–EM:

VIZ-Stal occupies a separate place in the steel market. What are the main characteristics of this niche?
-- This market is very narrow, and VIZ-Stal produces electrical steels, in the first place transformer steel. There are only ten world producers of this product, two in Japan, two in Europe, one in Brazil, two in USA, two in Russia, and very small quantity is made in Czech Republic and Poland. Plus one big player in China.
EM: What is the product range of VIZ-Stal? -- Our traditional product is steel for power and distribution transformer for energy industry and a limited quantity of more common dinamo steel. EM: When the cold mill shop at the Verkh-Isetsky Works was built it was known as the most advanced at that time plant. How do you assess the production and technological level of VIZ-Stal JSC now? --Last year we had a jubilee - thirty years of operation of the cold mill shop. From the viewpoint of technology and production as well VIZ-Stal is one of the most advanced producers of electrical steels in the world. There is not any difference between the European producers and ourselves and maybe a little gap with Japanese producers who are of course the most advanced ones. But we are concentrating only in one part of the market - traditional electrical steels and here basically VIZ-Stal is at the same level as other producers in the world. EM: What organizational and technological changes have taken place since VIS-Stal became a division of Duferco? -- Despite the fact that when Duferco started working in VIZ - in the beginning of 1999 (the very end of January) - the situation was critical just at the works and in Russia as a whole. Duferco made the choice not to bring drastic changes but to proceed step by step using the forces that were already present in the staff. The first target of Duferco was to use the working force present and to improve technology, to increase production, to gain international standards of production. EM: Do you have a strategic program for the development of the plant? If so what are the key investment projects? What is the investment scope and what financial instruments do you use? -- Of course there is a strategic program for the development of the plant which started from the beginning of 1999. Step by step we have made modernization in every line - the whole complex was under modernization and still is. The result was that from production of forty thousand in total in 1998 we reached 180,000 t in 2003 and will produce over 200,000 t in 2005 - together grain-oriented and nongrain-oriented steels. We did not use any particular instruments so far, we bought a new slitting line with EBRD help (through financing). Duferco of course played a very big role in the modernization of the plant - up to now it invested 20 to 25 million dollars only for modernization. EM: What plants are your main customers? What share of the products is exported? --First of all is necessary to say that VIZ-Stal today covers about 10-11% of world market of transformer steel. Out of our today production around 70-75% goes to export. We hope to reach a better balance in the near future between export and domestic sales. Of course a big role will be played by modernization in the Russian energy system. As far as the main customers, we can say that today we supply material directly to all the big groups in the world, ABB and General Electric are among them. Moreover we can say that with ABB we have a very close technical cooperation since 1999. EM: What are the basic competitive advantages of your products? -- Till some time ago one of the factors was cost, we were a low-cost producer. Lately because of big changes in the Russian domestic market we do not have this advantage any longer. We suffered a lot of problems because of an increase in the price of hot-rolled coils. Today what makes us competitive is quality and service provided, direct contacts with customers and logistics. For example, we have stocks in the Europe and in the USA where we can sell the customer just-in-time. Unfortunately service also costs money but it is one of the ways to make ourselves competitive in the market. EM: Recently advance of Russian, in particular, transformer and dynamo steel in the world market was hindered by numerous antidumping sanctions. Are export supplies oppressively quoted now? -- Today is a moment of transition. We used to have quotas in the US as well as in Europe. Today we do not have any written rule but we are very careful about a possibility of dumping all over the world. One of our strategic points, as philosophy of sales, is diversification: we are selling not only on the highest-priced markets but we are trying to be present in every market. In Europe now we have an antidumping investigation and we have to go on with it. It means a lot of resources such as money, time, lawyers, staff, etc. Is almost natural to try to protect local producers. At the same time we are sure that always we have been behaving correctly price wise and quantity wise. We always try to sell at best prices, to provide good service and we do not try to dump tons and tons of steel in a single market. Instead is important to have a very clever distribution on a monthly basis within different markets even though sometimes difference in price is substantial. EM: How is the sales system organized at VIZ-Stal and what tools and channels are applied by the corporate managers to have as large as possible presence in the world market? -- The organization is very simple but at the same time quite complex. As to CIS all the operations are handled directly from the plant (VIZ-Stal and its sale office), as to export VIZ-Stal can use Duferco organization worldwide: 80 offices all over the world which was a big help to develop the market and conceptions of customer service, to be very close to the customer. In Lugano main office we have a team of about ten people totally dedicated to our project. EM: What raw materials base do you use and how are the main incoming flows arranged? -- For us raw materials means mainly hot-rolled coils. Our suppliers today are in Russia, mainly Magnitigorsk Kombinat. In the last 9 months prices raised in the domestic market up 50 to 60%. This has represented for us a very big problem. On one side we work with our main customers with one year at least contracts with fixed prices, on the other side we had a constant increase of cost of supplying. 2004 so far has been a very difficult year. We were forced to cancel some important orders and nevertheless we have reported substantial losses in the second quarter. Hopefully situation will change early next year. EM: How you think will the market of quality steels be developing in the near future and what place will be there occupied by VIZ-Stal and Russian companies in general? --If we talk about electrical steel as quality steel from the technological point of view Russian technicians and technology are not worse than anybody else. The level of knowledge, the level of scientific research are on the top of world already today. As far as the market is concern I can speak about the "so called" special steel family and it is already a lot of time that Russian steel is considered quality steel. EM: Now in Russia metallurgical machinebuilding is developing. Severstalmash has been set up, Uralmash is reviving step by step. Do you think that it is possible for Russian metallurgical machinebuilding to gain the same position it had in the 1960s and 1970s when, for instance, Uralmash made the world first conticaster? -- I think it is possible. Russia has all the bases to be the leader in this specific sector. Foreign competitors do not offer only equipment building but also special financial back up and sheduling. It requires a lot of investments and time. However, the base is people, managers, engineers, project designers. Somebody will be able to organize a pool of people that can work effectively together. Three to five years to make new projects, to understand world trends of technology and financing, and I am sure Russia will be in the first places. EM: What is your social policy like at the plant? -- We have strong cooperation and are very close to our workers. The workers are our richness. We try to guarantee them a decent salary (an average figure is 11,500 rbls.) We grant credits without interest to our people to make their life better. We try to help as mush as we can the infrastructure surrounding our plant: hospitals, kindergarten. We cannot now increase salary as we wished because of the increase in cost of raw materials, but we try to make their life more comfortable, easier. We started a special program for young workers, we look at them as our future managers in three or five years and we try to help them to establish themselves better (apartments, cars, etc.). We have special courses for them not necessarily inside the plant, mainly in Russia, Moscow and St.Petersburg in order to expand their knowledge quickly and effectively. EM: Are you satisfied with the qualification of the workers and are there problems with the replacement of the personnel? -- No problem. As to technical level it is very high. So far we did not have any particular problem. The basic knowledge of the employeers is extremely high compared to other countries, especially for technical and technological personnel, but not only. Human factor is still very important in VIZ-Stal.