MMK is Getting Ready to Take Off on Thick Sheet

20.07.2009 — Analysis

Magnitogorsk Iron and Steel Works (MMK) has not invested in vain, for the medium term at least. The RusBusinessNews observer found out that the billions worth of investment into the construction of the mill-5000 will help MMK to overcome the crisis.

An important event for Russian metallurgy as a whole will happen in Magnitogorsk (the Chelyabinsk Oblast) very soon. OJSC Magnitogorsk Iron and Steel Works, one of the world’s largest steel makers, will start up the thick sheet complex of the mill-5000.

MMK signed the contract in November 2006 with a well known German machine building company SMS-DEMAG for the integrated equipment supply for the construction of the mill and the continuous slab casting machine. This complex will enable producing the highly profitable thick sheet rolled metal up to 4850 mm wide for oil and gas industry, shipbuilding, bridge building, and machine building industries. This product is in the highest demand amongst large diameter pipe makers. The capacity of the mill-5000 will amount to about 1.5 million tons per year, including about 300 tons of heat treated sheet per year.

The company’s press service informed RusBusinessNews that by the autumn 2009 the mill will reach its full capacity, and the total sum of investments amounted to about 40 billion roubles (almost a billion Euro). Due to the crisis MMK was forced to either stop or postpone several investment projects but the cuts did not affect the construction of the mill-5000 and this decision was of principal importance.

"MMK borrowed rather a lot for the construction of the mill in hope that its products will be in high demand. It can be said that these expectations are justified, - said Alexei Suminov, an analyst on metallurgy of the investment company Finam (Moscow) in the interview to RusBusinessNews. - Large diameter pipes (LDP) are in high demand at the moment because oil companies and Gazprom did not stop their investment projects as fast as it was expected. For at least next 5 years the production of these pipes in Russia will remain profitable".

Undoubtedly the world crisis seriously decreased the demand for pipes. This, however, did not affect the demand for large diameter pipes at all. The experts expect that the Russian pipe market will undergo a serious change in the structure of the consumption in 2009. LDP will take up the largest share of the market. In 2007 the Russian LDP market reached the record for this century 2.54 million tons, in 2008 it shrunk to 1.4 million tons. In 2009, however, the growth to 2.3 million tons is expected which is related to the active implementation of Gazprom and Transneft projects.

At the moment there is only one thick sheet mill-5000 in Russia, in Kolpino (the Leningrad Oblast). This mill was built in the seventies of the last century for shipbuilding, now it is owned by Seversltal that reengineered it for the pipe sheet rolled metal. However, the broad sheet metal from Severstal is consumed entirely in the North-West of the country, especially if we take into account the Nord Stream pipeline being constructed currently. However, at the moment Russia has to import most of the broad sheet steel from Germany, Japan, Austria, South Korea, and Italy.

In the situation when the internal demand for the thick sheet rolled steel is not met MMK can easily take the "eastern niche" and provide the stable supply of the mill-5000 products for the construction of pipelines in Siberia, China, and the Central Asia. The press service of the company mentioned that MMK has signed framework agreements on the long term supply of the thick sheet steel with three strategic consumers - Pipe Metallurgical Company (TMK), United Metallurgical Company (OMK), and ChTPZ Group.

The information of the future shipments of the Magnitogorsk thick sheets was confirmed for RusBusinessNews by Evelina Grigoryeva, the Manager of the Public Relations Directorate of CJSC ChTPZ Group: "Single seam LDP welding workshop construction project is being implemented in the company at the moment; the workshop capacity will be 600 tons of LDP per year. It is expected that Magnitogorsk Iron and Steel Works will be supplying the metal for the new workshop".

How long will MMK’s "thick sheet happiness" last? At the time of crisis the Russian Government will only strengthen the barriers for foreign suppliers. The third Russian mill-5000 is being constructed by the United Metallurgical Company, in Vyksa (Nizhegorodskaya Oblast) in order to provide Vyksa Steel Works with own broad sheet steel for the large diameter pipe production. OMK press service informed RusBusinessNews that the start up of the site is planned for the middle of 2011. So only in two years time it will be possible to speak of the balance of supply and demand in the market of large diameter pipes and of the beginning at least of some competition in the Russian market.

Pavel Kober