Olga Naumova

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Ì: Probably, it is not that simple to generally characterize such a diverse market as the hardware one. But, anyway, what is it, what are its volumes, structure and development trends?

O.N.: The Russian hardware market means about 2 million tons of products year-on-year. However, it all depends on ways of calculating. We, the makers, sell products of simultaneously two process stages. Some part of wire and calibrated steel is sold as finished products, while we make products with a higher degree of processing from the rest. That is why, if the net consumption is considered, then, it comes to a little less than 2 million tons, while in case of the "double calculation" it will equal 2.2 million tons year-on-year. Others, smaller regional producers, make hardware of products that we put out as the semi-finished ones. This market amounts to 1,200,000 tons year-on-year.
All-in-all, we put out 26,000 types of products and our consumers include 54 industries and sectors. As a whole, the hardware market is growing, although by not very significant rates (4% a year on average). In 2005 we expect the reduction of rates down to 2% as a result of the cyclic recurrence’s impact on the steel industry, which today is moving towards recession.

ÅÌ: So, in other words, the global recession starts with your sector?

O.N.: No, I would say that any upsurges and slumps start with "big steelmakers". In 2004 as a result of colossal upsurge of the market, there emerged a certain surplus of steel products but, at the same time, consumers also accumulated excessive reserves, especially by the year’s end. All this influenced the general level of demand, although the actual consumption of steel was, in fact, lower last year.
As far as the separate segments of Russia’s hardware market are concerned, it is worth noting the dynamic development of the tire industry; it is expected that the growth there will amount to 10% and that the consumption of steel-cord will increase accordingly. The rates of the railroad transport’ growth are not bad: we hope that the change in the leadership at the Russian Railway JSC will not have a negative impact on this company’s strategy. The raw material industries, in particular, the coal one, are growing quite well. And, on the contrary, the rates of the construction industry’s growth are going down: by estimates, this year the increment should have amount to over 10 % but it will be all right, if it equals 5%. That is the result of the influence by the new construction industry legislation, which limits ways of attracting funds through share holding.
But we are worried by the automotive industry the most. It is quite an important market segment for our products used for making different components. Sales of cars in Russia are undoubtedly on the rise. The only question: which ones? Genuine Russian car makers, AvtoVAZ, GAZ, experience a considerable slump: by estimates, this year the rates will be down 17% and it will have a rather tangible effect on our positions. The expansion of foreign car assembly production in Russia will, probably, increase the use of Russian components. But it will happen after some time but we have been in recession so far.

ÅÌ: Why is the state of the hardware sector’s enterprises so much different? All three plants being controlled by Severstal-Metiz are more or less successful and have good prospects. But, on the other hand, the Saratovsky hardware plant went broke. On what does it depend? On management or on specialization of operations?

O.N.: We perceive Severstal-Metiz as a single production structure. Products’ prime cost, business profitability, investment efficiency are assessed within its frameworks. In other words, we manage the company, not its separate enterprises in the towns of Orel, Cherepovets or Volgograd. And we do not have such a gradation as a "successful" or "unsuccessful" plant. That is why I would avoid direct comparisons in this case.
As far as the Saratovsky plant is concerned specifically, in my opinion, this is not a very competitive enterprise, either by the location or by the specialization of products made. Apparently, the management’s strategy should be different as well. Profits can be made different ways. Hardware production justifies itself, when it is long-term development-oriented.

ÅÌ: Does, in your opinion, hardware production develop more successfully, when it is done within integrated companies or independent producers can also work successfully?

O.N.: The response to this question is in both the logistics of production and business practice. The company Bekaert, the world’s largest independent maker of hardware products, is, mainly, on the decline, although it is making intensive efforts to retain positions: the company sells its assets with big production volumes and switches over to the market’s specialized segments, including solar batteries, although to call them hardware would be wrong. Against this background an integrated scheme seems more efficient. The example is Brazil’s Belgo’Mineira of the Arcelor group, which integrates the whole chain of production processes, from the section rolled stock production to deep process stage hardware production that is specialized. The raw material and hardware process stage are interacting very consistently in forming value, developing quality, in "just-in-time", etc. Results are just fantastic. In the last years the profitability has never been lower than 33%. By its dynamics the company is outpacing the dynamics of the Brazilian market by dozens of times.
I think that as far as independent players are concerned, one cannot rule out the option of successful development with a certain specialization, when they are engaged in deep processing as they put out volumes of products small by their mass. But if it is a matter of the market’s considerable share, then, a modern company has to be balanced by raw materials. By the way, steelmakers perceive the necessity of the raw material safety very well. It is too risky to depend on supplies. Such an enterprise operate as though it is experiencing kind of raw material fever: the prime cost and quality are up and down constantly because it is not always known, what raw material exactly is being processed.

ÅÌ: What does the notion ‘quality’ in the hardware industry mean and what actions are necessary for improving it?

O.N.: I would single out two directions, which are about equal by the importance. That is service and quality. First, what is meant by the word ‘service’. These are supplies in time and execution of orders, maximum approximation of production terms to customer’s requirements. This is logistics, i.e. providing delivery schemes optimal for customers. These are packing, marking, documents’ and information services for customers. All this production-accompanying service, which just recently has never been thought about, now is quite expensive. And a client is ready to pay for it, sometimes even more than for the product itself in the desire to avoid these burdensome issues.
Essentially, the quality of hardware products is also directly connected with specific customers’ requirements. Usually, the case in point is reduction of tolerances, stricter surface requirements, additional operations that make product maximum convenient for further processing. One of the main trends is linked to reducing steel intensity and raising durability of products. There is a whole number of such projects in the portfolio of Severstal-Metiz. I can cite as an example a galvanized rope, which we start supplying to RAO UES of Russia. The term of service of new products significantly increases and, by doing this, we create an impression as though we are undermining our own business. No, we are not. This is a natural progress.

ÅÌ: Taking into account world trends, what spheres or directions look to you as the most promising ones, including those beneficial for capital investments?

O.N.: In general, our company is not inclined to make its plans public preferring instead to report about decisions already taken and results already achieved. If we see something investment-attractive, we better make our own investments in it. As for world trends, the key of them is consolidation. Both the Severstal Group as a whole and we at Severstal-Metiz are convinced of the need for consolidation because it is the only thing that lets us significantly move forward: to improve the management system, reduce costs, reach a new investment level.

ÅÌ: In other words, the main direction is an acquisition of assets…

O.N.: No, this is precisely a consolidation of assets. The case in point is not that we want to buy everything. We are ready to set up joint ventures like the one with TrefilARBED and move other ways toward our partners. The main task is to make the hardware sector more transparent, manageable. We, who operate in there, should think in long terms, i.e. in terms of long-term perspectives. Today, undesirable situations happen because of actions by some producers that act as they are around temporarily. For example, they are engaged in dumping not caring that the whole sector will suffer and that they themselves will be hurt as well.

ÅÌ: Usually, the dumping phenomenon is linked to large export supplies of pipes, coiled steel, section rolled stock. But as far as the hardware sector is concerned, it is almost never mentioned. How often does it happen?

O.N.: We encounter dumping to the full extent, especially from our Ukrainian colleagues. It is no secret that last year and even right now domestic Ukrainian prices for rod was and is set below the market level. It might seem unbeneficial to iron and steel mills but they did it because they received quite big tax privileges from the State, etc. It is known that Krivorozhstal was selling rods to Ukraine’s hardware enterprises cheaper by $100 a ton on average than the market price. Naturally, after that all started to do dumping of finished products on the Russian markets.

ÅÌ: But pipe-making companies, which encounter the same phenomenon, are trying to counter it. The have managed to get quotas on import shipments from Ukraine. Why will not you use this experience?

O.N.: Unfortunately, ours is not such a large sector to get attention from the State. And, probably, because of it we are protected much less than steelmakers or pipe producers. Although there is one exception. Recently, after long intensive efforts the anti-dumping procedure against Ukrainian producers of small ironware started. Their market policy is an example of nearsightedness. Whatever are the motifs that impel some people to act this way, such actions destroy all long-term business. The hardware production in the CIS urgently needs modernization, renewal of products. If we do not make investments today, then, tomorrow there will be neither Ukrainian nor Russian small ironware on this market, the Chinese ones will remain only. But so as to have investments available, it is necessary to ensure a profitable production but with prices set too low this is impossible to achieve.

ÅÌ: Do opposite situations happen, when anti-dumping procedures start against products of your company, for example, on the European market?

O.N.: As a result of efforts by our European rivals, in 2003 we got under the investigation concerning steel ropes, which ended with introducing a prohibitive duty. So, this market’s segment was closed to us. A long time ago we submitted a request to reconsider the decision but, however, the European Community has been silent so far violating its own terms: a year has already passed instead of six months established in August last year for an accelerated investigation. Probably, we had to be more persistent, work more actively with the Ministry of Economic Development and Trade of the Russian Federation. Although it is clear that they consider amounts of our losses insignificant as compared with losses of "big steelmakers" because of anti-dumping measures.

ÅÌ: The tough "male" style of management is considered organically inherent in the Russian steel industry and interaction in "raised voices" is perceived as natural. How did you, the manager of the different formation, who has a diploma of sociologist, manage to adapt yourself to this environment?

O.N.: In my view, such an opinion of the steel industry is unjust with respect to many directors of iron and steel enterprises and companies. I had an opportunity to see many of them in action and I can tell you that they achieve results without excessive emotions and these results are better than those of people, who got used to "move things forward" through shouting and swearing.
There is no need to convince oneself that some bad habits are explained by our specific Russian mentality and that nothing can be done with it. In fact, these habits show failures in management. I personally believe in the advantage of a daily system work. When the system is working and all the personnel is involved in the efficient, properly set process and when people understand that they are building their future together, then, everything can be achieved.

Reference:
Severstal-Metiz
The group of Russian enterprises of the hardware sector. Set up in August 2003. Integrates three plants: the Cherepovetsky steel rolling plant (ChSPZ), Orlovsky steel rolling plant (OSPAZ) and VolgoMetiz. Makes wire, welding materials, steel ropes, calibrated steel, chains, structural profiles and other products.
The leader on Russia’s hardware market (over 31% of the market) and largest exporter (54% of shipments to foreign markets).
The group consists of a number of independent business units:
TA Cord – a JV with TrefilARBED to make steel-cord;
ChSPZ-MKR (jointly with MKR, Czechia) to make spring blocks;
Polycher (jointly with Polymetal CA, Italy) to make woven wire;
Steellace, a subsidiary to put out consumer goods.
Severstal-Metiz is integrated in the Severstal Group

Profile:
Olga Naumova, the general director of the company Severstal-Metiz.
Born in Moscow. In 1994 graduated from the sociology faculty of the Moscow State University specializing in marketing. In 2001 was invited by the Severstal Group to become director for business organization at the Cherepovetsky steel-rolling plant. Soon was appointed marketing and sales director and, later, the enterprise’s general director. Because of the integration of other plants in this company became the general director of all the Severstal-Metiz group.
Recognized as one of Russia’s most professional managers. The laureate of the National public award for achievements of Russia’s women with irreproachable business reputation. Fully devoted to business. Exceptionally well-balanced in human contacts and correct, considers herself being open-hearted. Indifferent to fashion trends. Avoids dresses’ bright colors and pronouncedly female lines preferring business suits, which, nevertheless, wears with elegance. Literature and cookery are among her passions.



EVENT

Severstal-Metiz is entering the world market of cord after having become a co-founder of a joint venture to make steel-cord together with the company TrefilARBED, the division of Arcelor.
The opening ceremony of the new enterprise called TA Cord took place in the city of Orel on July 1, 2005. The enterprise partially integrates capacities of the operating plants of Severstal-Metiz, which are supposed to get modernized through re-investing profit. TrefilARBED will contribute to the JV its technologies, know-how and customers’ network.
This is not the first joint project of Arcelor and Severstal. In 2002 they made a decision to build an enterprise in the town of Cherepovets to make automobile sheet and, as expected, by the end of the current year the SeverGal JV will already start putting out its products. The successful experience, obviously, inspired the partners to continue their cooperation. But why does exactly Severstal, not any other Russian holding, attract the attention of the European giant?
Responding to this question from Eurasian Metals, vice president of Arcelor Roland Junck and first deputy of the Severstal Group’s general director Vadim Shvetsov noted, above all, not commercial or financial interests but their closeness in approaches to management and strategic thinking. Vadim Shvetsov especially stressed the ability of both partners to foresee a market situation for years in advance and form up a long-term strategy accordingly.
The project of the joint venture to make steel- cord is in this line. Plans of the TA Cord JV provide for increasing its output of products more than 2 times in five years and becoming a serious player on the Russian and world markets.