West-Siberian Steel Works

Exports and prospects for 2002

In 2001, West-Siberian Steel Works exported 2,758,100 tons of rolled steel, and, in 2002, it plans to export 2,737,000 tons. The reduction of export in 2001 was caused by the limitations imposed by foreign countries. The high quality of Russian-made rolled steel is confirmed by international certificates, and low production costs ensure a competitive advantage for Russian steelmakers on the world market. The major trend in the company’s export policy is a gradual shift from exporting semis (such as steel sections) to exporting finished steel. Simultaneously, the proportion of finished steel is being increased in domestic sales.

Investments in 2001 and plans for 2002

In 2001, West-Siberian Steel Works made investments solely at the expense of its owned funds and did not raise any external financing. The volume of investment totaled 318.5 million rubles plus a set of equipment and software worth $6,088,760 received on leasing terms for developing an Oracle Applications system. A strategic-development program, which was adopted in 2001, calls for attracting investments to a total of $850 million over the next nine years to finance modernization and upgrading.

The company’s place on the market, based on results in 2001

According to the magazine Metal Supplies and Sales, West-Siberian Steel Works ranked first among Russian steel producers in terms of total steel output and No. 4 in terms of finished steel output (in the first nine month of 2001).

Appraisal of the government’s policy with respect to protection of domestic producers

So far, the Russian government has not made any decisive steps to protect domestic producers, which found confirmation in the results of recent talks with the European Commission in January 2002. At the same time, the governments of other C.I.S. countries, specifically Ukraine, are actively protecting their steel producers. Our government has not taken any tangible measures to protect domestic producers; on the contrary, decisions have been made to increase export quotas for certain countries.

One of the biggest problems that plague the domestic steel producer and is not being resolved by the government is the non-payment of VAT compensation for export supplies.

Novolipetsk Steel Works, NLMK

Main results of 2001

In 2001, NLMK produced 12.4 million tons of sintered ore (104 percent of 2000 output); 4.3 million tons of coke (114 percent of 2000); 7.5 million tons of cast iron (96.9 percent of 2000); 7.9 million tons of steel (96.2 percent of 2000); and 7.3 million tons of finished steel (97.4 percent of 2000).

According to the Independent Rating Agency, the share of NLMK in Russia’s total steel output equaled 17 percent (see http://www.metaltorg.ru).

According to preliminary estimates, in 2001 NLMK produced commercial products worth 36.8 billion rubles (95.4 percent of the 2000 figure), sales totaled 37.2 billion rubles and balance profit was 8.5 billion rubles.

Exports

For the last two years, the following regions have been the main directions of export: Southeastern Asia (29.5 percent of steel export in 2001), EU countries (27 percent) and North America (18.7 percent). In terms of products, North America is the No. 1 importer of slabs (36 percent), the EU leads in hot-rolled steel (36 percent) and zinc-coated sheet (46 percent) purchases and the countries of Southeastern Asia are the main recipients of cold-rolled steel (37.7 percent).

As world market prices weakened in 2001, NLMK cut its exports in almost all product categories. The combined total of exports fell 15.5 percent from the year 2000, and export proceeds shrunk 26.5 percent. Export of slabs and transformer-grade steel decreased 17 percent, hot-rolled steel export slumped 27.6 percent and zinc-coated sheet exports tumbled 69.2 percent. The only exception was cold-rolled steel – the export of which rose 7.2 percent in 2001 over 2000.

Export prospects for 2002

The company’s export prospects for this year will largely depend on the outcome of a current investigation in the United States and trading conditions in the EU countries. If additional limitations are introduced (in the form of special duties, quotas, etc.), NLMK, as well as other Russian steel producers, will virtually lose the market of the United States.

Due to the expansion of the list of articles liable to quoting by the addition of alloyed steels, NLMK’s supplies of steel sheets to EU countries in the first half of 2002 will equal only 41 percent of last year’s volume.

Investments in 2001 and plans for the future

In 2001, NLMK invested $140 million in equipment replacement and modernization programs, 20 percent more than in the year 2000. The five-year investment program calls for investing a total of $1.1 billion in production modernization and upgrade until the year 2005.

Kuznetsk Iron and Steel

The company’s place on the market, based on results in 2001

According to preliminary data, KMK ranks seventh on the list of Russia’s eight largest ferrous-metals enterprises in terms of commercial output and labor efficiency. At the same time, with a rate of return close to zero, KMK, unlike some other enter-prises in the sector, specifically Severstal, Magnitogorsk Steel Works and Novolipetsk Steel Works, which operate with rates of return of 15-20 percent, cannot afford price maneuvering. Despite quite a few negative moments, KMK’s prospects on the market of stainless-steel sheet are not bad. In 2001, KMK produced 2,000 tons worth of stainless-steel sheets; simultaneously, we achieved a 50 percent increase in the yield of commercial product, which equaled 94 percent.

In 2001, KMK became the second enterprise in Russia to have acquired a license to produce river-vessel-grade steel. KMK has sufficient capacity to satisfy the demand of all river shipbuilders in Siberia.

Rails represent the best competitive product of KMK, and management is currently in the process of concluding a long-term contract (until the year 2005) with the Ministry of Railways that will provide for guaranteed centralized purchases of rails and rail fittings. If made, the contract will provide the investors with guaranteed returns.

The effect of steel production cuts on supply and demand

In the present situation of overproduction of rolled steel both in Russia and abroad, production cuts appear to be the most sensible decision. When supply becomes far in excess of the demand the price will inevitably be pushed down, thus causing a decline in the manufacturer’s proceeds, or even pushing the producer into the red. According to market research, the optimal output for KMK is 1.5 million tons of rolled steel per year, and we plan to achieve such output following reconstruction of the enterprise. In 2001, KMK produced 2.6 million tons of commercial rolled steel, down 3.2 percent from 2000.

What was the volume of investment in 2001 and what are your investment plans for this year?

In 2001, the volume of internal investment was in excess of 2 billion rubles, and we plan to maintain this rate during this year. We also plan to attract external invest-ments to a total of up to 800 million rubles.

Nizhny Tagil Iron and Steel, NTMK

Main results of 2001

In 2001, NTMK had not only not cut, but had increased its production, and produced 4,629,000 tons of cast iron, up 8.5 percent from 2000, 5,217,000 tons of steel, up 7.1 percent from 2000, 4,455,000 tons of rolled steel, up 7.5 percent from 2000.

Domestic supplies equaled 2,535,000 tons or 55.3 percent of the total output and 1,948,000 tons were exported (44.7 percent of total).

The volume of export was roughly equal to that of the year 2000. According to preliminary estimates, in 2001, sales totaled 21.097 billion rubles, profit was 1.745 billion rubles and the rate of return was 9 percent.

Exports and prospects for 2002

NTMK has not been affected by the sector’s trend of export reduction. In 2001, our combined export totaled 1,948,000 tons, only 15,000 tons less than in the year 2000, which is the minimum decline in the sector. We export square and round steel articles, pipe semis, rods, angle pieces, channels, wheels, rails, rims and spherical pieces. In the recent several years we have been increasing the proportion of finished steel in our export, which is a positive trend.

Investments in 2001 and plans for 2002

In this year we plan to accomplish major reconstruction programs at the coke and chemistry, blast furnace and rolling mill shops which will require investments totaling around 1.1 billion rubles. Besides, we have launched the construction of a fourth continuous casting unit which will cost 89 million euros to build.

The company’s place on the market, based on results in 2001

In terms of output, NTMK is stably No. 5, and in terms of sales the enterprise ranked 4th among Russian metal producers. NTMK is continuing to implement its modernization and upgrading programs that will help to introduce new technologies and improve quality of the products. Therefore, there are reasons to conclude that NTMK has good competitive prospects.

Steel cuts and balancing supply with demand

In my opinion it is a mistaken decision to close metal productions in Russia in exchange for WTO membership promises. We should consider the costs of it. The sector’s future will depend on the domestic market’s development, but we also need access to foreign markets to earn the hard currency that we need to finance our modernization programs. Therefore, it would be a good idea to consider production cuts in exchange for investments.

Appraisal of the government’s policy with respect to protection of domestic producers

There are basically two forms of government protection of domestic producers: import limitations and investments. For example, American metal producers have received government investments at the rate of $5 billion a year throughout the last decade. In Russia, the situation is different. Towards the end of the last year our government had paid for its share in the authorized capital of the enterprise called "Large-Diameter Pipe Factory." This is a good since: For the first time our government has invested its money in the creation of a new enterprise which is important for the country.