Annual Report 2010 - Magnitogorsk Iron & Steel Works

To localize their production, foreign automakers need high-strength steels to beproduced in Russia. At present the volume of such production is insignificant, and thedemand is mainly met by imports. To tap that market, MMK is building a new, 2,000mm cold rolling mill. This project will allow the Company to provide automakerswith high quality cold rolled and galvanized steel sheet (including sheet made ofhigh-strength steel, such as HSLA, IF-HSS, BH, dual-phase, multi-phase and ТRIPsteel,meeting all modern requirements for these products). Products from this linewill also be used by manufacturers of household appliances, who require highqualitycold-rolled and galvanized sheet with the required drawing quality and freeof surface defects – a product also used for manufacturing exposed parts of cars.This 2.1 mtpy mill will produce cold rolled coils of up to 43.5 tonnes, 0.28-3.0 mmthick and 850-1,880 mm wide.Cost ReductionEnhancing production efficiency through cost reduction has always been one ofMMK’s priorities. Steps to reduce costs are being developed and implemented ona regular basis. In 2010 MMK’s successful cost-cutting measures helped to reduceproduction costs by 2 bnroubles (1.1%) or RUB 1,900 per tonne of commercialproduct, including through:• reduction of specific consumption and composition change of materials: RUB 0.9b.n., including:• raw and primary input materials: RUB 0.4 bn;• auxiliary materials: RUB 0.5 bn.• reduction of maintenance and repair costs: RUB 0.7 bn (due to lower contractorcosts as a result of increased competition and optimizations to work regulations);• reduced prices for material resources: RUB 0.2 bn.A new program for 2011 designed to bring down costs by at least RUB 2 bn is beingimplemented.Raw Materials and Energy Resources’ ProcurementIn 2010 MMK continued its efforts to develop the Company's own raw materialsbase.2 slag processing units were started up, bringing MMK's total slag processingcapacity up to 9 mtpy, and the capacity for extracting iron containing materials, to 1mtpy.Iron ore deliveries from the Sosnovskaya Mine, Chelyabinsk Region, passed the 1mtpy mark, with the design capacity of 2-2.5 mtpy.In the future MMK plans to build an iron ore beneficiation plant at the PrioskolskyIron Ore Deposit, the largest undeveloped deposit in Russia. In 2010 the Canadiancompany Hatch continued design work on various options for ore mining at thedeposit.24