukraine domestic market continues to see sluggish demand for titanium products with no improvement in the short term
----Interview with Olihovatiy Sergey Konstantinovich, Commercial Manager of FIKO Electron-beam Metallurgical Plant
Based in Kiev, FIKO Electron-beam Metallurgical Plant is one of the major producers of titanium products in Ukraine. The company started trial production of titanium ingots in 1993 and officially released the first batch in 1996-1997 with an output of only 700-1,100kg. Since then the company has constantly renewed its equipment, expanding the output ...
Asian Metal: Hello, Sergey. Thank you very much for taking part in the interview. Firstly, could you please tell us something about the business your company is involved in?
Sergey: It’s a great pleasure to take part in the interview. Our company purchases titanium sponge to produce titanium products. We have been providing titanium products for over 15 years and our products are not only provided to the domestic market, but also exported to such countries as Germany, France, Italy, Finland, Turkey and India. We mainly produce titanium ingots, titanium plate and titanium bars at present.
Asian Metal: As we all know, the fierce political conflict which erupted at the beginning of 2014 is still going on. What influence do you think it has had on the Ukrainian metal market?
Sergey: The serious political conflict has led to quite a sluggish metal market in Ukraine this year with restrictions on import and export businesses, especially for the black metal. The producers of black metal are concentrated in Eastern Ukraine, where the political conflict is at its severest, so most of them have cut or even halted production. Moreover, transportation in eastern areas has also been impeded. As a result, the eastern metal market has borne the maximum impact.
As far as titanium products are concerned, imports from Russia have been restricted due to the political conflict. As a result, some buyers or traders who used to import from Russia have turned to domestic suppliers or other import channels, which has served as an opportunity for us. However, as far as I know, some smelting alloy products still have to be imported from Russia at present. In short, the overall economic situation in Ukraine is none too optimistic, except for the agricultural industry.
Asian Metal: What political adjustments did Ukraine make to the metal market after the political conflict?
Sergey: The government has levied 5-10% additional import duty on all imports since last year, and has added 5% provisional duty on products such as minor metals and ferroalloys, in addition to the previous fixed independent duty. The import duty is about 10% in other fields. There has been no adjustment regarding the export duty and other domestic duties and fees.
There is no export duty for Ukrainian titanium products except the export rebate, which is 20% added value returned at the end of the year based on exports over the year.
Asian Metal: Who are the major end users of titanium products in Ukraine right now?
Sergey: The Ukrainian domestic titanium products are generally used in aircraft and ship parts, as well as the chemical and medical fields. However, the purchase volume in the medical field is quite small, representing only about 1% of total demand, so we are not paying attention to this field for the moment.
Asian Metal: How about the purchasing situation of these end users at present?
Sergey: The overall demand for titanium materials in the Ukrainian market is low, especially those affected by the political conflict, and the purchase volume of end users is becoming unstable and it is difficult to give an exact figure for monthly demand. I understand an airplane maintenance plant has only purchased about 1.5t of titanium sheet BT1-0 and 30kg of titanium alloy 0T4 in the past two months. For the airplane maintenance plant, the monthly purchasing volume is typically less than 3t. In the chemical sector, customers are only purchasing 0.5-1t of titanium material at a time, but even so, they aren’t making purchases every month and sometimes purchase the material every 2-3 months. As for the field of medicine, the purchasing volume is so little that it can be ignored. I also discovered that some ship repair plants in Sevastopol had purchased titanium material to process the parts in relatively large volumes before. However, influenced by the political conflict between Russia and Ukraine, some have moved to Turkey and other places, and are purchasing almost no Ukrainian titanium materials at present.
Asian Metal: How about the production and sales of titanium material in your company in the first half of the year?
Sergey: Our monthly output of titanium material wasn’t steady in the first half of 2015, due to the persistently sluggish market demand. Sometimes the monthly output would reach 60t, while at other times it was only about 10t. But generally speaking the average output of the material was about 20-30tpm. Nevertheless, we’re only receiving occasional small orders from some of our regular customers because right now only a few buyers are making replenishments, influenced by the turbulent political environment. Currently, we hold total stocks of over 150t, including 22-25t of titanium tubes, 40t of titanium sheet, 60t of titanium rods and 20-30t of titanium ingots.
Asian Metal: We understand that most companies within the metal industry have suffered to a greater or lesser extent from the political conflict and the depreciation of the Ukrainian hryvain against the US dollar, especially some of the small and medium-sized enterprises, which have had to shrink or even suspend their businesses temporarily. As for your company, what changes have there been in the business between the first half of 2015 and the same period of last year?
Sergey: In the first half of 2015, we only received limited export orders, the number of which decreased sharply because there were only a few regular customers purchasing our titanium materials in small volumes. Besides, some domestic customers also reduced or temporarily halted their purchasing of the material, impacted by the political conflict. Thus, our titanium material production and sales shrank by about 50% in the first half of 2015, compared with the same period of last year.
Asian Metal: Currently, the price of titanium material in the international market is showing signs of decreasing due to the weak market demand. How about your price for the material and what are your thoughts on the future market price trend?
Sergey: At present the price of the material is affected not only by market demand, but also by the exchange rate of the Ukrainian hryvain against the US dollar. Our prices for both export and domestic sales in early August were generally unchanged from those of late July. I don’t think we’ll be able to stimulate transactions, even if the price is lowered, because domestic buyers are simply holding a wait-and-see attitude towards future market trends, influenced by the depreciation of the Ukrainian hryvain. Besides, buyers in foreign markets are also delaying their purchases due to the summer vacation. We are only making small volume transactions with some of our regular customers and haven’t adjusted the price significantly so far. We will keep watching market developments and won’t lower our price for the material in the short term.
Asian Metal: What development plans do you have, given the currently weak market situation, to insure the future profitability of your company?
Sergey: We are planning to do some business around stainless steel products on the basis that we continue our titanium production. Demand for stainless steel in the Ukrainian market is also weak at the moment. But compared to the demand for titanium materials, it is relatively strong. Nevertheless, we haven’t made any specific plans and need to study the situation further.
Asian Metal: Thank you for accepting our interview and sharing with us your opinions on the market. We hope your company continues to thrive in the days ahead.
