Russian steelmakers rely more on own iron ore

The continually rising prices for iron ore, the lessening of the iron ore spot market, irregular shipments even on long-term contracts, as well as the growing proportion of iron ore usage in steel production against the background of a possible scrap scarcity, all these factors have contributed to forcing the Russian domestic steelmakers to guarantee stable iron ore supplies by acquiring their own iron ore assets. The consolidation of the steel industry in Russia has led to a situation where the major iron ore mines are under the control of the main steel enterprises. Geographically speaking, the main ore mines are located in the Central, North-West and Ural federal regions of Russia, while Lebedinsky GOK, Mikhailovsky GOK, Stoilensky GOK, Kachkanovsk GOK and Karelian Pellet share between them the greater part of domestic iron ore production. Currently all of these are owned by the main steel mills. Thus, Stoilensky GOK satisfies NLMK's iron ore needs, Karelian Pellet and Olenegorsk GOK supply iron ore and pellets to Severstal, while Korshunovsky GOK satisfies Mechel's requirements. The largest iron ore processors in Russia, Mikhailovsky GOK and Lebedinsky GOK, which together mined approximately 100 million metric tons of iron ore in 2006, both belong to the one of the largest steel holdings, i.e., to Metaloinvest Holding. Evraz Group also has its own iron ore division – Evrazruda. Until very recently MMK was the only steel producer left without its own iron ore assets. In the first half of 2006 the mill depended heavily on iron ore imports from Kazakhstan. This dependency made MMK very vulnerable to any changes in the global iron ore market. However, the situation changed once MMK won the rights to develop the Prioskolskoye iron ore deposit which holds large iron ore reserves. According to estimates, the deposit can produce about 20 million metric tons of iron ore a year. Given the high growth rate of the Russian steel industry and the introduction of new capacities by the steelmakers, the possession of iron ore assets seems to be one way out of the problem of raw materials shortages, especially as scrap collection levels are dropping every year. Already, the increase in the use of iron ore in steel production is visible. For instance, in 2006 NLMK increased iron ore consumption by 15 percent, while Evraz's ZapSib increased year on year iron ore consumption almost by one third.