1. SteelOrbis: Could you tell us briefly about NLMK's mission?
NLMK: NLMK sees its mission as being the main supplier of quality steel products for our company's consumers and in becoming the leader in terms of production profitability in the world steel industry.
2. SteelOrbis: What is your company's production mix and production capacity?
NLMK: NLMK is a vertically integrated steel company, which controls major raw material suppliers and is able to satisfy most of its own requirements in energy supplies.
NLMK Group specializes in the production of a wide range of flat rolled products. The company produces about 13 percent of Russian steel. High value added products account for a large part of our production. The company is the leader in the production of cold rolled steel and coated steel in Russia and is one of the largest producers of electrotechnical steels in the world.
In addition, the Danish plate producer DanSteel A/S and the second largest Russian producer of electrotechnical steels are also among the group's steel assets.
Moreover, the company also has its own mining assets, which satisfy the needs of metallurgical production in the main types of raw material and allow us, to a large degree, to keep our production costs under control. Stoilenskiy GOK, also part of the group, is the third largest iron ore producer in Russia. Besides iron ore, the company's assets include producers of coke, dolomite and limestone - materials which are also used in metallurgical production.
In 2006 NLMK produced 845,000 mt of pig iron, 3.463 million mt of slabs, 2.051 million mt of HR steel, 1.752 million mt of CR steel, 430,000 metric tons of galvanized steel, 341,000 metric tons of pre-painted steel, 218 million metric tons of grain-oriented steel and 348,000 , metric tons of non-grain-oriented steel.
3. SteelOrbis: Could you share with us your opinion regarding the current situation of strong demand in the Russian domestic market? How long do you expect these high levels of demand to continue?
NLMK: Looking at the next five years, Russian domestic steel demand is expected to grow considerably (at the rate of 5-10 percent per year), mainly due to the sharp boost provided by Russian industries in general, and especially by the construction and automobile industries.
The consumption of high value added products will rise considerably (all cold rolled steels, and galvanized steel and pre-painted steel in particular). This is based on the prospects for an increase in the construction sector, and also for increases in the consumption of steel from machine-building companies and automobile producers. In the construction sector, the greatest demand will be for pre-painted steel and galvanized steel products used as structural elements in buildings and in building infrastructure.
4. SteelOrbis: At the current time, which of the world's regions are the most interesting for you in terms of export deliveries? How do you rank Turkey among your export markets? As a destination mainly for slabs and flat rolled?
NLMK: Our largest and most important sales market is Russia - accounting for 30 percent, while the markets of Europe and North America hold a 19 percent share each in our total sales. Meanwhile, about 17 percent of NLMK's production goes to Turkey and the Middle East. Markets such as South America, Southeast Asia, the CIS (with the exception of Russia), Africa and Australia account for smaller shares in NLMK's sales - i.e. four percent, five percent, five percent, 0.1 percent and 0.1 percent respectively.
5. SteelOrbis: What are the shares of flat rolled products, semi-finished products and coated steel in the overall volume of your export?
NLMK: Semi-finished steel products occupy the largest share in NLMK exports; in 2006 slabs accounted for a 53 percent share in our total exports. As for the other products their shares in our total volume of export in 2006 were as follows: electrotechnical steel products - 7.7 percent, pig iron - 11.7 percent, coated steel products - 2.1 percent, cold rolled steel products - 10.2 percent and hot rolled steel products - 15.3 percent.
6.SteelOrbis: Could you share with us your opinion regarding the current situation in the Russian domestic market of strong coke demand against a background of supply shortages? How long do you expect this situation to continue? What is your company's policy regarding coke supplies?
NLMK: In the middle-term perspective, the high coke prices should be expected due to the high tempo of coke consumption by the metallurgical enterprises. Due to this situation, it is important to guarantee stable long-term supplies of this raw material. NLMK does not have to deal with this problem, since the company has its own assets for coke production. In addition, since 2006 Altai-koks - one of the leading modern coke producing enterprises, which produces 10 percent of all Russian coke - has formed part of our group. The production capacity of Altai-koks is five million tons a year.
7. SteelOrbis: Recently the situation in the Russian domestic scrap market has deteriorated and some enterprises are now even experiencing a scarcity of scrap. What is the current situation with regard to scrap supplies at NLMK? Do you have or plan to have your own scrap base?
NLMK: NLMK's policy regarding scrap is directed toward the establishment of stable stocks of high quality scrap which will be able to satisfy the needs of Novolipetsk Steel's oxygen-converter workshop over a long period of time. NLMK has a stable and effective infrastructure for scrap deliveries, storage, and a system of scrap preparation for supply to converter production in accordance with technological requirements. The systems for the sorting, cleaning, and separation of scrap are incorporated within the production process. Currently, NLMK holds about 500,000 tons of scrap in its stocks. In accordance with our Technical Upgrading Program, in 2007-2008 we plan to considerably increase the scrap processing capacity at our production facility.
8. SteelOrbis: At the beginning of 2007, NLMK announced its Technical Upgrading Program for 2007-2011. Could you briefly tell us about this program? What are its main aims?
NLMK: The main objectives of NLMK's Technical Upgrading Program (2007-2011) include the increase of steel production by 40 percent and also the increase of profits by 40 percent. To achieve these goals, NLMK plans to invest more than $4 billion in the 2007-2011 period.
Through this investment program, NLMK plans to achieve the following goals in the Russian domestic market: increase of steel production by 40 percent to 12.4 million mt a year, increase of flats production by 27 percent to 6.1 million mt, increase of iron ore concentrate production by 27 percent to 15 million mt, commencement of pellets production with an annual capacity of at least three million metric tons.
In our international market operations, including NLMK-Duferco Group JV operations, the investment program is aimed at increasing flats production by 40 percent to seven million mt a year and at raising high value added products output by 50 percent to 3.6 million mt a year.
To achieve these goals, NLMK is to implement the following projects: installation of a new blast furnace with an output capacity of 3.4 million mt a year, reconstruction of steel smelting facilities, commencement of production operations at three cold rolling mills with a combined capacity of 620,000 mt and commencement production at a new HDG line with an annual production capacity of 300,000 mt, along with the initiation of pellet production, and increasing the company's self-sufficiency in energy at our main production facilities from 40 to 46 percent. In addition, NLMK's iron ore production and electrotechnical steel production facilities will undergo modernizations.
9. SteelOrbis: We know that you have ongoing investments in high value added products, especially in grain- and non-grain-oriented steel, and also in coated flats. How do you see the future developments in the world and Russian domestic markets for these products?
NLMK: Following the incorporation of VIZ-Stal into the group, NLMK became the world's largest producer of grain-oriented steel. Today, the group's total grain-oriented steel production has reached more than 320,000 tons.
One of the goals in our short-term perspective is to sustain and strengthen our position in the fast developing Asian market. Here our focus is oriented toward the markets of China and India. NLMK is an established supplier of grain-oriented steel to China. In 2006, the volume of deliveries from NLMK and VIZ-Stal to China accounted for about 70 percent of all Russian steel exports to China.
In March, we concluded a five-year contract with Chinese transformer producer TBEA for the delivery of 100,000 tons of grain-oriented steel.
In addition, our hopes are also focused on the Russian domestic market. Today, we can say with regret that demand for grain-oriented steel is not very high in Russia. However, the market holds good prospects for development, related to the entry of foreign producers into the market and the overall expansion of production facilities by domestic enterprises. Programs for the development of energy generating capacities should provide a substantial stimulus for the development of the sector in question, since these are the largest consumers of grain-oriented steel products.
10. SteelOrbis: Currently, the global consolidation of the steel industry, Russia also included, is one of the topics subject to intense current debate. Could you share with us your opinion on this issue? How does NLMK view the possibility of mergers with Russian or foreign companies?
NLMK: For NLMK the basis of transactions in the sphere of mergers and acquisitions is economic expediency and ease of incorporation within the existing capacities. Possible objects for acquisition are examined through this prism.
11. SteelOrbis: How do you see the future development of your company?
NLMK: The primary target in NLMK's development is to strengthen our leading positions in the world steel industry in the fields of production quality, the use of the latest technology at our production facilities, and as regards financial results.
In accordance with these aims, NLMK is implementing a strategy of balanced growth directed toward strengthening of vertical integration through purchase of raw material and steel assets, modernization and increase of productivity at our existing capacities, increasing self-sufficiency in raw materials, strengthening our position in strategic markets, increasing the share of high value added products.
For the implementation of these main goals, NLMK will develop its business by increasing volumes of production, and also through acquiring strategic facilities in the main markets for the sale of NLMK's products.
Thank you