Russia’s MMK targets foreign automakers for new steel mill (US)

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Magnitogorsk Iron and Steel Works (MMK) – (Credit Photo @ Ria Novosti)

23Mar2011 -ussia’s Magnitogorsk Iron & Steel Works (MMK) said Wednesday it aims to supply foreign auto plants in the country now they are required by government directives to procure more from domestic sources with a new cold rolling mill starting this July geared to meet their higher quality specifications. Renault-Nissan are among carmakers involved in the technical auditing process as the 1 million mt/year capacity, phase one of MMK’s Mill 2000 facility is set for start-up in July with the second phase of equal capacity following a year later. “We will provide high-strength steel for foreign companies that came to Russia to set up car plants. We have provided samples and now are in the process of testing and checking with them,” MMK chairman Viktor Rashnikov said in an interview at the company’s Magnitogorsk headquarters in the Urals region of central Russia. MMK will produce around 12 million mt of steel this year — up from 11.4 million mt of crude steel in 2010 — and raise output to 13 million mt in 2012, with Russian sales set to reach 9 million mt next year, according to Rashnikov.  The company has invested more than $5 billion in the last four years at its Magnitogorsk site alone, and 90% of the facilities are new, like the Mill 5000 plate rolling line, or have been modernized in the past few years. Volkswagen, Hyundai, Ford and other carmakers are targets to help lift MMK’s auto margins as higher-value-added products become available from the launch of Mill 2000, said MMK’s director for capital markets, Dmitry Usanov.

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MMK already supplies local automakers Autovaz, which makes Lada vehicles, and Kamaz. It and has invested $1.5 billion in the specialist rolling plant to meet the demands of foreign carmakers producing cars for the fast-growth emerging market as well as substitute imports of the local groups. Rashnikov said he is looking into the possibility of acquiring a stake in coal miner Raspadskaya after Evraz Group put the investment under review. He said, however, there was nothing to comment further on at this stage. “MMK is looking at different opportunities to increase vertical integration including Raspadskaya,” the company said.  He also underlined plans to further boost self-sufficiency in iron ore and coking coal through new investments as MMK seeks greater control over its upstream requirements and overtake NLMK as the lowest cost Russian slab producer. Rashnikov is MMK’s largest shareholder through two investment companies controlling 86% of its stock. MMK has developed a sufficient range of steel products for auto applications, Rashnikov said. Staff at the 14 million mt/year crude steel capacity integrated steel complex on the Asian side of the River Ural say they believe Mill 2000 will be able to offer steel grades unmatched by its domestic competitors such as Novolipetsk and Severstal. MMK said it has found an acceptable price for sales to automakers through a formula agreed in December. “Prices are up but it depends on production costs, depending on raw materials of iron ore concentrate and coal,” Rashnikov said of its sales to automakers. He added that EBITDA profit margins on sales to the auto sector hit lows last year of zero. In January, the formula was negative but in March margins were positive, he said, adding that he would expect a 0-10% EBITDA margin range from automakers. Usanov said a rough EBITDA margin for MMK group including its iron ore and coking coal units would be currently around 15-20%. Changes in raw materials costs could not be fully priced into the auto sales formulas, Rashnikov said. MMK depends on Kazakhstan-focused Eurasian Natural Resources Corp. through a contract running to 2017 for about 70% of its iron ore needs, which is priced using Platts iron ore benchmarks. “There’s not the full capacity to transfer the volatility in raw materials pricing to auto customers,” after the move of iron ore miners to price on a quarterly basis using Platts indices from pre viously relying on annual contracts, he added. MMK seeks to develop the Prioskolsky iron ore deposit and following feasibility studies by consultant Hatch Beddows expected in May or June, the company will switch to the engineering phase, he said. This deposit has more than 2 billion mt of iron ore and may last for several decades based on MMK’s annul steel production, Rashnikov added. The company’s majority-owned Belon coal unit is also seeking to increase output and boost self sufficiency in concentrate to up to 80% from 30-40% at present, he said. In five years, MMK expects to produce 16 million mt of finished steel products, including at the 2.3 million mt electric arc furnace Atakas plant in southern Turkey, Usanov added. There are plans for 2 million mt of additional capacity in 2014-2015 at its main works though investment in a new BOF furnace at Magnitogorsk, he said.
A further plant in Istanbul with a 450,000 mt/year capacity galvanizing line and 200,000 mt line for pre-painted steel along with slitting lines are on track, centered on meeting Turkish domestic demand for specialized flat steels unable to be fully met by domestic steel producers. While concentrating on the Turkish market, exports of galvanized steel from Atakas has already been booked for Italy and Syria, Rashnikov said.  The Turkish facility will only used scrap expected to be purchased locally and the company said there are no current plans to reheat slabs for rolling, commenting that logistics costs are high based on the central Russian location of its main plant.

Source : Platts – Hector Forster

Posted in Strategy.

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