Annual Report 2007 - Severstal

SNA revenues by industries
Automotive 51.3%
Service centres 22.3%
Converters 17.3%
Other customers 9.1%
Costs
Our major costs are raw materials (including iron ore pellets),
coke, coal and steel scrap. SNA annually consumes about 3 million
tonnes of iron ore pellets, 1 million tonnes of coke, and 0.6 million
tonnes of steel scrap. Other consumables include electricity,
natural gas, oxygen, zinc, ferroalloys and fluxes.
SNA’s purchasing strategy is focused on cost reduction,
through the use of long-term contracts where possible. Long-term
contracts are in place for iron ore pellets, coke, industrial gases,
pulverised coal and critical mill services.
Cost of sales structure
2007 2006
US$ % of US$ % of
million Total million Total
Materials
Coal 3.5 0.2 6.3 0.4
Coke 211.2 12.7 286.7 16.7
Pellets 137.8 8.3 173.2 10.1
Scrap metal 121.2 7.3 147.9 8.6
Ferroalloys and
non ferrous metals 43.1 2.6 41.7 2.4
Other materials 438.6 26.3 368.8 21.7
Total materials 955.4 57.4 1,024.6 59.9
Energy
Natural gas 114.3 6.9 163.5 9.6
Electric power 20.4 1.2 21.6 1.3
Other energy resources 26.8 1.6 30.9 1.7
Total energy 161.5 9.7 216.0 12.6
Staff costs 193.1 11.6 184.9 10.8
Depreciation and
amortisation 16.4 1.0 8.3 0.5
Services 227.3 13.7 193.1 11.3
Other 110.4 6.6 85.0 4.9
Total cost of sales 1,664.1 100.0 1,711.9 100.0
Although total cost of sales for 2007 showed a 2.8%
(US$47.8 million) decrease on 2006, the average cost of goods
per tonne increased by 10.7% (from US$646 per tonne in 2006
to US$715 in 2007). This can be partially explained by increased
prices of raw materials, but the cost increase was mainly due to
inefficiencies caused by the modernisation and reline work at
primary operational facilities.
In January 2008, an energy company with which we had
a long-term contract, terminated it – and made a one-time
payment to compensate for the difference between the contract
price for electricity and the market price we will now have to pay.
The payment was US$177 million, paid in February 2008.
We introduced Total Operating Performance (TOP) and Total
Cost of Ownership (TCO) initiatives to help eliminate the waste
that results when we acquire and use materials. This in turn helps
to reduce costs.
Severstal Annual Report 2007 49