Gennady Voskresensky

It goes without saying that one can speak about the intricate and contradictive processes taking place in the Russian metals industry �on the whole�, identifying �general trends� by the book. But sometimes it is much more productive to approach an individual enterprise as an example. In this case many problems become distinct and more understandable.

    Krasny Vyborzhets JSC (St.Petersburg) is a case in question. In Russia there are only nine plants (plus a pilot one), which deal with the processing of heavy nonferrous metals and the output of various rolled product standard types on their base. Among these plants is Krasny Vyborzhets. It ranks fourth and second in terms of production tonnage and growth rates, respectively. In 2001 its production growth reached 153 percent with 128 percent as an industry-average figure. In 2002-2003 the plant is to further increase its output by 40 to 50 percent.
The plant’s modernization program is under successful implementation. An Italian coil milling line was purchased, the cold and hot mills were revamped, a new hydraulic press was installed. The plant’s control system is being reformed.
Krasny Vyborzhets is not convinced by the structural changes under way in the Russian metals industry and, above all, the production amalgamation through setting up mighty holdings based on consolidation of property.
Two or three years ago some financial and industrial groups got interested in the plant, with Interros, which controls Norilsk Nickel, topping the list. Nevertheless, the plant’s executive managers preferred to remain economically independent.
In his conversation with the EM reporter, Valentin Simonov, General Director of Krasny Vyborzhets, expressed his opinion on the integration tendency: "A set-up of big corporations in the nonferrous metals industry, in the way it is happening now in our sector, is not a cure-all for the industry".
"In principle, the smelter, the metalworker and the machinebuilder must each go about his own business", explains Valentin Simonov. "That today’s complete production chains in the form of corporations enclosing all-in are established is not due to a fat city. It is just the way of solving the product sales problem. For example, Ural Mining & Metallurgical Company (UMMC) incorporated the Kirov Non-Ferrous Metals Processing Plant and a number of enterprises making finished products from copper and its alloys. These enterprises showed better results in 2001 than in the previous year but their growth rates turned to be lower than at Krasny Vyborzhets. They have cheap raw materials, stable direct supplies. But, just like any other industry’s enterprise, they face a low demand for their products.
With all his skepticism with respect to big corporations, the Krasny Vyborzhets’ executive does not rule out the possibility of attracting a strategic investor, either foreign or domestic.
"If to still speak about corporate amalgamations, enterprises should be integrated with due regard to governmental policy", Valentin Simonov continues. "It must be a policy of industrial build-up. It is needed to estimate what products and of what tonnage are required in the domestic market and what can be sold for export".
In the general director’s opinion, the Government of Russia has not yet worked out the concept of industrial development. Meanwhile, "such a concept is demanded particularly today when the Russian industry shows some uprise". A slight growth of the domestic market is realized by any plant of the sector, in Simonov’s words. For instance, if a few years ago Krasny Vyborzhets was stiffly tied with the consumers in the north-west of this country and, first and foremost, in the region of St.Petersburg, now an intensive marketing policy brought the plant to the markets of the Urals and Siberia. Moreover, the markets of the CIS countries - Kazakhstan, Belarus - are step-by-step being opened for its products. None the less, Valentin Simonov is not willing to overestimate the success. "These are not the rates that can satisfy us". The production fall has been too deep in the previous years. "The plant’s production facilities are designed for 70,000 and not 20,000 tpy of products we can speak about today. We can make a lot more than we make and sell now".
A direct question stemming from the above is whether the new Russian corporations are capable of solving the production and economic problems of the plants. For example, a problem of redundant facilities. "To my mind, up to now the corporations have failed to solve and will not solve such problems", Valentin Simonov thinks. "But, if a consolidated state policy of amalgamating appears, then corporations can be set up, basing on a real consumers’ demand. And it may reveal that we need not nine but three or four plants processing heavy nonferrous metals".
So, one of the main obstacles on the way to the normal development of the nonferrous metals plants is an excessive overrun of their production capabilities over market demand. At present in the processing of heavy nonferrous metals the production facilities of the plants are only 20 % utilized. A decade ago the sector’s plants used to make 750,000 tons of rolled products per year. Now this figure is no more than 115,000 tons. Along with it, the production potential has to be preserved. As Valentin Simonov explains, "to phase out these facilities is impossible - because of a continuous processing cycle in which all the equipment is involved if necessary".
The second problem is an existing monopoly of raw materials. Russia produces copper, nickel in large quantities while the plants specialized in copper-nickel alloys, copper-based rolled and other finished products have serious complications in the purchase of primary metals. "Unfortunately, the processors have no alternative", the general director adds. "Anode copper is made by three companies, zinc only by the Chelyabinsk Zinc Plant, nickel by Norilsk Nickel alone. In practice we have to work with the monopolists. But the monopolism hinders a further progress of the processing sector".
Together with many other reasons, the raw materials monopoly retards a transition to intensive metal processing and limits an output of promising metal product standard types. For instance, straight electrodes for resistance spot welding, disc electrodes for seam welders (for automotive industry), coin bands, different rods for various sectors (from aerospace industry to watch makers). Krasny Vyborzhets expands the output of such products. Nevertheless, the product range in general has fallen: only 20 out of 40 alloy types remain.
Lastly, one more problem. It is connected with a penetration of the foreign markets. It is a long time since the Russian nonferrous metals plants have become oriented to export and LME prices. However certain measures are needed for maintaining an export potential: competitors are awake, and world standards are deliberately stiffening. The Russian metal will be bought provided two conditions are observed, as Valentin Simonov believes, namely: "if it will be of better quality, first, and cheaper, second". At present Krasny Vyborzhez is just completing an ISO-9002 certification. "If we succeed in it our export ratio will be raised from 10 to 25–35 percent already in 2003". Nowadays, the plant exports its products to 15 countries, among them, the USA, Germany, France.
The plant can raise the product quality but the production costs can hardly be reduced. "What prerequisites do we properly have to sell our products at lower prices", analogizes Valentin Simonov, "than other suppliers in the world market? None, except low wages. All the other constituents of the prime cost have been already brought up to the European level - electric power costs and fuel, raw materials and services prices".
"So, what is the answer?" concludes Simonov. "Probably huge integrated companies in Russia, like they have in the west".