Steel to provide solid base for Kazakh economic plans
Martin Sieff

Kazakhstan is pushing ahead with plans to double its steel production in the next five years. The goal and time period carry echoes of the archaic communist past to Western business ears, but they herald the future more than the past.

Steelmaking is an industry in which the United States was the global leader for more than a century. But over the past 40 years -- although the United States still produces an impressive amount of steel annually -- the industry has lost hundreds of thousands of jobs and has long since gone on the backburner for Wall Street-channeled investment. There are now more real estate agents and therapists than steelworkers in the United States.

The bottom line remains, however, that in a world with an unprecedented population of almost 7 billion people, global demand for steel is going to be higher than ever. Steel remains the indispensable backbone for industry and construction. And the nations that still emphasize the importance of steelmaking like China, Japan, South Korea and Germany are magnets for foreign direct investment (FDI).

Kazakhstan is seeking to become the preeminent steel-producing nation across Central Asia. It is a role that could generate markets for it as far south as Iran and the Gulf Arab nations and across the Caspian Sea into the Caucasus.

Developing a serious, competent steelmaking industry is seen by Kazakhstan`s leaders as an essential component of their 20-year industrial development plan to 2030.

The Astana government has reached an agreement with Luxembourg-based ArcelorMittal to nearly double crude steel output in Kazakhstan by 2015 with the help of a $500 million investment this year.

Kazakhstan`s steelmaking program with ArcelorMittal is a prime example of the deepening industrial ties between the major Western European nations of the European Union and the emerging former Soviet republics of Central Asia.

The preeminent European steelmaking corporation was only created less than a decade ago, by the merger of the main steelmaking companies of France, Spain and Luxembourg. It, therefore, reflects the importance of state and even transnational protectionism and long-term planning to protect and promote long-term industrial assets.

The company`s cooperation with Kazakhstan reflects the strengths of the Kazakh economic model of promoting development through the encouragement of private enterprise and the value of a hands-on government role in promoting major industrial developments with foreign partners.

Despite the dealís benefits, however, both parties realize that it isnít going to be easy to meet their target production levels on time.

The European steel manufacturer operates ArcelorMittal Temirtau as its subsidiary in Kazakhstan`s northeastern city of Temirtau. It wants to fund a major modernization program to boost production to full annual capacity of 6.6 million tons of steel by 2015. But this goal falls far short of the 11-million-ton production goal for the country set by Kazakh President Nursultan Nazarbayev in June 2010.

But the Kazakhs have to settle for what ArcelorMittal Temirtau can provide. It is the only major steelmaking company in the country. Indeed, a major purpose of the program and its expansion is to develop a new core of skilled and experienced industrial workers who can serve as the engineering leaders of a greatly expanded Kazakh steelmaking and manufacturing sector through the first half of the 21st century.

`The company is not abandoning this project. It`s only the timetable that has been pushed back,` ArcelorMittal Temirtau announced according to a Reuters news agency report Tuesday.

The Kazakh steel firm, which sits among sizeable reserves of coal and iron ore, explained that capacity could not be increased to 11 million tons until it gets new sources of raw materials.

`The main issue now is the raw material base. Together with the Industry Ministry, we are working on construction not only of a new plant, but also new mines,` it said.

As ArcelorMittal`s experience in Temirtau shows, it isn`t enough to simply build a new plant, modernize an old one and train the industrial workers that the project needs. Now an entire additional infrastructure of coal and iron mines is going to have to be constructed to feed the expanded capacity of the Temirtau complex.

But in the long term, the massive Kazakh government investment in and commitment to the Temirtau project is likely to be justified.

Kazakh President Nursultan Nazarbayev remembers that in the era of the Soviet Union, industrial power lay with the Soviet republics of Russia and Ukraine. Now, Kazakhstan is establishing a new generation of close cooperation with both countries.

Russia, Belarus and Kazakhstan created a new customs union in mid-July and in November, Ukraine`s President Viktor Yanukovych said he wanted his country to join.

The removal of customs barriers with such major steelmaking and heavily industrialized nations gives Kazakhstan additional motivation to establish its own self-sufficient steel industry before it falls into the economic orbit of its old and new partners.