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CostsMetalwareCosts of sales were US$3,372.4 million in 2008, a 5.6%increase on 2007, mainly due to rising materials costs.We have a 20.4% of the metalware market in Russia, 17.8% (in low-carbon) inUkraine, 23% share in the UK, and 30% of the wire rope market in Italy.Costs of sales structure2008 2007 Change yearon-year%US$ million % of total US$ million % of totalMaterials 2,141.5 63.5 1,895.6 59.3 13.0Energy 382.3 11.3 357.8 11.2 6.8Staff costs 380.3 11.3 408.4 12.8 (6.9)Depreciation and amortisation 162.1 4.8 189.1 5.9 (14.3)Services and other 306.2 9.1 343.5 10.8 (10.9)Total 3,372.4 100.0 3,194.4 100.0 5.6Decisive managementactionsOur financial results for 2008 are among the best in thecompany’s history, despite the negative market trendsin the latter part of the year, when the demand for steelfell rapidly as a direct result of the global economicsituation.In this extreme period of uncertainty andunpredictability, we are focusing on adapting to thischanging business environment.In particular, we are monitoring closely the running timeof all installations on our order book, and implementinga range of initiatives to reduce cost, inventories andoutflows.Our priorities are to mitigate the effect on the companyof the deteriorating economic conditions. In effect weare concentrating on retaining our ability to compete,while ensuring we exploit fully any opportunities thatemerge as a result of the economic downturn.Our management is confident that the measures we aretaking will enable us to meet these objectives.Our metalware segment includes:• OAO Severstal-Metiz – Cherepovets plant,Volgograd plant, Orel plant (Russia)• OAO Dneprometiz (Ukraine)• Carrington Wire Ltd. (Great Britain)• Redaelli Tecna SpA (Italy), and• four other subsidiaries in Russia: Steellace,UniFence, UniSpring and Orelcord.This segment of our business manufactures:• Cold-drawn products (cold-drawn steel, railwayfasteners, steel shapes)• High-carbon products (wire, wire ropes, includinghigh-tech speciality wire ropes for hoisting,cableways and mining)• Low-carbon products (wire, nails, fibre)• Welding consumables (flux cored wire, solid weldingwire, electrodes)• Mesh (chain-link mesh, woven mesh, welded mesh,gabions)• Fasteners for common applications, and• Other products including spring blocks,• Consumer goods,• Steel cord.Metalware has an annual production capacity of1.5 million tonnes of wire and wire products, whichincludes over 55,000 different product types.In 2008, the segment’s plants manufactured 866.6thousand tonnes of metalware products. Salesrevenues were US$1.2 billion and EBITDA was US$113.9million.StructureOAO Severstal-Metiz includes plants in Cherepovets,Volgograd and Orel:• The Cherepovets plant focuses on high-value-addedproducts (cold-drawn, high-carbon, low-carbonsegments).• The Volgograd plant specialises in high-carbonproducts, including steel wire and wire ropes.• The Orel plant focuses on fasteners and weldingconsumables.In 2008, Severstal increased its ownership percentagein OAO Severstal-Metiz to 100%.OAO Dneprometiz is located in Dnepropetrovsk,Ukraine. It specialises in manufacturing lowcarbonhigh-value-added products. In terms ofproduction volumes, Dneprometiz is Ukraine’s largestmanufacturer of metalware. In 2008, OAO Severstal-Metiz increased its ownership percentage in OAODneprometiz to 96.81%.The segment has a diversified portfolio of suppliers,including almost all large manufacturers of rawmaterials in CIS and Europe – such as CherepovetsSteel Mill, OEMK, MMK, MMZ, ArcelorMittal, Corus,Lucchini and OVAKO.About 55% of the required volume of input materialsused in our metalware production comes from theCherepovets Steel Mill.Carrington Wire Ltd. operates in Elland, Great Britain.The plant occupies a leading position within the UKsteel wire products market. It focuses on producinghigh-carbon, low-carbon and cold heading wire. In2008, OAO Severstal-Metiz held a 100% stake inCarrington.76 77