Valery Markotenko
Chairman, Board of directors, Moldova Steel Works JV CJSC (MSW JV CJSC)
Anatoly Belitchenko
President, Panfermag Holding Ltd.

Valery Markotenko, the Chairman of the Board of Directors of Moldova Steel Works JV CJSC

Anatoly Belitchenko, the president of Panfermag Holding Ltd.

T

he joint venture closed joint-stock company Moldova Steel Works (MSW JV CJSC) is a modern, highly productive steel complex including electric steel making and rolling facilities as well as testing laboratories to control the quality of the finished products. In addition to producing continuously cast carbon billets and steel sections, the enterprise also specializes in making hot-rolled steel reinforcement, including the heat-treated one, as well as wire rod of high- and low-carbon, alloyed and low-alloyed steels according to standards of both CIS member countries and leading nations of the world. Its steel output volume is 3 times and rolled stock output volume is 1.8 times as high as the mill’s design production capacity. This puts the enterprise in a special position among steel mills of the CIS.
In 2003 MSW plans to produce around 806,000 tons of steel and 720,000 tons of rolled stock. Its production plans also provide for increasing the share of high-quality steel grades, which at present accounts for 20 % of the total output.
Moldova Steel Works has repeatedly won contests and awards for its achievements in product quality, management and market development. EBRR experts recognize it as one of the best enterprises of the kind in Central and Eastern Europe. Twelve international awards prove the mill’s international authority and recognition. The mill’s quality system is certified as fully complying with the international ISO 9001-2000 standard requirements. MSW is an active member of various international organizations: the International Iron and Steel Institute (IISI), International Rebar Producers and Exporters Association (IREPAS), Union of Balkan Metallurgists, Union of Producers and Exporters of Ferrous Metals.
As the competition intensifies and steel quality requirements in world markets continue to rise, MSW is constantly improving its technological processes so as to reduce production costs, improve the quality and expand the range of the mill’s products. For example, in 2002 the mill put in operation the vacuum degassing unit, which lets produce new high-quality steel grades. By 2003, the main phase of the full-scale reconstruction aimed at increasing the mill’s product competitiveness in world markets and its efficiency has been completed.
The world steel production and consumption are growing steadily. In the first half of 2003 the world steel output increased by 8.2 % reaching the record level of 465.7 million tons. By estimates of the analytical agency MEPS, in 2003 as a whole the total steel production volume may rise up to 944 million tons (or 5 % more than in 2002). At the same time the volume of the world steel trading accounts for over 26 % of the total production volume. The growth of the world steel market is accompanied by changes in directions of commodity flows resulting in increasing the customs barriers. Besides, the stronger competition leads to changes in corporate structure: the need for larger financial resources is constantly pushing the process of mergers and acquisitions. With these market trends taken into account the next step to develop MSW and position it as one of the best enterprises in Europe was to reform the mill’s marketing system and secure the necessary financial inflows. To this end, in 2003 a new group of companies, Panfermag Holding Ltd., has been formed. It incorporates:
– the marketing and management company Panfermag Holding Ltd., which has become the chief authorized structure to sell the mill’s products in the world markets;
– the MSW Trading House based in Moscow to coordinate sales of metal products and purchases of raw and additional materials in Russia and other CIS member countries;
– Moldova Steel Works.
One of the reasons to set up Panfermag Holding Ltd. was the geopolitical position of the mill. The Transdniester Moldavian Republic, where the mill is located, is a zone of certain political risks, since it has no internationally recognized state sovereign status. The political situation around Transdniesteria is unstable and this holds back potential investors, while the mill annually needs $ 35 million in borrowed funds to replenish its working capital. In such circumstances MSW contractors are interested in having an intermediary between the mill and its investors, which is registered in a full-fledged European country. Transferring financial management functions to Panfermag Holding Ltd. allows to radically solve this problem.
Panfermag Holding Ltd. is a Cyprus-registered company with the headquarters in the city of Limassol. In 2004 the country will be integrated into the European Union, and that should provide MSW with additional guarantees for European banks to grant credits to the mill. The company is headed by Anatoly Belitchenko, the former general director of Moldova Steel Works. Valery Markotenko, the Chairman of Board of directors of MSW and representative of the controlling shareholder, is the Chairman of the Board of Directors at Panfermag Holding Ltd.
Choosing Europe as the location of the marketing and managing company is explained by the region’s commercial importance to the mill. About 85 % of metal products made in Transdniesteria is marketed outside the CIS, with more than a half of the products (54,1 %) is being exported to various European countries. Today, MSW-made reinforcing steel bars, wire rods and cast billets are well-known and find a stable demand in almost all regions of the Mediterranean, including countries of Northern Africa and the Middle East. Since 1998 the share of sales to EU member states has grown from 3.9 % to 36.5 % of the total marketing volume (see table below).
It’s worth mentioning that the existing geographical scope of MSW marketing activities was much conditioned by antidumping investigations conducted by the US government a couple of years ago. They resulted in raising import duties on MSW products by as much as 234 % for reinforcing steel bars and 369 % for wire rod. This led to the cancellation of practically all MSW exports to the US market that before 2002 consumed from 50 % to 70 % of the mill’s output. A decision was made to diversify marketing routes as much as possible. The high quality of the mill’s products as well as their certification according to European standards greatly assisted in changing the geography of its sales and changing it fast. Of the utmost importance was also the high repute of MSW as an irreproachable contractor both in terms of quality and delivery schedules.
Sales to CIS member countries, particularly to Russia and Ukraine, are growing slowly but steadily. In recent years the opportunities for the MSW expansion to these markets have increased despite the higher prime cost of its rolled stock as compared with the one of Russian and Ukrainian enterprises. The fact is that these enterprises are keen on exporting considerable portions of output abroad. As a result, there are shortages and higher prices for metal products in their domestic markets. Besides, in Ukraine alone there are 10 hardware plants that lack wire rod of high-carbon steel grades, while both Russia and Ukraine do not produce such items in sufficient quantities (especially the ones for making ropes and metal cord). Therefore, some enterprises are interested in regular deliveries of this product from Moldova Steel Works.
The MSW Trading House, Moscow-based subsidiary of Panfermag Holding Ltd., was established to manage the growth of the mill’s sales as well as purchases in Russia and other CIS member countries. The basic raw material for MSM products is iron-and-steel scrap, which is brought mainly from Russia and Ukraine. That is why the formation of the MSW Trading House will play a positive role in providing the mill with raw materials and reducing the chances of interruptions of purchases.
The development strategy of the Panfermag Group of companies is to meet as fully as possible the requirements of its customers all over the world. This implies the following steps and objectives:

MSW Trading House Building in Moscow

1) Switching to production of metals of higher quality that are demanded most. A further re-equipment is planned in order to expand the range of high-quality steel grades and production of such items as high-ductility wire rod of low-carbon steel grades for deep direct drawing, wire rod of high-carbon steel grades for making springs, ropes, motor vehicle piston rings and metal cord, wire rod of medium-carbon steel grades for making hardware products for various purposes, rolled stock for cold heading. Also, improving further the long products (reinforcing steel bars and equal angles), the production process will be continued. Efforts to certify products according to international standards will go on as well.
2) Increasing the share of products with the higher level of processing in the mill’s output structure.
3) Extending the geographical scope of the mill’s sales that will allow to minimize the negative impact of antidumping measures on MSW products, to strengthen the mutually beneficial cooperation with the hardware plants in the CIS, US, Europe and Northern Africa, to increase in the long run the sales volumes and overall profitability of the Group.
4) Forming new marketing structures that would bring MSW closer to the end-users. Panfermag Holding Ltd. is planning to establish distribution networks in the mill’s major marketing regions. Such a strategy should let control the situation and respond promptly and efficiently to any changes in market conditions.