Andrei Karunos

Having broken the scale of the 1990s, the period when entrepreneurship in the Russian metals industry, like in the national economy on the whole, was an active supplier of detective plots while profit drained away to black economy, the owners of leading metal-producing companies are anew establishing a sales structure and a trading system. Anarchy is being replaced by clear control of relations with traders, dealers; a share of direct supplies is growing.

    Metal-Expo, a traditional national Metals Exhibition, which was held in November, 2002, showed that marketing issues are being placed in the forefront of business activities. No wonder that the majority of metals producers displayed their exhibits on the racks of trade houses, service centers or metal trading associations.
A key event was the presentation of Evrazholding Trade House, the company whose annual steel production reaches 14m tons. The company includes the Nizhny Tagil Iron & Steel Works (NTMK), West Siberian Steel Corporation (Zapsib, ZSMK), Kuznetsk Steel Corporation (KMK) and the Kuzmin Novosibirsk Steel Works. In October 2002, Evrazholding Trade House held the first auction when the products of West Siberian Steel Corporation were put up. This way of public sale, in the words of Andrey Kruglov, the marketing department head of Evrazholding, was pioneered in Russia.
"We have arrived at a more profitable sales model", says Kruglov, "previously there were around 10 affiliated traders. A closer look at them showed that they were only middlemen who delivered products not to end users but to small salesmen. There were virtually no direct deals. In our view, the trader’s task is quite different – to contact industrial consumers, grant them short-term credits and render additional services".
The marketing people of Evrazholding Trade House let steel traders have an access to the works. But it would be erroneous to believe that each and every may now trade in Zapsib products. Today the companies are more demanding than ever before in selecting their traders as the former paid an extra high price for the excessive confidence in the latter in the middle of the 1990s. At that time a lot of unreliable agents were grouped around the works which was among the reasons for its insolvency hard to overcome.
During the time of higher seasonal demand, Evrazholding Trade House launched an auction procedure incorporating several steps. The first step comprised a questionnaire survey, a check-up by its own intelligence channels and an elimination of traders not in line with the claimed requirements. Here the governing factors included credit experience, market operation story, list of regular clients.
About 70 trade companies participated in the first auction.
"We put up a certain product standard type as a lot", continued Kruglov, "marked starting prices, then each trader set up a scope he was prepared to buy and claimed an extra charge to the starting price. At the next step our potential partner was not entitled to vary the scope but on realizing a would-be demand he might raise the price. During the auction it became evident that the companies who never before operated with ZSMK were ready to offer a higher price".
The extra profit due to the new sales system much exceeded the expected one. The shareholders liked this way of sales. Now auctions for supplies of Zapsib products are regularly held.
Although EvrazHolding Trade House grew out of NTMK Trade House the latter still adhere to the more conventional sales system. Meanwhile the initiative aroused an interest at another holding’s enterprise. In February the public sale system was introduced at KMK.

Severstal. The shipping department

It is worth noting that EvrazHolding Trade House deals with internal supplies only. A different unit is engaged in export operations.
It is illustrative that nowadays the big Russian steel players view the internal market as a priority. This fact was stressed by Dmitry Goroshkov, the sales director of Severstal JSC. With the major aim of the sales strategy to maximize a medium-term profit, Severstal rests on, above all, their strategic markets, like the fuel and energy complex, automotive industry, machine- and shipbuilding. Companies engaged in these sectors provide steelmakers with large consumption volume and, consequently, considerable profits. Here Severstal adheres to direct sale.
"In our relations with these companies we apply new approaches to the development of products and services", says Goroshkov, "we improve the entire complex of our relations with the client".
Continuous work on better steel quality, optimization of order books and promotion of products permit high efficiency of sales to be achieved. The sales policy of Severstal, estimated by its marketing people, is focused on a stable ratio of internal and foreign markets, diversification of sales, lower dependence on a particular market.
Of no less importance is the development of what is called market niches that ensure stability in the case of radical changes in world or internal market situations. The development of the internal sales network is paid special attention to. The key objective of the sales program is to eliminate dealers. Severstal, just like many other big players, stopped being satisfied with industrial markets and export supplies only. It is now an active operator with both affiliated and independent steel traders. This policy results from the development of a special segment represented by small distributors. Severstal is successfully conquering this market by spreading stockholding networks in different areas and operating with authorized dealers. Severstal Invest Trade House, which is the owner of over 30 dealer sites, can be a successful example of this strategy.
Another big company, Magnitogorsk Iron & Steel Works (MMK), also adheres to a regional concept of promotion of its products in the internal market. For example, Magma, its subsidiary, acts as the company’s general distributor in the Central and North-East regions of Russia. Similar traders operate in Ural, the Volga region and Siberia. They all have networks of official dealers, steel stockholding and service centers. This sales concept and geographical segmentation of market remain very attractive in such a large country as Russia. Along with it, MMK has direct ties with a number of industrial consumers, like aircraft and tube/pipe sectors.
Steel producers connect good prospects of their business with the build-up of zinc-coating facilities. The main suppliers of zinc-coated products are MMK (44.4 %), Severstal (35.6 %) and Lipetsk Iron & Steel Works (NLMK) (13.33 %). The most interesting market for zinc-coated products is the building industry, namely, floor plates and wall panels plants. The overall annual capacity of the plants is estimated at 280 to 300 thousand tons and for the next five years, as predicted, this market can increase by 20-25 %. In general the demand for zinc-coated products increases by 10 to 15 % every year, as stated by Sergey Chernus, the deputy head of internal sales directorate of MMK.
Things are somewhat worse with the supplies of coated strip/sheet to the Russian automotive industry. At the same time Magnitogorsk specialists are of the opinion that its hot-galvanized products can account for up to one third in the total consumption of automotive strip/sheet in Russia. Its zinc-coated cold-rolled sheets are also shipped to European buyers.
MMK located in the country’s center is largely oriented to long-term contracts in the home market while another large producer, NLMK, exports a great part of its zinc-coated sheet/strip. Severstal where a high-capacity hot-dip galvanizing line to be built jointly with Arcelor is to be commissioned in 2004 intends to focus on the spot market.
Today the problem of certification of independent traders is urgent for any steel producer. Having left behind the time of accumulating multi-million credit and debit indebtedness, the steel companies demand the full transparency of business operations from dealers and the 100-% advance payment of shipments.
It must be noted that not all the companies seek to establish their own networks of small stockholding sites and service centers. For example, in the opinion of the marketing head of Evrazholding Trade House, a set-up of unique supermarkets would be an ideal choice for consumers, let alone big industrial customers. Here the buyer can "put into his candy" anything required, from wire to coated sheet. But it cannot be achieved without the cooperation of the companies in the field of sales. This process is under way, but with some ifs so far. "If there are no crossings in range, and the prices are acceptable, we have no reason to discredit independent traders operating with several companies at once", say the steel producers.
Business in foreign markets is connected with the threat of antidumping investigations and the limitation of Russian rolled steel exports. Problems of this kind often appear in the North American and European markets.

According to the forecast of the Russian Ministry of Industry, in 2003 the rolled steel exports will be reduced by 1m tons, amounting to 23m tons. The changes in the foreign market situation will result in the reorientation of a part of supplies to the internal market. The internal demand for finished rolled products is predicted at 25.8 to 26.3m tons, which is 7.3 to 8.9 % higher than in 2002.

"Being present in the foreign markets is important for the companies", states Dmitry Goroshkov, the sales director, "the only distinction is that these markets are supporting ones for the majority, and the behavior strategy in them differs from that in the internal markets. Maximum profit is still the main focus of export activities".
By virtue of favorable situations in world markets, the companies make efforts to achieve the best results possible. The sale of high value-added products is of special value. Thus, by the data of the State Customs Committee of Russia, the actual volume of strip/sheet exports increased by 5.4 % in the first half of 2002 as compared with the same period of the previous year.
While exporting, Russian steel producers also seek direct supplies to end users. Thus, Severstal eliminated the agents in its foreign economic activities which permitted 40 % of direct deliveries to be reached in 2001. Severstal Export GmbH, the official dealer of Severstal, has a network of representative offices and agencies in various regions worldwide. The independent traders are as a rule involved when financial risks are required to be covered.
In so doing, the operation in commodities markets and their monitoring become no less valuable to Russian steel producers than the reconstruction of production operations. Through building up presence in traditional niches, opening new markets, recovering lost positions, applying new sales forms, like Internet auctions, the companies are anew arranging their relations with the dealers. Today the producer wants to view the flow chain of his products to the end-user and in this way to control the cost of his goods in the market.