Yury Adno

    The metallurgy industry has traditionally been one of the leading sectors of the Russian economy. But today it is facing a number of difficult problems. Among them are obsolete equipment and wasteful technologies, far-from-perfect management of production and products marketing, lack of skillful managers at enterprises. Deep structural changes are needed to successfully overcome these difficulties. So, it is quite appropriate that a wave of corporate mergers and assets consolidation is on the rise in the metallurgy industry, holding groups with a strong production potential and significant reserve of economic strength are being formed.
New structures rely on two sources. Production is the first one represented by large metallurgical complexes. Management is the second source personified by entrepreneurs, who established their businesses in the years of reforms. It is noteworthy that due to a number of reasons integration processes have started early in the non-ferrous metallurgy and today there are vertically integrated companies producing aluminum, nickel, copper. Economic activities in the steel industry are still focused on large Integrated Iron-and-Steel Works transformed into joint-stock companies. EvrazHolding has become the first company that managed to fully carry out the process of integrating capacities on the basis of combining production cycle, commodity and financial flows, ownership and management.
This company has been managing Russia‘s largest mining-and-metallurgical complex that incorporates three Integrated Iron-and-Steel Works (Nizhniy Tagil, Zapadnosibirsky and Kuznetsky), a plant for producing welded pipes and other types of metal products as well as a number of mining and coal companies. EvrazHolding total annual production of steel amounts to 14 million tons, of rolled stock – to 10.5 million tons ( or 22.5% of Russia‘s output). The consolidated annual turnover equals $ 2 billion.
EvrazHolding is among the world‘s largest sellers of metal products and the concern keeps expanding its presence on foreign markets. In the last three year the volume of its exports grew up by more than three times and reached 6.5 million tons. The major consumers of the holding‘s products are Germany, Italy, USA, Canada, Saudi Arabia, Iran, China, Republic of Korea, Taiwan and other countries.

West-Siberian Iron & Steel Works, Russia‘s largest bar producer.

Being a management company EvrazHolding controls either directly or indirectly the whole production chain of the metallurgical cycle, from recovering raw to putting out finished metal products. Complex programs are worked out and implemented by the holding management on the basis of a single strategic plan. They cover all sides of the economic activities: finance planning, investments and technical development, marketing, optimizing production processes, personnel policy, meeting ecological requirements. At the same time the company does not interfere in the current production management. This task is taken by managers of enterprises.
Integrated Iron-and-Steel Works that joined the EvrazHolding group got obviously positive results. All of them were bankrupt mainly because of serious mistakes by previous management teams and inaction of shareholders having little in common with the metallurgical business. Enterprises accumulated huge creditor indebtedness. The concern‘s top brass had to mobilize considerable financial resources and hold difficult talks with creditors to reach peace. Just one example. Zapadnosibirsky Integrated Iron-and-Steel Works is the largest ferrous metallurgy enterprise from the Urals to the Pacific. It has comparatively up-to-date facilities and possesses high export potential. But for a number of years the Works had been bankrupt. All those years the enterprise was changing hands from one owners to others with no apparent progress, save the growing debt. And only in February 2002 the holding succeeded in stopping the bankruptcy procedure and restoring normal management.
By improving the financial and economic status of the enterprise EvrazHolding bosses in fact acted as an anti-crisis team. And exactly this team monitored its economic state, actively participated in arranging outside management, formed a new management, negotiated with personnel and trade unions on behalf of the employer. As an owner interested in developing business the team implemented structural changes in production and marketing to reduce costs, corrected the list of products to reflect the real market demand and level of competitiveness. Stabilization of the production and financing situation at the Works, considerable increase of production volumes and start of implementing long-term programs to develop these enterprises won EvrazHolding a reputation of being one of the most successful crisis control companies in the Russian industry.
A qualitatively new stage in the development of Nizhniy Tagil, Zapadnosibirsky and Kuznetsky Integrated Iron-and-Steel Works began immediately after EvrazHolding was formed. First of all, the holding‘s enterprises were "connected" to the modern market financial system meaning a centralized management of financial resources accumulated as a result of joint business activities. The broad exchange of information within the holding‘s management makes it easier to plan investments in fixed capital since such investments has a supplementary nature. It permits to reduce financial risks and raises a possibility of attracting borrowed capital on more favorable terms. The system is based on the interest of all participants in results of their joint activities and the optimal distribution of profits from marketing end products. Such a system is of utmost importance for enterprises being badly in need of investments.
Many technological process stages at the holding‘s enterprises became morally and physically outdated and need radical modernization, Alexander Abramov, EvrazHolding president believes. In his opinion, this task is a priority for the nearest future. "We are calculating all investment expenses very carefully", Alexander Abramov says explaining the holding‘s basics. "Our principle is that that we earn 70% of all moneys ourselves, the rest is credits from both Russian and foreign banks. Our share of financing stipulated in business plans with banks accounts for 50-60%, our share of investments in projects with our foreign partners is usually 15-20%, the rest is credits. In 2001 the total cost of implemented projects amounted to about $80 million", he notes. At present the holding‘s enterprises are undergoing intensive technical modernization.
Metallurgical as well as mining enterprises managed by EvrazHolding are included in the town-planning category. That is why socially oriented programs are assigned a special role in the corporation‘s strategy. Their aim is to perfect intracorporate relations, improve personnel living conditions, create positive working climate and support a stable social status. In 2000 a number of personnel at the holding‘s enterprises grew up by 16.5 thousand persons and an average wage – by about 50 %.
So as to get a clearer picture of EvrazHolding production potential it is necessary to describe each Integrated Iron-and-Steel Works comprising the concern‘s structure.
Nizhniy Tagil Integrated Iron-and-Steel Works (NTMK JSC) is one of the largest in Russia. In 2001 its steel melting volume exceeded 5 million tons. The actual range of the enterprise‘s products covers 800 dimension-types of rolled stock of more than 150 steel quality brands. The Works is specialized in making metal products for railway transport (rails, wheels, profiled rolled products for railway cars) and industrial and civil construction (broad-flanged beams).
About $800 million of NTMK own money have been invested in modernization and technical reequipping of the main process stages. It has created conditions for reconstructing the converting shop, building a bar continuous casting machine complex with ladle-to-furnace units and vacuum-degassing device. New production facilities have been put into operation: a shop for lime burning and slag processing, extrusion lines for refractory production, equipment in the wheel-tiring and rail-and-beam shops.
In the nearest 5 years $370 million are to be invested in developing the Works as well as reconstructing sheet rolling and finishing production. Besides, NTMK is participating in building Russia‘s biggest large pipe plant with the unique plate steel mill-5000. By its leading technical and economic indicators Zapadnosibirsky Integrated Iron-and-Steel Works (ZSÌÊ JSC) is among the most advanced metallurgical enterprises in Russia. It is one of the major producers of profiled rolled products for construction and machine-building industries (angles, wire rods, reinforcements, beams, channels, wire). The Works metal products are shipped to 7000 CIS enterprises and are exported to over 30 countries. Export shipments account for more than a half of the off-the-shelf rolled products. In Alexander Abramov‘s opinion, the major goal of ZSMK development is introduction of bar continuous casting. As design elaborations by Danieli company show, this technological process could be set in existing industrial buildings, thus, making it possible to significantly reduce capitalized expenses. Modernization and reconstruction works are also to be implemented for other process stages. A special attention will be paid to expanding the raw base and improving the ecological situation.
Kuznetsk Integrated Iron-and-Steel Workes (KMK JSC) was built in the early 30s in the times of the Soviet program of the country‘ industrialization. At present KMK is an enterprise with a full metallurgical cycle from mining and beneficiating the ore to making and finishing rolled products. Its range of finished products includes more than 100 positions. The Works is Russia‘s leading producer of rails (over 60% of the total volume) and the only plant making the whole range of rail products, including rails for narrow-gauge and mine transport, rails for tramway lines and subway. About 80% of rails are marketed on the domestic market. The KMK main task is to modernize the rail-and-beam shop since its production facilities have become obsolete. Besides, there is a need to increase and renovate facilities of the electric steel melting shop, expand use of continuous casting and out-of-furnace treatment, improve the technology of steel-rolling and thermomechanical treatment as well as of non-destructive control. The total investments in the first stage of modernization work (to be finished in 2005) are estimated at $ 76 million.

Rail-andbeam shop at Kuznetsk Iron & Steel Works, one of the oldest in Russia.

As Alexander Abramov says, "EvrazHolding is ready for constructive cooperation with all healthy forces of the Russian business community". The creation of the strategic Russian Steel Consortium in 2001 by EvrazHolding and Novolypetsk Integrated Iron-and-Steel Works seems to illustrate his words well. The sum total of finished rolled stock annual production by the Consortium‘s enterprises amounts to about 40% of the total Russian output. As stated, the main goal of this intercompany non-commercial alliance is to establish long-term relations between companies, which will allow each and every partner to more effectively solve its own long-term problems, coordinate use of joint resources and increase market competitiveness. EvrazHolding president Alexander Abramov is convinced that the creation of such associations might become a promising direction to further develop the Russian metallurgy industry.