Raw material danger for exposed MMK

Raw material danger for exposed MMK

Home to Russia's largest steel mill, the city of Magnitogorsk and its iconic Magnitogorsk Metallurgical Combine (MMK) stare into an uncertain future as the prices for raw materials –iron ore and coking coal– continue their meteoric rise. The ever increasing cost of raw material puts a particular strain on MMK because, unlike its domestic competitors, it does not have a significant supply of iron ore it can call its own. MMK exhausted the bulk of its once rich supply of ore over 30 years ago, and the steel maker now relies upon the Sokolovsko-Sarbaysky ore-processing combine in Kazakhstan to supply nearly 70% of its annual iron ore needs. Already in a vulnerable position due to its reliance on outsiders to supply its raw material needs, MMK's future became even murkier in February when a key rival, Alisher Usmanov, hinted that he would try to acquire the Sokolovsko iron ore mine. The purchase of Sokolovsko would further consolidate the position of Usmanov's Gazmetall group as Russia's dominant iron ore producer. Gazmetall already accounts for nearly 40% of Russia's 100 million ton annual iron ore production. The threat to MMK's main source of iron ore has already prompted the company to begin assessing alternatives aimed at ensuring the mill's long-term sustainability. MMK's CEO, Victor Rashnikov, announced that he would step down in April so that he could concentrate on the company's strategic development, i.e. securing raw material sources. In 2004 MMK had been exploring the feasibility of the Kiryabinskoye deposit in the Bashkirian Republic of central Siberia, but determined that the deposit's 20 million tons of estimated reserves were not economically viable. To be viable for MMK, a deposit would need to have at least 30, preferably 40, million tons of iron ore. MMK holds a license for the development of the Techenskoe deposit in central Russia's Chelyabinsk region. Techenskoe holds estimated reserves of 50 million tons. Beginning in 2007, MMK hopes to extract 2 million tons per annum from this source, and thus boost yearly steel production by a like amount to 12 million tons. Another option that Rashnikov and his development team might consider is to import iron ore from Brazil or Australia. The transportation costs to import ore to Magnitogorsk, which lies 1400 km from Moscow, are prohibitively expensive at present. In addition, MMK would need to upgrade its ports at Vladivostok since they are not really equipped to handle a large amount of iron ore. However, if Usmanov or another rival were to swoop for Kazakhstan's Sokolovsko mine, it is thought that domestic prices of iron ore would rise above the global standard, thus making Australian and Brazilian ore seem like a bargain.