Scrap Iron And Steel

Festivities on June 25 marked the start of the new production at Smederevo's new raw steel plant with FR Yugoslavia President Zoran Lilic in attendance. News reports quoted him as saying that it was a historic moment for the Yugoslav economy since the Sartid 1913 steelworks (Smederevo) had introduced a unique production technology. Lilic also said this was another victory of the know how, will, abilities and vitality of the Yugoslav economy which has shown it cannot be broken and that the sanctions are unneccesary and unjustified.

Lilic toured the new plant and rest of the steelworks and recalled that Satrid had not stopped production but was just waiting for the right time to fully contribute to the development of the economy.

The choice of date is unclear unless an explanation lies within the speech of thanks by Satrid General Director Dusan Matkovic. Matkovic congratulated Lilic for a good year in the federal Presidency and added that that was a good omen for the Gvozden project (the official name of the process) because its start coincides with Lilic's anniversary.

The Gvozden project eliminates furnaces from the Semderevo production lines. The furnaces were replaced by a foundry which was made from the old foundries at several Serbian factories. The raw steel is made by melting scrap iron instead of iron ore. The entire production process is functioning normally in every stage to finished products.

Differing reports have been launched on the scope of the production. Matkovic announced that the new plant's annual production would stand at between 50,000 and 60,000 tonnes but added that it could be greater. His prediction is backed up by experts in Smederevo who promised 100,000 tonnes a year. In comparison, the annual capacity of the entire Smederevo steelworks is 1.6 million tonnes of steel or 1.8 million tonnes of raw steel from the furnaces. The highest production was achieved in 1989880,000 tonnes of raw steel.

Official assessments of the economic justification of the new project (the most profitable factory) is based on Matkovic's explanation of savings in iron ore purchases. He says electricity consumption will rise but adds that there is plenty of electric power at affordable prices.

Matkovic says investments in the project stand at 15 million Dinars (others at the steelworks say the figure is 4.5 million with three million of that secured through an Investbanka loan) which makes it profittable since one month's production is valued at 4.5 million Dinars. He says two hundred of the most prominent experts are working on the project while experts at the steelworks claim they remained persistent despite numerous warnings that the Gvozden project would never succeed.

The third important point is Matkovic's statement that the demand of the Serbian economy will be met entirely by the Smederevo production.

Those are the main reasons for the festivities at which both Lilic and Matkovic voiced regret that National Bank Governor Dragoslav Avramovic could not attend.

No explanation was given why federal Prime Minister Radoje Kontic wasn't there but his absence drew speculation that he had bad memories of the steel industry since he began his rise in the Niksic (Montenegro) steelworks. A rumor in political circles said Kontic wasn't there because the Smederevo project leaves the Niksic steelworks without scrap iron.

The rumors on Kontic's absence and the absence of Serbian PM Mirko Marjanovic whose importexport company has close links with the metalurgical industry delved into the background of Gvozden.

Expert circles call Gvozden a social scandal primarily because a technology from the last century has been reintroduced as something new. Publically, Dr. Aleksandar Cavic, an expert on metallurgy, reacted with a warning that the process could fall appart between the foundry and steelworks. Mixers are used to transport the raw steel into convertors and the possible dangers lie in the fact that the mixers were designed to carry greater loads and have not been tested with partial loads which could cause damage.

No reasonable person will oppose efforts to intensify production in the current situation even if ancient methods are used. For that very reason the LilicMatkovic statements praising the project has drawn criticism. Also, Smederevo steelworks experts, both metalurgists and economists, talk of Gvozden as a neccesary evil as long as sanctions are in place.

One final question remains: what price will the Serbian economy pay for Smederevo steel.

No one can calculate the exact price of Gvozden steel since no specific figures are available outside Matkovic's close circle of associates. Even the Yugoslav Mettalurgy association has no detailed information on the Satrid steelworks and there are no figures on grants to the factory. Satrid will certainly incurr expenses in producing steel using some five percent of the installations as if the entire steelworks was in full production.

Experts' assessments say that Matkovic's steel will be 2.5 to three times more expensive than normally, raising another question; who's going to pay for it? In absolute terms that means that a tonne of Smederevo steel plate will cost at least 1,000 US Dollars, with some estimates going as high as 1,300 compared to the world market price of 400 USD.

The LilicMatkovic Gvozden project poses the greatest dangers to the Avramovic Dinar. Both Lilic and Matkovic are state employees; the first is the highest ranking while the other is one of Serbia's highest paid employees in the 44% of state owned companies.

The expensive domestic steel will be transferred from one state owned company to another and to a final buyer whose property is not under direct state control. Anyone who recalls the closing accounts for 1992 will know that nine of the 10 largest Serbian companies are state owned and that they accounted for 50% of the losses incurred by the entire Serbian economy and foreign debt.

PM Marjanovic insists his cabinet will continue defending a healthy Dinar but he will be hard pressed to find solutions for the electric power industry's quarter billion debt and convince the political leaders that melting Gvozden means melting Avramovic's Dinar.