Annual Report 2010 - Magnitogorsk Iron & Steel Works

Raw Materials and EnergySuppliesMMK’s production and financial results are directly linked to the supply of raw materials and energy resources.Raw materials account for 62% of the production cost of commercial goods.Auxiliary materials 7,9% Natural gas 5,7%Polymers 0,8%Electric power 2,2%Zinc 1,6%Tin 0,4%Wages 6,2%Ferroalloys 7,1%Depreciation 5,9%Scrap 11,0%Other 10,2%Coal 18,2%Sinter 12,6%Pellets 9,2%Sintering raw materials are iron ore concentrates forproduction of sinter. Pellets are the product of ironore grounding and pelletizing. Sinter and pellets areiron-containing raw materials for processing in a blastfurnace. In 2010 the key supplier of both types of rawmaterials (70% sinter materials and 100% pellets) wasthe company ENRC, with which a contract was signedfor delivery of iron ore materials from Sokolovsko-Sarbaiskiy Ore Mining and Processing Plant in the cityof Rudnyi, Republic of Kazakhstan, for a period up to2017.The share of MMK’s captive Fe-containing rawmaterials in 2010 was up to 30%. Ore mining atcaptive deposits in the vicinity of Magnitogorsk andrecycling of waste materials provided MMK with 3.3m tonnes of Fe-containing raw materials in 2010.The MMK subsidiary Bakal Mine Administration alsosupplied 1.4 m tonnes of iron ore concentrate.Coking coal concentrate is used for production of coke– the principal fuel used in the blast furnace process.The key supplier of coking coals is Belon, a member ofthe MMK Group. In 2010 supplies from Belon covered35% of MMK’s coking coal requirements. Othercoking coal suppliers include Raspadskaya (a 5-yearcontract), Siberian Business Union Holding Company,Sibuglemet (a 5-year contract), Vorkutaugol andAnzherskaya Coal Dressing Plant.The third most important raw material is scrap metal.The sole supplier to MMK is ZAO Profit, a Groupsubsidiary. Profit has been engaged in the collectionand preparation of scrap for 14 years. It is one of thebiggest companies in its sector, with an extensivenetwork of scrap processing plants throughout Russia.Profit supplied 2.2 m tonnes (61% of total OJSC MMKconsumption) in 2010. MMK’s own scrap covers theremaining 39% of scrap consumed by the Company.Ferroalloys – alloy combinations of Fe withother elements (Cr, Si, Mn, Ti, etc.) - are used fordeoxidation and alloying of steel. In 2010 MMKconsumed 144 thousand tonnes of ferroalloys. TheCompaby’s largest supplier is Transnational CompanyKazchrome (42% of ferroalloys in 2010).46