Sergey Ushakov: MMK is carrying on with investments despite pandemic

Tuesday, 07 July 2020 09:44:42 (GMT+3)   |   Istanbul
       

SteelOrbis talked to Sergey Ushakov, Deputy General Director for Sales at MMK, regarding the effects of the pandemic and the company’s sales strategy in the second half of the year.

For the past three months, production cuts have continued to be announced all around the world. How has the Covid-19 epidemic impacted your company in terms of production?            

Of course, the coronavirus epidemic has a negative impact on the world economy, i.e., consumer and investment activity has declined significantly, which in turn negatively affects demand for metal products and forces manufacturers to reduce production volumes. However, the impact of the coronavirus epidemic on MMK is not quite as significant, because while quarantine measures were in place in Russia, during the period from March to June, we carried out a scheduled major equipment repairs programme, as a result of which our company's production volumes were reduced anyway.

As for future prospects, we already see that demand in Russia and abroad is recovering, so in July we will be able to offer our usual volumes of commercial products to the market.  

How were your sales (both domestic and exports) affected given the shutdowns in downstream industries?

In Q2, the share of sales to non-CIS countries increased. The increase in sales was mainly due to shipments to Southeast Asia, where the coronavirus epidemic receded earlier than in other regions of the world.

In Russia, a full-scale shutdown of the industry did not occur, as was the case in some European countries. Since the end of March, throughout the period of the strictest quarantine measures in Russia, there were temporary suspensions of operations at individual production enterprises and construction organisations, which lasted for one week or more, depending on the region. For large enterprises that play a key role in the country and the region's economy, exceptions were made, so their work did not stop for the quarantine period.

The share of sales to the Russian market in MMK's overall sales in Q2 2020 decreased relative to Q1, but it remained close to the long-term average, which amounts to about two thirds of the total sales volume.

All three Russian mills have significantly lowered HRC export allocations for July owing to improved local trade. How do you view current steel demand and the price trend in Russia going forward? Can you please share the key points of MMK sales strategy for H2 2020?

Thanks to its location in the heart of Russia, MMK is traditionally focused on the domestic market and CIS countries, and export sales are carried out on a residual basis.

In Russia, the recovery of business activity and demand in the majority of metal-consuming sectors began in the second half of Q2. Also, the strengthening of demand led to the stabilisation of domestic prices by the end of Q2. As the domestic demand for metal products recovers, MMK's sales volumes on the Russian market will grow. However, if the epidemiological situation deteriorates, we, having the knowledge and scope to sell for export, will be able to reorient these volumes to foreign markets at any time.  

As China comes forward as the only major market for certain products, how sustainable do you think China’s buying spree is?

According to worldsteel forecasts, the demand for products manufactured in China will grow by one percent in 2020. It is also expected that infrastructure projects will help to provide long-term support for the consumption of steel products on the domestic market this year and in the next few years. Already in April, we saw an increase in China's share of global steel production up to 62% (+8.3% p.p. compared to March). Apparently, the data for May will show further growth due to anti-crisis measures taken in Beijing at the session of the National People's Congress. A significant increase in public investment in infrastructure, further technical re-equipment of industrial enterprises, etc., is expected.

How might the ongoing protectionist confrontation between the EU and Turkey influence CIS-based flat steel exporters and their strategies?

In the short term, it is unlikely that the EU will completely close its market to Turkish products. These regions of the world are long-standing business partners and it is hard to imagine that such an unpopular decision will be taken. Currently, most large companies in southern Europe buy products from Turkish manufacturers due to the competitive prices and fast delivery times. In addition, Turkey is also a sufficiently large market for European manufacturers. If the EU market is closed, access to the Turkish market will also be automatically closed, which seems unlikely in the context of a significant economic downturn in the EU and reduced demand in traditional markets.

As such, at least until the end of this year, we do not expect any significant changes on this issue; consequently, nothing should change for suppliers from CIS countries. 

MMK was planning to restart its mill 2500 in June this year and to largely focus on trading big coils only. Please share the current progress of the maintenance project. Does MMK have other sizeable repairs or investments scheduled in the mid-term?

Despite the coronavirus epidemic, the reconstruction schedule for mill 2500 has hardly changed. Already in July, test rolling of metal will be carried out, and in October the entire range, all sizes and brands, will be manufactured at the mill. The reconstruction of mill 2500 will allow for the production of hot rolled steel up to 2,350 mm wide. It will significantly expand the brand and size range in accordance with market requirements, it will allow for shipping on the "horizontal axis" and will allow an improvement in the quality of the surface and reeling. 

As for other investment projects, MMK is constantly upgrading equipment to improve the quality of its products and reduce the harmful impact on the environment. For example, as part of the strategy up to 2025, MMK plans to build a new coke and by-product plant, which will include a coke battery, a shop for capturing and processing chemical products, a biochemical plant, a new blast furnace, a new steam turbine power plant, etc.   

 


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