Yuri Adno

The unusual color of rails is just the lighting effect. But for KMK this product may really become a gold mine

R

ussia has 9 integrated steel mills of the full cycle with production capacities enough to make over 1 million tons of steel a year. This is the so-called ”Big Nine”. These giant enterprises traveled a difficult and complicated way of adapting to the market economy. Each of them encountered the need to reorganize the production structure and management system.
Probably, it was the Kuznetsk Steel Corporation (KMK) that happened to be in the least favorable starting position. Built in 1932 this integrated mill did not manage to implement a complex modernization in time. Steel was melted mainly in open-hearth furnaces. Due to the lack of funds the construction of an oxygen-converter plant, which was underway since 1988, was not completed. There was a sharp decrease in demand for railroad rails, the most profitable product of the mill. With the price level that existed the main export product, billets, yielded losses. What is more, the mill was located quite far from major markets. All these objective difficulties, which were aggravated by the incompetence of shareholders and failing management, led KMK to bankruptcy.
At the end of 1999 creditors decided to hand the day-to-day management of the mill over to the company EvrazHolding. By that time the basic production and infrastructure of the Kuznetsk Steel Corporation were in a total decay and its losses amounted to about $57M.
The general idea of restructuring put forward by EvrazHolding provided for, first, the qualitative change of technological parameters of the production cycle taking into account market requirements and, second, for the removal of mining enterprises as well as auxiliary subdivisions from the structure of KMK. In addition, there was a provision stipulating creation of an effective system of the day-to-day management of both the business and production. What is more, a task was set to use to the maximum extent possible opportunities for production integration with the West Siberian Steel Corporation (ZSMK) also owned by EvrazHolding and located in the immediate vicinity of KMK.
The following facilities and directions of the restructuring were singled out: the basic metallurgical production, mining complex, non-specialized assets, system of management. Legally all these entities were registered as companies with limited liabilities (LLC). The market value of their property was calculated by an independent appraiser in accordance with requirements of the Law on bankruptcy and Civil Code of the Russian Federation. The competitive sale of the LLC corporate property at open tenders is arranged in order to obtain funds for settling credit indebtedness and investment resources for reconstruction and modernization. The leading interested participant of these tenders is EvrazHolding.
The choice of production parameters was determined according to market requirements. The optimal volume of rails as the most profitable product is set at 500,000 tons a year. Other capacities of the rolling process stage will produce billets and components for fastening rails.
Now the base of KMK’s adopted production structure consists of the arc-furnace plant with the annual production capacity of 1.5 million tons, two billet continuous casting machines as well as the rail and structural steel mill with the production capacity of about 1.2 million tons. The weak spot is the absence of a heating furnace in the head part of the mill, but it is to be eliminated in 2004 after the construction of a new unit will be completed. Simultaneously, work will be done to develop the technological chain of producing billets and rail components. After the reconstruction the total annual volume of products made at this process stage will amount to no less than $500M.
Under the program of reconstruction the outdated production capacities of the open-hearth shop, blooming, mill-500 and, as a minimum, one of two blast furnaces will be put out of operation in the forthcoming 2 to 3 years.
Today the mining production facilities of KMK are characterized by a high prime cost of ore raw materials and a low content of iron. Nevertheless, there is a possibility to raise the mining efficiency. In order to improve the management of this complex the company EvrazRuda was set up, which also manages other mining enterprises of the holding.
KMK’s auxiliary and non-specialized services, which, among others, include the works for repairing metallurgical equipment, haulage enterprise, construction office, were transformed into subsidiaries. It is assumed that they will be able to sell some of the products and services in the free market, thus, obtaining funds for their own development.
In 2002 a management company was established within the EvrazHolding group. The company was delegated the authority to manage the Nizhny Tagil Iron & Steel Works (NTMK) and West Siberian Steel Corporation. It is obvious that after the procedure of arranging a competitive production and necessary structural changes at KMK are completed, the competence of this management company will also extend to the Kuznetsk Steel Corporation.
The authorities of the management company and enterprises’ management are divided the following way. The company arranges the centralized marketing of products and supplies of the most important kinds of raw materials, secures the investment process and attracts capital for this purpose, manages legal risks, works out corporate programs of strategic development. Enterprises’ managers are engaged in controlling day-to-day production operations, ensure their economic efficiency and implement investment programs.
At present, a new management structure is being formed at KMK. New specialists are being hired. Special attention is being paid to achieving the interaction between managers’ teams responsible for different areas of the enterprise’s activity as well as to creating a modern system of motivation.
The complex restructuring of the Kuznetsk Steel Corporation can be regarded as an example of a successful change of strategy at a major enterprise in the crisis situation. If in 2001 the integrated mill suffered losses amounting to over $ 23M, it ended 2002 with the profit of about $8M. A further growth of its leading financial indicators is expected this current year. 

N  O  W  :
	In April a pilot batch of railroad rails made of bainite steel was rolled at KMK Rails LLC. This type of steel is distinguished by the reduced content of carbon and presence of alloying elements. Bainite rails are designed for use at the railroad sections with increased freight density. This is a breakthrough in the rail production at KMK. Bainite rails have a higher strength, stickiness and wear resistance. The technology of producing them has been worked out at KMK by specialists of the central complex laboratory since 2002 and so far it has no match in Russia. The annual need of Russian railroads for such rails is estimated at 50,000 tons.