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Ì: The long-term modernization program, which has been worked out at ÌÌÊ, is effective till 2010. What production volumes will be achieved by the end of this period and what new types of products will appear?

R.: At present, MMK JSC has actualized the investment program that will run till 2013. Its implementation is planned to consist of three stages. On the whole, it will allow to ensure making 13.5 million tons of steel as well as 12 million tons of finished rolled products. The production of cast iron will not grow significantly since the converter production facilities will provide about 9.5 million tons out of 13.5 million tons of steel, the remaining 4 million tons will fall on the electric furnace steelmaking. We will bring sales of semi-finished products to zero, while the share of products of deep process stages with high added value will go up considerably. In recent years ÌÌÊ commissioned the continuous hot-dip galvanizing unit as well as the polymeric coating unit. The existing plans provide for constructing one more continuous hot-deep galvanizing unit and one more polymeric coating unit. The attention is being paid now to considering possibilities of making end products on the basis of colored sheet.

ÅÌ: Is it possible to evaluate total expenses on implementing this program and to name financial sources?

R.: In 2001 through 2004 we already invested over $1 billion in capital construction; last year alone the volume of investments amounted to $350 million. This year we are planning to invest almost $500 million; as before, MMK’s own funds will account for 80% of this sum. In 2006 the volume of investments will stay on the level of the current year and, further on, it is expected that expenses on capital construction will be reaching between approximately $300 million and $400 million a year.

ÅÌ: The scale of modernizing the MMK steel-melting complex, which is the largest in Europe, is particularly impressive. Are there any problems of the technical nature with it?

R.: In fact, we are modernizing the rolling process stage on the same scale as well. The list also includes complex reconstruction of plate-rolling shop No.5, which produces cold-rolled sheet, reconstruction of hot-rolling mills 2000 and 2500, construction of units in the coating shop. The major project is the radical reconstruction of the section-rolling line. This year at once three new advanced section mills will be put in operation and, thanks to it, ÌÌÊ will be able to produce over 2 million tons of quality rolled sections year-on-year.
As far as the steel-melting process stage is concerned, with commissioning the third converter in 1999 we reduced the number of open-hearth furnaces to a minimum. Today, there are only two units in operation in the open-hearth shop. They will be put out of operation soon because in 2006 we will commission two advanced arc-heating furnaces. At the same time we will put in operation one more slab continuous casting machine. I do not expect any serious problems with the technical renovation: MMK has quite an experience of constructing the most complex units in the shortest possible time.

ÅÌ: What are the prospects for providing raw materials and energy resources taking into account the significant rise in their cost recently as well as growing needs of your enterprise?

R.: We consider achieving a raw material independence one of the top-priority tasks of ÌÌÊ. We are examining different options, including the one of acquiring operating iron ore assets and obtaining licenses to develop iron ore fields. We already have a license for developing the Techenskoye iron ore field in the Chelyabinsk region. We are studying the possibility of developing fields in Russia’s European part as well as in Ukraine.
Reconstruction works are underway in the ÌÌÊ-owned fields so as to increase production volumes. The technical re-equipment of the iron-and-steel production facilities will contribute to reducing consumption of the purchased iron ore raw material.
As far as the energy security is concerned, as of today, ÌÌÊ is providing its own electric power for satisafying practically 100% of the needs; at the same time, we are planning to further build up generating capacities.

ÅÌ: The last year will go down in the history of the world steel industry: the fantastic record of 1 billion tons of steel has been set! For Russian companies the last year has been the best by all economic indexes during the whole period of reforms. For how long, in your opinion, this trend may continue?

R.: Besides favorable conditions, I would single out two points. First, the technical level of most leading enterprises of the Russian steel industry has significantly gone up and, accordingly, the production efficiency has risen, more competitive products with a bigger economic effect have been put out. Second, the economic growth in Russia leads to a higher consumption of metals. Steel producers are selling more on the domestic market and, accordingly, their dependence on export shipments goes down. And this has a favorable impact on activities of iron and steel integrated plants.

ÅÌ: But the price rise is a matter of concern for consumers and it causes suspicions of the cartel conspiracy...

R.: However paradoxical it may seem, the rise in prices for steel worries us as well. We perfectly understand that consumers’ purchasing power is not limitless. But if all prices are rising, it does not mean the cartel conspiracy. No, not in the least. The matter is that all steelmakers are just working in similar conditions and they are influenced by the same factors. Among them is the rise in prices for raw materials; it is noteworthy that the dynamics of prices in the raw material sector is much higher than the one that steelmakers have. By the way, Arcelor, the world’s leader, raises prices as well. Does it mean that they are also conspiring with us?!

ÅÌ: Russian companies are constantly stressing the priority of the domestic market. But to what extent expectations of a significant increase in demand inside the country are justified? In what spheres of the economy this increase is expected most of all?

R.: The increase in the domestic demand for steel products is quite tangible. In the last five years its growth amounted to several million tons. In the mid-1990s the export share at our company exceeded 60% but last year it equaled 51%. According to our plans, in 2005 sales on the Russian market will exceed the volume of export shipments. Above all, we are linking our hopes for a further increase in demand in Russia with implementing large infrastructure projects in the oil, gas and power engineering industries. It is well known that pipeline networks of Gazprom, Transneft are being dilapidated and require a deep modernization. This is a colossal outlay of materials. Millions of tons of pipes will be required and this means steel as well. In the coming years major investment projects can be expected in the electric power engineering and the railroad transport spheres. We are counting very much on the revival of the sundries’ and machine-building industries. If the country could start an effective and acceptable mass mortgage mechanism, this would lead to a multiple increase in housing construction. And, as is known, the construction industry is also a major consumer of rolled steel products. In other words, prospects are available.

ÅÌ: What are ÌÌÊ’s positions on international markets? What helps maintain the competitiveness?

R.: We feel confident with respect to both Asian and European markets. The key sales regions are China, countries of Southeast Asia and the Middle East. We ship quite a lot of metal products to countries of Western Europe, to America. To stay competitive is being helped by continuous efforts to cut down costs and raise quality of our products.

ÅÌ: How do you assess the impact of "the Chinese factor" and the probability of sales reduction in case of China’s entry to the world market as a net exporter of steel?

R.: As far as I know, this, in fact, has already happened. At least, in the fourth quarter of last year shipments of steel from China exceeded its import. And Chinese do not stop at that, they are getting ready to commission new capacities with steel production volumes of dozens of millions of tons. Of course, China’s full-scale entry to world markets with its steel will affect the existing balance, as it has already been upset on the raw material market by China’s gigantic demand for metallurgical raw materials. As far as the impact of this factor on MMK is concerned, I think that we have all the potential needed to fight for a place under the sun and on the Chinese market as well. We have been operating there for many years, we are well known and our products have a good reputation.

ÅÌ: With Russia’s accession to the World Trade Organization what do you think of its consequences for MMK and the steel industry as a whole?

R.: I have already said repeatedly that the accession to WTO has its pluses and minuses. Pluses include, above all, broader opportunities to defend our own interests on foreign markets, where many restrictive measures are in effect against us. Among minuses is a possible weakening of Russia’s metal-consuming industries with a simultaneous consolidation of foreign companies’ positions. And, of course, at the negotiations on the accession to WTO it is necessary to assert at all costs our right to set moderate domestic prices for energy resources. Otherwise, not only the steel industry but the whole economy will suffer.

ÅÌ: Could you tell us, please, about plans of MMK’s corporate development. Are there prerequisites to establish a holding structure, for example, through acquiring specialized assets, including those abroad?

R.: Today, ÌÌÊ JSC integrates 60 companies and we already can be classified as a holding structure. Besides managing the Magnitogorsk Iron & Steel Works on the current basis, the leadership of MMK has been executing for a long time functions of a management company for all enterprises of the Group.
As far as the corporate governance is concerned, I can tell you that the company’s interests and specifics of the current situation make it necessary to pay more attention to accomplishing tasks of perspective development and to leave solution of current problems to appropriate managing structures of the integrated plant. My decision to leave the post of MMK’s General Director and to focus on the work at the Board of Directors is related precisely to this.

ÅÌ: By some expert estimates, no more than 2 to 3 major corporations will remain as a result of the ongoing consolidation in the Russian steel industry. What place may MMK take?

R.: Such forecasts for the mid- and long-term outlook are not baseless. I think that in this case ÌÌÊ should become either a center of consolidation of a certain metallurgical group or an equal partner in integration processes. I can hardly imagine a situation, when ÌÌÊ becomes a subject of merger.

ÅÌ: Your forecast of prospects for the national steel industry: what will be its role and place in the Russian economy? Is a state support needed?

R.: I do not doubt that the metallurgical complex will remain one of the economy’s leading sectors for a very long time. In this respect the State can play a positive role: its task is to set "rules of the game" and control their observance. What is meant here? For example, today the situation on the raw material market is unfavorable for steel production. Prices are too high, in some cases they are even higher than the world level. In my view, in such situations the State should interfere and force all market participants to act by the rules. Or let us take large infrastructure projects that I have already mentioned. In this case the State’s role is especially important since such projects can never be implemented without its support. Interference of this kind is necessary for us, the steelmakers, and in this case there can be no doubt that the Russian steel industry will have all grounds for success.