The article analyzes the ways to improve the international competitiveness of the Russian steel industry, the basis of the Russian economy. The concept of sectoral competitiveness is discussed and the methods to evaluate competitiveness in terms of the outcome, i. e. the ability to sell products in certain markets and the quality of existing competitive advantages, are suggested. The application of the proposed methodology enabled us to indicate lower competitive position of the Russian metallurgical enterprises within the last ten years. Thus, the application of a systematic approach to the problem of improving sectoral competitiveness is quite uptodate. According to this, the effective sectoral innovation system is to be established to provide interaction of economic agents. A key role in it is given to the system of higher metallurgical education as it is reflected in all stages of the innovation cycle, from training highly qualified personnel to the commercialization of research results. We focus on the development of the sectoral innovation system, which is to enable us to increase international competitiveness of Russian steel industry and to determine the direction of development of the Russian system of higher metallurgical education, consistent with the objectives of the sectoral innovation system. As a result, we have ensured the key role of higher education supported by the state in the development of the metallurgical industry innovation system. Due to the role of higher education in innovation and development of the industry we focuse on motivation of metallurgical enterprises to build relationships with universities. SECTORAL COMPETITIVENESS; SECTORAL INNOVATION SYSTEM; STEEL INDUSTRY; FUNCTIONAL CONNECTION; STATE SUPPORT.