By Ivana Jovanovic
Serbia’s government has about six months to find a partner to operate the Smederevo steel plant that it bought for $1 from US Steel this week; otherwise keeping the unprofitable operation open would strain the state budget, experts say.
Mladjan Dinkic, president of United Regions of Serbia and former finance minister, said the state will be able to avoid significant losses initially because US Steel left net claims on their account to finance production for several months. The state received about 79.5m euros in networking capital, including inventories and raw materials.
“This acquisition must be temporary. If within the upcoming six months a strategic partner is not found — ideally with its own mines to be able to lower the price of raw materials, as well as to have a market outside the EU — this will be the biggest problem of the new government,” Dinkic told SETimes.
US Steel sold the plant to the government on Tuesday (January 31st) for $1. The deal allows the plant’s 5,400 workers to stay employed while the state seeks another arrangement.
“US Steel recorded losses over the last two years instead of profits, leading to [a situation in which] selling the business cannot achieve a positive figure,” Prime Minister Mirko Cvetkovic said.
US Steel purchased the plant in 2003 for 25m euro.
Minister of Economy and Regional Development Nebojsa Ciric told SETimes that the government bought the plant because its closure would have a widespread impact on the economy. The rail industry, a wagon factory in Kraljevo and the engine industry would all feel the consequences of a closure, he said.
Cvetkovic said that the government found itself in a situation where it had to show a willingness to overtake the costs of production. He said the state budget would be adjusted so not to increase the deficit.
Mladjen Kovacevic, member of the Academy of Economic Sciences, said it will be difficult to find a new owner for the plant.
“I believe that US Steel tried to sell the factory [and] came to the conclusion that product sales will not grow and there will be new losses. That puts a question to the state of Serbia — to whom they will sell and at what price?” Kovacevic told SETimes.
“In crisis times, prices of non-ferrous metals and ferrous metallurgy drastically fall, and vice versa. I do not think we will easily find a strategic partner. It would be good if China will be.”
Others, such as Nikola Majinski, secretary for the Association for Metal Mines, are more optimistic.
“We have a lot of experience in the steel industry, which marks an increase of 6.8% at the global level. Serbia’s surroundings are a natural steel market,” he told SETimes.