Annual Report 2011 - Magnitogorsk Iron & Steel Works ...

2011 /
ANNUAL REPORT
About Us Sales Markets
Finances
Risks
Social Sphere
Management
Information
Pipe Making Industry
Russian pipe makers accounted for 33 % of MMK’s sales in 2011, down from the high of 37 % reached in
2009-2010. MMK’s steel products made up 29 % of consumption by pipe making companies.
In 2011 pipe makers and steelmakers alike were affected by growing imports. According to the Ministry
of Industry and Trade, the 17 % growth of pipe consumption in Russia was only partially covered by a 9 %
increase in production. In 2011 pipe imports increased by 20 %, while export volumes remained unchanged.
10,000
5,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Production growth +9%
2010
MMK Domestic Sales by Sector, ‘000 tonnes
20%
29%
4%
27%
20%
16%
27%
6%
24%
26%
11%
26%
11%
15%
37%
2007 2008 2009 2010 2011
2011
12%
18%
12%
21%
37%
Consumption
growth
+17%
12%
20%
14%
21%
33%
Other
Regional distribution
Construction
Machine building
Pipe making
Pipe consumption in Russia
Russian pipe production
Pipe exports
Pipe imports
Consumption of Russian-made pipes
The highly profitable market for large diameter pipes shrank in 2011. Pipe production decreased by
119,000 tonnes (–3.9 %), and pipe consumption by 48,000 tonnes (–1.4 %). Both imports (+155,000
tonnes) and exports (+83,000 tonnes) increased year-on-year.
Faster import growth is currently held in check by customs duties of 15-20 %. However, with ratification
of the WTO Protocol, import duties will decrease to 0-10 %, including during the transition period.
These developments mean that, in the coming years, competition and quality requirements for pipe
makers and plate manufacturers will increase.
Machine Building
In 2011, the share of shipments to the machine building sector remained unchanged from 2010 at 21 %.
Product volumes amounted to 1.4 million tonnes, with 42 % going to the railway car building industry
and 34 % to the automotive sector.
The railway car building sector has grown rapidly in recent years. In 2010 rolling stock manufacturing
capacity doubled, and in 2011 it expanded by a further 24 % to 63,000 railway cars. According to Russia’s
Railway Transport Development Strategy 2030, annual demand for new railway cars will exceed 70,000
units by 2015.
Meeting demand from transport companies means that railway car builders fully utilize available
manufacturing capacity, and consequently that MMK’s sales to companies in the sector will remain at a
high level.
The Russian automotive sector also grew quickly in 2011. Truck production increased by 33 % to about
200,000 units, and car production rose by 44.5 % to 1.7 million units.
Car sales increased by 39 %, reaching 2.6 million units in 2011. In 2012 car sales are forecast to continue
growing, reaching a total of 2.8 million units.
The Russian government’s moves to increase production, and the level of localization of manufacturing,
by foreign automakers in Russia are likely to lead to further production growth and increased
consumption of Russian steel products by car makers.
In 2011 MMK shipped 13.5 % more steel products to car makers than in 2010.
The automotive sector accounted for 7 % of MMK’s domestic shipments of steel products by volume in
2011, up from 6.4 % in 2010. MMK’s biggest customers in the sector are AvtoVAZ, KamAZ and the GAZ
Group.
MMK is actively developing new product types for the automotive sector. The Company has adopted
and is implementing a certification programme for its steel products by Russian and foreign car makers,
under which seeks to have its processes and products approved by leading global car makers (including
Ford Motor Company, General Motors, Volkswagen, Renault-Nissan, Hyundai-Kia) as well as Russian
producers (such as AvtoVAZ). The certification programme also covers component producers based in
Russia.
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