Second-fiddle Heroes
// Foremost People in Industry
The Russian market of metals of the “second echelon”, that is, expensive commodities whose production volume reaches thousands of tons, is largely concentrated. There is only one monopoly producer of metallic titanium, chromium and lead. Only a small part of these enterprises is included in big metallurgical holdings, most of them prefer to remain independent. The situation on their markets is favourable.
Magnesium Difficulties
The world situation on the market of magnesium has lately been favourable. However, the production volumes of the Berezniki Company “Avisma” (in July it was transformed into a branch of the “Corporation VSMPO-Avisma'”) and the Solikamsk magnesium plant (SMP) (Russia's biggest producers of magnesium) did not practically change in 2004, as compared with 2003. Meanwhile, the gross proceeds of “Avisma” rose by 25.6%, and reached 4.9 billion roubles, and net profit grew by 3.4 times (514.5 million roubles). True, it was due to the growing sales of sponge titanium (by 37.8%) and powder titanium (33.4%). The volume of sales of magnesium and alloys, as compared with titanium, has increased insignificantly, only by 3.9% due to a rise in prices.
The proceeds from the sales of the products made by SMP increased by 123 million roubles in 2004, as against 2003, and reached 1.6 billion roubles. Just like in previous years, the plant finished 2004 with the net loss of 157 million roubles. This is explained by the growing prices of fuel and energy and “the difficult situation on the sales market.” True, the enterprise is beginning to extricate itself from the financial crisis. Last year it reduced losses by 50%.
According to experts and operators on the market, this year will be difficult. One of the reasons for this is the anti-dumping duties introduced by the US Department of Trade in April, amounting to 11 – 21% on magnesium and alloys from Russia. However, stricter measures have been introduced by the United States with regard to China: the import duty on its metal amounts to 117 – 177%.
Experts do not exclude that this measure might force China to curtail the volumes of magnesium deliveries to the American market, thus broadening the opportunities for the sale of Russian enterprises' products. True, people at “Avisma” are far from optimistic. After the introduction of high anti-dumping prices for Chinese producers in the United States and Brazil, the main markets for them will be Canada and Western Europe. “This reduces the possibility of selling greater quantities of Russian magnesium on these markets,” representatives of “Avisma” say.
According to SMP forecasts, the prices of magnesium will be prompted by supply and demand. The expected growth of the consumption of metal and alloys this year will be 4 to 5%, with the expected increase of the production volumes of magnesium up to 8%. This will be due to the increased capacities of metal plants of the United States, from 41,000 to 51,000 tons; Canada, from 48,000 to 58,000 tons; and China from 423,000 to 450 – 470,000 tons. Despite this, Russian manufacturers do not intend to curtail the volumes of production and sales; they will also intend to produce commodities from magnesium alloys.
Abundance of Titanium
Last year was a successful one for the Verkhnesaldinsky Metallurgical Company (now the Saldinsky branch of “Corporation VSMPO-Avisma'”). Its share on the world market is more than 25%. The proceeds grew by 2.2 billion roubles, reaching 10.5 billion roubles, net profit increased by 400 million roubles, reaching 1.6 billion roubles. The growth of production volumes amounted to 26%, or up to 20.1 thousand tons. This increase was mainly due to the export of titanium rolled metal and ferrotitanium. The prices of ferrotitanium used in steel production last year doubled from $6 to $11-12 per one kilogram, and in the beginning of 2005 to $14.7-15.
Last year the corporation sold foreign partners 68% of its produce. Besides, the export of titanium alloys for medicinal purposes increased by 18%. The corporation shareholders also changed the structure of production in favour of goods of a greater value. The share of stamping goods grew from 10 to 15%, the production of slabs to 11%, and bars and pipes to 23%.
This year brought more orders from the aviation industry. According to the data of the analytical group “The Airline Monitor”, the leading airplane producers, Boeing and Airbus, will manufacture 760 planes in 2006; 790 planes in 2007, and in 2008, 815. The general director of “Avisma”, Vladislav Tetyukhin, has said that the corporation intends to increase its share in the order portfolio of Boeing and Airbus from 30-40% to 70% by 2008. It is planned to increase demand for titanium and alloys in Russian ship-building. In the nuclear energy sector there is a growing demand for titanium pipes and rolled stock. The oil sector also requires more rolled stock, which is necessary for building sea platforms for oil extraction.
Chromium Growth
Russia's only producer of chromium, the “Klyuchevskoi Plant of Ferroalloys” (KPF) is one of the three leading plants in the world. Last year it increased proceeds from sale of its products by 100%, up to 1.1 billion roubles. Its net profit increased threefold and reached 16.7 million roubles, the volume of commodity output grew by 30%, up to 27,156,000 roubles. The production of metallic chromium increased to 9,188,000 tons (by 62.6% more than in 2003), and ferrochrome, 3.9,000 tons (increase by 48.6%).
The higher incomes of the plant are also due to a great demand for chromium which is used in the manufacture of parts of airplane engines. Accordingly, prices also grew, following the demand. Last year they grew by 25% and comprised $6,000 per ton. This year they are expected to grow further, for instance, in October, by 10% .
Cobalt Prospects
In January 2004 cobalt became the leader in the growth of prices of non-ferrous metals: the price of one kilogram of cobalt was $70. True, by June it stabilized at the level of $20-25, and dropped to $17 in November. By the beginning of 2005 the price of cobalt again increased to $20 and in May returned to $17. The main reason for these fluctuations was a shortage of cobalt last year and a sharp rise in demand for this metal in China.
Meanwhile, Russia's biggest producer of cobalt, “Norilsky nikel”, which occupies about 10% of the world market of this metal and 95% of the Russian market, retained the volume of production at the previous level (4,500 tons). About 2,500 tons were produced at the Norilsk dressing plant, the rest by a toll agreement with “Ufaleinikel” which does not produce cobalt outside the framework of this agreement. Proceeding from the average price of cobalt within the bounds of $20 per pound, the proceeds of “Norilsky nikel” from the sale of its product amounted to about $200 million.
Apparently, the enterprise cannot increase the production of cobalt due to the absence of reserves for the processing of the concentrate, as well as the unstable position of its partner, “Ufaleinikel”, which stopped production on several occasions due to the problems with raw materials. This resulted in the reduction of the output of cobalt by “Ufaleinikel” in 2004 by 15%, from 2,400 tons to 2,040 tons. It is expected that this year “Ufaleinikel” will increase the volumes of production. In the first quarter of the year it increased the output of cobalt by 19%, up to 573 tons, as compared with the first quarter of 2004. By the end of the year the figure is expected to rise to 2,300 tons. “Norilsky nikel”, too, intends to increase the production of cobalt.
Zinc Redivision
In 2004 China became a net-importer of zinc, instead of its previous role of its exporter. As a result, the demand for zinc, as well as the growth of its consumption in the United States have led to a shortage amounting to about 260,000 tons. The price of metal has increased: an average cost of a ton on LME reached $1,048, which was by 26% higher than the average price in 2003. Last June the price exceeded $1,200.
As experts at the Chelyabinsk zinc plant (ChZP) believe, the main reason for unsatisfied demand is a shortage of raw materials. This problem is especially acute for the plant, because it has no raw material base of its own. The plant has to process about 50% of zinc in concentrate by toll agreement with the Euromin trader, and buy the remaining raw materials from the Russian Copper Company and the Ural Mining-metallurgical company. But due to the prices of concentrate outstripping the price of zinc, the plant was forced to curtail the volume of output: the production of zinc and alloys was reduced by 14% (up to 151,900 tons against 177,000 tons in 2003).
As a result, the share of ChZP on the domestic market decreased by almost 10%, to 60%. Nevertheless, the proceeds from selling the plant's product were smaller only by 1.8%, up to 4.014 billion roubles, and net profit by 16.9 million roubles and amounted to 126.8 million roubles. This was due, among other things, to an increase of deliveries to the domestic market.
In contrast to ChZP, the Vladikavkaz “Electrozinc” has no problems with raw materials. In 2004 it produced 80,700 tons of zinc , 15,000 tons more than in 2003. This year the plant plans to produce up to 90,000 tons, and by 2010, up to 130,000 tons. Despite the growing proceeds from sales by almost 300 million roubles (the total up to 1.5 billion roubles), the plant lost 1.035 billion roubles last year. This was due to big investments in the modernization of production.
The owners of ChZP intend to solve the raw materials problems this year. Earlier, Andrey Komarov, the co-owner of the group which includes the plant, has said that the British Santa Barbara Co. prospects for deposits in Russia and abroad and carries on the audit of some sites of zinc ores. The company plans to invest about $100 million in buying and developing the raw material base for ChZP. Besides, after the lifting of 5% customs duty on importing foreign raw materials last April, ChZP has switched over to direct purchases of zinc concentrate.
Lead Deficit
The low demand for lead is a thing of the past. In 2004 the shortage of lead amounted to 7 million tons thanks to China, which increased the import of the metal twofold. The growing demand for lead resulted in a jump in its price. In the first half of 2004 it was about $750-980 per ton, then it increased by 30%, up to $1,030. This year the prices of lead stabilized at the level of about $947 per ton. Analysts predict the average price of the ton of lead amounting to $888 and a shortage of metal at the level of 125,000 tons. The prices of lead on the domestic market grew more rapidly: in 2003 a kilogram of lead cost 14-18 roubles, last year it doubled up to 28-30 roubles, and at present it costs, on average, 30-35 roubles.
Meanwhile, a shortage of lead on the domestic market is still great. Russian producers satisfy the demand for lead by 40%, the rest is imported, mainly from Kazakhstan.
In the nearest future the situation on the market will not change. The increase of the volumes of output will be insignificant. For instance, “Dalpolimetall” will actually reorient its production to the output of lead in concentrate (in 2005 the plant plans to sell 15,800 tons). “Electrozinc” intends to increase the volume of production from 25,300 to 26,200 tons this year, and “Uralelectromed” from 11,100 to 11,800 tons. The “Ryaztsvetmet” Co., which sells 85% of its metal on the domestic market, is ready to increase its output by 20%, up to 24,000 tons.
Tin Tenacity
The only producer of high-quality tin in Russia is the Novosibirsk Tin Plant (NTP), which turns out metallic tin NOK 99.9, which is sold on LME, as well as other brands of tin of various purity (OVCh-0000, OVCh-000, OVCh-00, o1, 01pch) and tin alloys. NTP has licences for developing the deposits of tin ores amounting to 250-300,000 ton reserves, which will suffice for about 30-50 years of work. 75% of the tin produced by NTP is exported.
Holding a monopoly position, NTP has no problem of competition with rivals for a place on the market. As a result of the growing demand for tin on the world market last year and the first half of this year, there is a shortage of the reserves of tin necessary for a number of hi-tech branches of industry. Nevertheless, NTP suffered losses in 2004 due to the lack of investments in the renovation of equipment and the development of the raw material base. This is why it is now actively investing in raw materials and capacities. Last year it invested 770 million roubles in the development of its own raw material base, however, it still experiences shortages of raw materials.
Soon it will invest in Solnechny enterprise: $7 million will be invested in new equipment which will make it possible to increase the production of tin concentrate from ores by 20%. The plan of the development of NTP up to 2007 envisages an increase in the output of high-quality tin up to 6,000 tons a year.
The vertical structure of the monopoly production of high-quality tin and alloys in Russia and the CIS countries proved a worthy asset. This is why rumours appeared last April that NTP would be sold. As some sources close to NTP told “Business Guide”, at the shareholders' meeting on June 26, Alexander Dugelny, who owns the control block of shares of NTP, stated that there would be no changes of ownership in the near future.
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Merger of VSMPO and “Avisma” Has Been Completed
In the middle of June the Federal Anti-monopoly Service (FAS) issued permission for the merger of “Avisma” and VSMPO, thus setting up the Corporation “VSMPO-Avisma”. On the eve of submitting the necessary documents for the merger, the coefficients of conversion were fixed: one ordinary share of “Avisma” will be exchanged to two shares of VSMPO, and the exchange of preference shares will be on the 1:1 basis. Only 24% of the “Avisma” authorized capital shares will be converted, the remaining 76% owned by VSMPO will automatically be paid off.
This was a difficult deal. Despite the fact that as a result of it, a company dominating the market may emerge, the legislation envisages the approval of such deals if they can yield a considerable socio-economic effect. But in order to minimize the monopoly position of the corporation (it occupies almost 100% of the Russian market of titanium and magnesium and about 30% of the world market), it should ensure non-discriminatory conditions for all its customers, and every six months supply information to the Federal Anti-monopoly Service about the sale prices and the volumes of deliveries to the Russian market.
The merger was completed on June 30, and 13.4% of the new corporation's shares came under control of the joint-stock company “Renova”. From August 1, “Renova” will receive $37 million (the quarter of the entire sum) every three months. The placement of ADR of the first level for 20% of the “VSMPO-Avisma” shares on the New York Stock Exchange will take place in the first half of 2006.
Russia's Biggest Producers of Magnesium, Titanium, Cobalt, Zinc, Chromium, Lead and
Tin |
| Company |
Enterprises under control |
Volume of production in 2004 (000 tons) |
% to 2003 |
| Magnesium |
| Corporation VSMPO-Avisma |
“Avisma” |
26,688 |
100.4 |
| Solikamsk magnesium plant |
— |
18 |
104 |
| Titanium |
| Corporation VSMPO-Avisma |
Verkhnesaldinskoye Metallurgical Production Association |
20,114 |
130.4 |
| Cobalt |
| Norilsky nikel* |
Arctic branch of Norilsky nikel |
4.5 |
100 |
| Industrial-metallurgical holding |
Ufaleinikel |
2,048** |
85.05 |
| Zinc
|
| ChTPZ |
Group Chelyabinsk zinc plant |
151,974 |
85.7 |
| Ural mining-metallurgical company |
Electrozinc |
80,751 |
120.53 |
| Chromium
|
| Klyuchevskoi plant of ferroalloys |
— |
9.1 |
162.6 |
| Lead
|
| Ural mining-metallurgical company |
Electrozinc, Uralelectromed |
36 |
110 |
| Ryaztsvetmet |
— |
20 |
|
| Splav |
— |
9 |
100 |
| Dalpolimetall |
Lead plant Dalpolimetall |
1.4 |
18.9 |
| Tin |
| Novosibirsk tin plant |
— |
4.57 |
111.5 |
*With account of the processing of raw materials at “Ufaleinikel”.
** With account of the output of cobalt for “Norilsky nikel”.
Source: companies' data. |
Mria Cherkasova, Maria Molina
All the Article in Russian as of July 20, 2005
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