Back in the Soviet era, the Ukrainian pipe industry was known for large enterprises employing thousands of workers. Today, the small Ukrainian large-diameter steel pipe (LDP) market is home to four producers. Why did this happen?

– Khartsyzsk Pipe, an industrial giant, supplied large-diameter pipes to the post-Soviet countries and some other countries of the world. A very small percentage was accounted for by the Ukrainian market. Therefore, when the plant was under occupation, the need to build a production facility with a capacity of about 1 million tons was irrelevant for Ukraine.

That is why, after 2014, large-diameter pipe manufacturing plants began to appear in Ukraine. By manufactories, I mean incomplete production facilities without certain mandatory operations (for example, without hydraulic testing), for which pipes were not the main activity, etc. As a rule, six-meter rollers and manual seam welding were used in production. All this developed spontaneously and did not meet any production standards. However, there were no alternatives to such factories, and customers were forced to make concessions. Over time, some of these factories went bankrupt, while others began to modernize their facilities.

The first to do so was Priority, which could already be called a factory. Subsequently, due to a corporate conflict, this company split into two: the Steel Profile Plant and the Ukrainian Pipe Plant.

Ukrtruboizol, on the other hand, started pipe production in cooperation with Ukrspetskonstruktsiya from Kryvyi Rih. They even established a joint legal entity, Kryvyi Rih Pipe Plant. Later, however, we parted ways, but this “divorce” went smoothly.

These four producers focused on certain priorities in the course of their operations:

There are a few other very small pipe companies, but they are more like manufactories than plants. This is a brief history of this segment of the steel market.

Despite the war, Ukrtruboizol continues to grow rapidly, while other producers in the industry are at best only recovering to pre-war levels. How does the company manage to consistently show high growth rates?

– In recent years, the company’s sales volume has grown annually by an average of 60-70%. In the first half of this year, we increased our sales to UAH 276 million excluding VAT, compared to UAH 167 million excluding VAT in the same period last year. These figures exclude trading in products not manufactured by us.

There are several reasons for this dynamic growth. The main reason, in my opinion, is the company’s balance sheet. Let me try to explain. The company has sufficient financial resources to carry out capital-intensive activities, such as steel industry. The company is customer-oriented, trying to meet customer needs in terms of time, quality and price to the fullest extent possible, and offering a wide range of products for different areas of activity. The launch of new products had a direct impact on sales. Our company is constantly updating its production facilities and has a wide range of necessary quality control equipment. And most importantly, we have managed to build a strong management team; our engineering and technical staff is the most qualified and experienced in our industry, and we are doing our best to retain our workforce in difficult times. We invest in the development of people. By the way, almost all of Ukrtruboizol’s top management has been trained at the largest business school in Ukraine.

In addition, we are becoming more and more public, building our brand and maintaining an open and honest dialog with our stakeholders. In an unstable environment, discounts of 3-5% are less important to a client than confidence in delivery and trust in a partner. Today, our solid reference list encourages customers to cooperate. That is, this is the case when the reference list started working for us.

What is the geographical structure of product sales? Is the export business successful?

– The plant operates primarily on the Ukrainian market. Firstly, after the occupation of Mariupol, we have no domestic producer of rolled steel for our production needs. «Zaporizhstal can produce steel plates in a very limited range for us. Therefore, we import raw materials from Turkey, China, Bulgaria, the Czech Republic, etc. This is a big logistical burden.

Before the full-scale war, we had plans to form an alliance with our main steel supplier, Metinvest, in the form of a chain «Mariupol steel – pipe production – export» with export prices tailored to a specific market. However, the war prevented the realization of these plans.

Secondly, the transportation of fuel-extracted steel products is actually the transportation of air: a large volume with a relatively low weight. That is why the dollar/ton ratio is too high. That is why exporting our pipe products to neighboring countries, such as Moldova, makes more sense. Before the war, we also exported to Georgia. But now the share of exports in our company does not exceed 5% of total sales.

What is Ukrtruboizol’s current production capacity?

– Since the company was founded in 2000, it has remained the leader in pipe insulation in Ukraine, with the largest number of insulation lines (polyethylene, polypropylene, polyurethane, epoxies).

The plant has a section for the renovation of LDP, which includes surface hydrotreatment, diagnostics (with the issuance of a conclusion for reuse), repair, and reinsulation.

The plant has its own line of insulating materials and a dealer agreement with a global manufacturer, Denso, for supplies to Ukraine with warehouse storage and sorting functions.

In 2019, the company put into operation a line for the production of longitudinal welded steel pipes (406-1422 mm) using submerged arc welding, including expansion (similar to the one at Khartsyzsk Pipe).

At the beginning of this year, a new shop for the production of polyethylene pipes with a diameter of up to 1200 mm and pipes insulated with polyurethane foam was put into operation.

In addition, there is a trading business.

Are Interpipe pipes a competitor for your products?

– In Ukraine, the words “pipe” and “Interpipe” have become virtually synonymous. Interpipe’s main pipe products are seamless pipes. We produce welded longitudinal seam pipes. Novomoskovsk Pipe (now Samara), which is part of Interpipe, can be considered a competitor, but only in diameters of 426 mm and 530 mm. At the same time, this plant has hardly produced 530 mm diameter pipes for the last three years. Therefore, it is wrong to call it direct competition.

The company is developing the One Pipe Center concept. What does it consist of?

– We developed the One Pipe Center concept this year after launching new products. It aims to meet as many customer needs as possible related to the word “pipe”. Do you know any steel plants that produce polyethylene pipes? Do you know of a plant that produces polyurethane foam pipes that simultaneously produces all three components: steel pipe, polyethylene pipe, and blown-in foam? These questions provide a clear understanding of the concept.
Its advantages are minimization of logistics operations and convenience for the customer in solving their problems in one place.

You started producing large-diameter pipes only in 2019. Tell us more about the steel business.

– The company started as a company that applied various types of coatings to pipe products. Producing a de facto service rather than a finished product (pipe + insulation) could have left the company behind due to increased competition. The production of seamless hot-rolled pipes requires mega-investments; the production of water and gas pipes has low profitability, and these pipes are usually not insulated.

We opted for the LDW line. We hired Alexander Loskutov, former director of technology and quality at KHARTSYZSK PIPE PLANT, and Vitaly Ovsyannikov, former head of the technical department at the plant, to head this area of our business.

By steel standards, Ukrtruboizol should be classified as a mini-steel plant, with corresponding advantages and disadvantages. The disadvantages include low productivity: about 1,000-2,000 tons of pipe products per month, depending on the product mix. The advantages are the ability to produce small batches (even from a single pipe) and mobility, which is what the Ukrainian market needs. Large global players such as Europipe will not accept a single size with a volume of less than 300-500 tons, and the delivery time can reach 3-5 months.

Our LDP line was equipped to meet the needs of the oil and gas industry. Therefore, it is possible to produce pipes for main pipelines, i.e. with high requirements for their operation. However, gas transit in Ukraine is currently halted, and the issue of oil transit remains under close scrutiny. That is why we managed to shift our focus to pipelines for the utility sector, construction, etc.

The share of steel in pipe production is 60-70%. Therefore, pipes are a significant component of our sales in terms of value. They account for more than half of the company’s revenues.

How would you assess the current and potential demand for large-diameter pipes in Ukraine?

– The overall demand for products has not decreased. It has been distributed across different areas of activity. In particular, the GTS Operator, which was initially our target customer, practically does not make large purchases. We have recently completed the largest supply of fuel rods for Ukrtransgaz in recent years – about 700 tons of our own products.

In the construction sector, the situation is more lively: we supply pipes for power line piles and participated in the supply of steel pipes for water supply systems in Kryvyi Rih and Mykolaiv.

Our latest major projects include the production of several batches of heating pipes for Kryvyi Rih, totaling more than 4 thousand tons. The city’s heating network is being reconstructed under the supervision of Naftogaz and local authorities due to last year’s problems. In the summer, we also produced a large batch of polyurethane foam pipes and fittings for Kharkiv heating networks, which was financed by donors.

We supply both steel and polyethylene pipes for the needs of mining and processing plants. We supplied polyethylene pipes of the largest diameter – 1200 mm – to one of the Minings.

Overall, the potential demand is huge! Many pipeline networks are in poor condition, but new construction and modernization depends on the availability of funding.

What are the main challenges facing the Ukrainian pipe industry today? How does your company overcome these challenges?

– The main problem is clear a priori – people! It is becoming increasingly difficult to find and retain staff! We are literally fighting for every employee.

The second problem is complicated logistics. Before the full-scale war, it took one day for a steel sheet to arrive from Mariupol. Today, for example, logistics from China alone takes three months. That is why it is sometimes very difficult for us to meet delivery deadlines. We hope that our customers will understand in some cases. We deliver raw materials from Turkey mainly by road, which increases costs. We try to anticipate demand in advance and order the appropriate raw materials in advance. The opening of Ukrainian ports will help us a lot.

The third important problem is the large share of counterfeit products on the Ukrainian market. At the same time, this sometimes happens completely transparently in public procurement! Second-hand pipes with fake markings and fake quality certificates are freely delivered to Ukraine’s critical infrastructure facilities. There have been cases of pseudo-labeling: without any indication of the manufacturer (this should not be the case); with an indication of one of the Ukrainian manufacturers (easy to verify); with Chinese labeling (difficult to verify authenticity); after the introduction of localization of the LDP, labeling from GPA countries (Government Procurement Agreement) was used.

At the same time, no pipes were officially imported from such countries during these periods! That is why we “highlight” these problematic issues to our customers and explain how to distinguish counterfeit from certified products. Unfortunately, it does not always work. The war has exacerbated this problem.

What are Ukrtruboizol’s plans for the short and medium term in terms of development, product range expansion, etc.

– In my opinion, the construction business, in particular pipeline construction, can become the cherry on top for our company. This requires time, money and effort. We will try to take steps in this direction. Those who have stopped are behind!

Source GMK.Center