Annual Report 2007 - Severstal

Izhora Pipe Mill
Production of large-diameter pipes in Russia
Vyksa Steel Mill 43%
Chelyabinsk Pipe Mill 27%
Volzhsky Pipe Mill 17%
Izhora Pipe Mill 13%
Source: Severstal.
Izhora Pipe Mill is 100% owned by Severstal and since 2007
has been considered a separate business segment. The mill
has an annual production capacity of 600,000 tonnes of
large-diameter pipes. In its first year, the mill sold 300,800
tonnes of large-diameter pipes, accounting for 13% of the
Russian market. Based on 2007 results, Izhora was Russia’s
fourth largest large-diameter pipe producer.
In 2007 its revenue was US$550.7 million. EBITDA was
US$150.6 million, while EBITDA margin was about 27%.
Description of business
Izhora Pipe Mill produces pipes with a diameter of 610-1,420 mm,
and a thickness of 14-40 mm. The pipes are covered with a threelayer
polymer coating on the outside, and smooth or anti-corrosion
coating on the inside. The mill is capable of producing pipes of
up to 18.3 metres length, which are unique by Russian standards
(the standard length being 12 metres). Extended-length pipes
help reduce construction costs, because the number of welded
joints decreases by 1.5 times, accelerating the speed of construction
and improving reliability.
Today, Izhora Pipe Mill manufactures the X70 strength
class pipes, which attract the highest demand. It is capable of
manufacturing large-diameter pipes with a strength class of up to
X100. These products are designed for the construction of trunkoil
and gas pipelines for both onshore and offshore applications.
The mill is located in Kolpino, the industrial zone of St. Petersburg.
It has a well-developed transportation infrastructure (railroad
stations, river and sea ports) and a highly qualified workforce.
It also has a unique competitive advantage – a continuous
production line, which significantly reduces costs. Slabs are
manufactured at Severstal’s Cherepovets Steel Mill, and
subsequently rolled into plate on the wide plate mill-5000. The plate
is then delivered to the pipe mill (located in the same site), to be
made into large-diameter pipes. Other Russian pipe producers
have to buy slabs in Russia or abroad, thus increasing their costs
and their dependency on the growing prices of pipe plate.
Izhora Pipe Mill’s other competitive advantages include the
production of extended-length pipes, proximity to the St. Petersburg
transportation hub, and the construction route of the North-
European gas pipeline (Nord Stream project). Nord Stream is one
of the main consumers of the plant’s production.
Strategy
The principal goal of Izhora Pipe Mill is to increase the company’s
market share of large-diameter pipes for the oil and gas industry.
Market conditions
In the next five years, a deficit of large-diameter pipes is forecasted
in Russia, due to the construction of several major pipeline systems.
Main projects:
In 2008, Gazprom begins construction of a new gas pipeline,
Bovanenkovo-Ukhta, as well as continuing construction of the
Nord Stream gas pipeline system. The gas monopoly also plans
construction of a gas pipeline from the Shtokman gas field in the
Barents Sea, as well as construction of the Altai pipeline, to deliver
Russian gas to China.
In 2008, Transneft will continue construction of the first stage
of the East Siberia-Pacific Ocean oil pipeline system, and will begin
supplying the second stage of the project.
In January 2007, the mill started full-scale production for its
first orders from Gazprom. In the second half of the year, the plant
reached its design capacity of up to 11 pipes per hour, and the
total volume of product shipments for the year amounted to
299,000 tonnes. The mill employed a total of 1,046 people in
2007, an increase of some 70% from 2006 due to successfully
increasing production.
Severstal Annual Report 2007 55