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Betting on innovative

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IRON MAGAZINE № 2 (19) 2018 1

02 | Editor’s notE

CovEr story

04 | New deal on the steel marketHow trade wars are changing the global steel market

industry

16 | Product innovationA viable method to stay ahead of competitors is to constantly improve technologies. Metalloinvest is developing new steel grades with high-quality rolled steel products (SBQ) taking a special place in the company’s product portfolio

BusinEss plan

20 | Taking customer relations to a new levelKey stages of Metalloinvest’s comprehensive programme for developing sales, improving quality and customer focus in its SBQ business.

Growth path

22 | Future of steelDevelopment trends in the steel industry, which guarantee producers profit growth and a successful future in the market

ManaGEMEnt

26 | In touchProven methods of customer engagement, which can help not only to improve the quality of customer service, but also to develop new products and technologies

sEal of quality

30 | Clean steel What makes steel producers invest in environmentally friendly technologies, encourage care for the environment and how this affects the quality of steel

arChivE

34 | Men of steelThe founders of modern steelmaking, who took up the challenges, made revolutionary technological breakthroughs and changed the industry forever

Founder: Management Company METALLOINVEST LLCEditorial office: 28, Rublevskoye Shosse, Moscow, 121609, Russia Tel.: + 7 (495) 981-5555, ext. 7574Fax: + 7 (495) [email protected]

Project ManagerAlexander [email protected] [email protected]

The issue was approved for printing on November 07, 2018Circulation: 500 copiesPrinted by Union Print LLC, 2, ul. Okskiy Syezd, Nizhny Novgorod, 603022 The content of the issue may not be used without the consent of the Editorial office. Audience: 16+

Publisher: Energeticheskaya str., 16, building 2, floor 1, pom. 67, room. 1, 111116, Moscow, RussiaTel.: +7 (495) 988-18-06vashagazeta.comE-mail: [email protected] General: Vladimir ZmeyushchenkoExecutive Editor: Vilorika IvanovaEditor: Olga FilatovaDesigner: Natalia TikhonkovaProduction Director: Oleg MerochkinPhoto: AFP, TASS, East News, AKG, Shutterstock

№2 (19) 2018

availaBlE on thE

app storE

Dear readers!This issue of Iron Magazine is special. It is dedicated to the 24th Metal-Expo Industrial Exhibition, the main forum for Russian steel-workers. The event brings to-gether producers and consumers of steel products from dozens of countries to develop mutually-ben-eficial partnerships, find solutions for improving business efficiency, while reducing production costs and economic risks.

2 Editor’s notE

Andrey Varichev, CEO of Management Company Metalloinvest

Competition in the market of high-quality steel products is increasing and customer

requirements are becoming more critical. In order to win the competitive struggle, we must constantly improve technologies and develop new steel grades

for our partners

Steel remains the backbone of global construction and industrial production, but it is competing with other materials, such as aluminium and composites. Due to this competition, steel is looking at ways to improve. The steel industry is on a mission to improve product quality, expanding and diversifying its product lines and developing new grades with a specific set of characteristics for individual customer needs.

A special place in the steel industry is occupied by high-quality rolled steel products (SBQ), developed specifically for use in mechanical engineering, primarily in the automotive industry – Metalloinvest is a leading player in the SBQ market.

This issue of Iron Magazine covers Metalloinvest’s plans to modernise production processes and further strengthen its position on the SBQ market, as well as the latest trends in the global steel industry and the different ways in which steel companies are engaging with their customers.

3№2 (19) 2018IRON MAGAZINE

New deal on the steel marketHow trade wars are changing the global steel market

Trade conflicts, which grew more acute over the summer, could upset the balance of power on the global steel market and force steelmakers to urgently seek new distribution channels

Vasilya Plekhanova

4 Feature

The summer of 2018 brought a new wave of international trade conflicts. In June, the US extended its 25% tariffs on steel imports to products from the EU, Canada and Mexico. From July 19

the European Union imposed its own restrictions on steel imports, applicable to all exporters except those based in countries that are part of the European economic zone. At the same time, US trade relations with China are tenser than ever before.

Metalloinvest experts point out that the biggest uncertainties are not directly caused by the US tariffs, but by the chain reaction of special measures and debates, which they have prompted in a growing circle of countries and industries. Meanwhile, the use of concepts such as “national security” to justify protectionism opens a Pandora’s box in international trade. The US has imposed steel tariffs and the EU has introduced quotas and duties to protect itself from the effect of the US action.

What other countries will do after reaching the export ceiling imposed by the EU quotas is hard to predict. Further consequences of the new steel tariffs are also unclear. Steel is one of the most conflict-prone sectors of international trade, and upsets in that segment spread quickly to other markets and industries, which will be forced to adjust their demand for steel. How far the ripples will spread remains to be seen.

Steelmakers are thinking hard about how they can maintain profitability of steel exports, taking into account the anti-dumping duties and levels of access of foreign competitors to their own domestic markets. The winners in the new environment will be companies that can improve the quality of their products and customise their steel supplies to meet the needs of specific customers.


The Chinese government is targeting a reduction in excess capacity by 2020, with the aim of reducing the industry’s environmental impact while improving its financial situation

According to the World Steel Association, world steel production grew by 4.8% (to 1194 million tonnes) in January-August 2018 compared with the same period last year. The growth leaders were:

• China (+5.8% to 617 million tonnes);

• India (+6.7% to 71.1 million tonnes);

• United States (+4.8% to 56.9 million tonnes).

China. The Chinese government resolved in 2015 to reduce excess steelmaking capacity by 2020 in order to curb negative environmental impacts and improve the financial state of the industry. The target is to close down more than 20% of capacity and the Chinese government announced this July that it will speed up the liquidation of outdated steelmaking facilities. According to official data, the Chinese have already reduced domestic capacity by 150 million tonnes per year (equal to the combined capacities of the US, Canada and Mexico).

The closures will not affect China’s status as the main global supplier of steel (see Figures 1 and 2). At the same time, the Central Bank of China is continuing to devalue the yuan in order to protect its industry, including the steel industry. Growth in prices for Chinese steel will also have a positive effect on producers: Morgan Stanley expects price rises of 7% this year.

Steel productionHere comes protectionism

Global steel production increased by 5.3% to 1691 million tonnes in 2017, but growth in 2018 is expected to be just 0.5% (figures from Deloitte, citing the Economic Intelligence Unit). There are different forecasts for 2019: the World Steel Association expects slight growth, while Deloitte sees a possible reduction of 0.4%.

Over 20% of Chinese steelmaking capacity is scheduled for closure by 2020

6 Feature

Asia. Production in the region, without China, grew by 5.5% in 2017, despite the fact that Japan, the second largest steel producer in the world, reduced its output by 0.1%.

Indian and Vietnamese steelmakers launched more capacity, reacting to a reduction of Chinese export volumes. South Korea and Taiwan also contributed to the growth, increasing volumes by 3.6% and 6.8% respectively. No increase of Chinese exports is expected this year, so the Economist Intelligence Unit (EIU) predicts production in Asia without China to grow by 3.8% in 2018. Forecasts for 2019 are more modest (1.5% growth), although experts see large potential for greater steel volumes from companies in Vietnam and India. The EIU predicts that India will increase production by 5% in 2018,

Figure 1. Top-10 steel-producing countries

Source: WSA.

Country Steel production in 2017 (mn tons)

Change from 2016 (%)

Share in world production (%)

Export in 2017 (mn tons)

China 831.7 5.7 49.18 108.1

Japan 104.7 –0.1 6.19 40.5

India 101.4 6.2 5.99 10.3

USA 81.6 4 4.83 9.2

Russia 71.3 1.3 4.22 31.2

South Korea 71.1 3.6 4.2 30.6

Germany 43.6 3.5 2.58 25.1

Turkey 37.5 13.2 2.22 15.3

Brazil 34.4 9.9 2.03 13.4

Italy 24 2.9 1.42 17.9

Figure 2. World steel production by regions in 2017 (%)

Sources: EIU, WSA, Delloite.

19Rest of Asia

10Europian

Union

7North America

3Latin America

2Europe (except EU)

2Middle East

1Africa

6CIS

50China

2017 год (%)


steel from Russia, Iran, Brazil and Ukraine to 60-90 euros per tonne. On July 19, the European Commission brought in quotas for imported steel equal to the average export volume over the past three years. Anything above those quotas will be taxed at a rate of 25%. Exceptions were made for the EEA countries (Norway, Iceland and Liechtenstein).

The quotas will remain in force for a maximum of 200 days. Most foreign producers expect to reduce their supplies to the European market, but steel production in Europe in 2018 will increase by only 2.5%, according to EIU forecasts (growth in 2017 was 4%). European

overtaking Japan. Development of the Indian steel industry has been driven by minimum import prices, which were introduced in 2016 for a period of five years. Previously, the price of products made using Indian steel was higher than the market, so there were few takers for products imported from India.

North America. In 2017, the United States, Mexico and Canada together increased production by 4.9%, including a 6.3% increase in Mexico alone. US producers were focused on resolving operational issues and volume increase in the first half of the year was only 1.3%,

but acceleration in the second half gave year-on-year growth of 4%. The EIU forecasts 4.5% volume increase in the three countries during 2018. The extension of US steel import tariffs (at a level of 25%) to the EU, Canada and Mexico from June will have a major impact on the full-year results.

European Union. European regulators are increasingly inclined to raise import duties in order to support the continent’s manufacturers. Tariffs on galvanised steel from China rose to 17.2-28.5% in March after the Europeans had already raised duties on hot-rolled

According to data from the World Steel Association, between January and August 2018, global steel production increased by 4.8% compared with the same period last year

8 Feature

producers may find it harder to export. For example, Algeria is expected to reduce the import of steel reinforcement from Europe order to support its own steelmakers. Production at European steel reinforcement plants may fall as

Figure 3. Output and headline financials of leading Russian steelmakers

(thousand tonnes)

Revenue (USD mn)

EBITDA (USD mn)

2017 2016 2017 2016 2017 2016

Evraz 14 033 13 513 10 827 7 713 2624 1542

NLMK 17 076 16 641 10 065 7 636 2655 1941

Severstal 11 651 11 630 7 848 5 916 2577 1911

MMK 12 860 12 544 7 546 5630 2032 1641

Metalloinvest 4759 4662 6 231 4261 2120 1258

Mechel 4274 4252 5128 4122 1391 988

Source: Delloite.

a result, despite redirection to alternative markets.

Russia. Steel production in Russia in 2017 totalled 71.7 million tonnes, which is 1.2% more than in 2016. Evraz, NLMK, Severstal, MMK, Metalloinvest and Mechel accounted for 64.7 million tonnes of total output (see Figure 3). Rolled steel product output increased by 1.4% to 66 million tonnes, according to the Metal Expert news agency. However, the output trend varied greatly through the year: production slowed down by 8.9% year-on-year in the first quarter and by 1.6% in the second quarter, before rising by 6.2% in the third quarter and then slowing again in the fourth quarter by 10.2%. Output of many product types increased, and volume growth was particularly marked for wire (+31.7%) and seamless casing pipes (+19.8%). Russian manufacturers have already

produced 46.4 million tonnes of steel in January-August 2018, according to WSA estimates, which is 1.9% more than in the same period last year.

Turkey. The world’s eighth-largest steel producer exported products worth USD 13.8 billion in 2017, according to the Turkish Statistical Institute (TurkStat), including supplies to the United States worth USD 1.2 billion, which makes Turkey sixth in the world by exports to the US market. However, the United States doubled duties on Turkish aluminium and steel to 20% and 50%, respectively, on August 10 with an immediate knock-on effect on the Turkish currency, which suffered a record one-day fall. Despite this, results in terms of volumes from Turkish steelmakers in August were impressive: according to the Turkish Steel Exporters Association (CIB), Turkey sold 1.6 million tonnes of steel to other countries in the last summer month (+36.4% year-on-year) for USD 1.2 billion (+43% year-on-year). The CIB reported an increase in exports by 5.8% in the first eight months of the year, during which Turkish producers sold 12.7 million tonnes of steel products abroad. Revenues grew even more strongly (+28.5%) to USD 9.6 billion, reflecting the overall increase in world steel prices.

The year saw strong production growth for many product types, with particularly good results for wire and seamless casing pipes


Demand for steelSlowdown on the way

Steel demand growth rates are set for a dramatic slowdown. As reported by the EIU, consumption grew by 3.6% last year to 1657 million tonnes. Growth this year is expected to be only 1.3% and the figure will drop to 0.7% in 2019, according to WSA predictions.

China. Steel demand in China grew by 5.2% in 2017 as producers themselves hoarded stocks, anticipating a decline in supply. The strong trend continued in the first part of this year when demand was 5.4% higher year-on-year. However, the EIU expects that Chinese consumption in the whole of 2018 will be no more than 0.5%, although this will still leave China as the world’s largest consumer of steel by far (see Figure 4). Huge

demand for steel in China is driven mainly by infrastructure and real estate construction. The automotive industry now accounts for 10% of domestic consumption, but demand for cars is much reduced at present (car sales in China fell by almost 12% in 2017).

Asia. India remains in second place after China by volumes of steel consumption in the Asian region with 20% of the total, and a further 25% is shared by Vietnam, Indonesia, Thailand and the Philippines. The latter countries drove a 2.5% increase of overall steel demand in the region in 2017. The rate would have been higher if industrial growth in India had matched expectations and if demand from the Japanese construction industry had been stronger. Growth this year is not likely to exceed 2%, with South Korea’s programme to stimulate its domestic steel industry playing a major role.

North America. The EIU predicts 2% growth of demand for steel in the US, Mexico and Canada in 2018, declining to 1% in 2019, significantly lower than 4.3% in 2017. The US accounts for 75% of steel demand in the region and about 43% of national consumption goes to the construction industry (AISI data for 2016). The automotive industry accounts for a further 27% of US steel consumption, but steel sales to auto makers peaked in 2016 and are now threatened by greater use of aluminium, development of alloys, and the rise of electric vehicles which are more durable than traditional cars. Both the construction and the automotive industries are threatened

by loosening of US monetary policy, but demand for steel should be supported by the energy and mining sectors, which enjoyed higher prices for their outputs in 2017 than in 2016.European Union. Growth of steel demand by 2.5% in the European region this year will be driven by the automotive industry, which represents about 20% of total regional demand, according to the EIU. But the growth rate will decline to 1.5% in 2019, which is even lower than the 2017 level of 2.3%. Demand for steel is growing faster in Central Europe due to infrastructure projects and transfer of production capacities.

Turkey. The Turkish Metallurgical Association (TCUD) reports an increase in domestic demand for steel products in the first seven months of 2018: consumption grew by 4.1% to 21 million tonnes. According to TCUD, demand for long products was about 10 million tonnes (3% less than the same period of 2017), while demand for flat products increased substantially, by 11.5% to 11 million tonnes.

Russia. The Russian steel market has been sluggish in recent years, reflecting the overall slowdown of the Russian economy since 2012 and the effect of imposed and threatened sanctions. According to experts, the difficulty in accessing bank loans and foreign investments from traditional sources has made economic agents cautious about investments, and investments are an important driver of steel consumption. The economy adaptation to sanctions supported the visible consumption of steel for some time, but the recent

Figure 4. World steel consumption by regions (%)

Sources: EIU, WSA, Delloite.

23Остальная

Азия

10Евросоюз

9Северная Америка

3Латинская Америка

2Европа (кроме ЕС)

5СНГ

42Китай

3Африка

3Средний Восток

(млн т)

10 Feature

The construction industry consumes up to 60% of rolled products, from which 15% is used for metal structures

Russian producers predict an increase in domestic demand, but it is likely to be very modest in the next two years (1.5-2.5%), again due mainly to the possible imposition of sanctions and the response of the Russian economy to the sanctions that have recently been introduced. Experts at Deloitte believe that the construction industry will continue to drive Russian demand, as in 2017 when consumption growth was fuelled by large projects, including construction of the Kerch Straight Bridge and facilities for the World Cup, as well as construction of gas pipelines. Mikhail Burmistrov, CEO of Infoline-Analytics, also sees infrastructure projects as a driver of domestic steel demand.

Experts at Severstal expect domestic demand to grow by 4% this year and predict acceleration to 8%

by 2021, noting that Russian Railways have increased repair work and will start work next year on a bridge over the River Ob in Siberia as part of the Northern Latitude project. MMK is also optimistic, citing the rise in oil prices, which will encourage pipeline projects. However, Denis Novozhenov, the vice-president of Evraz, warns against any assumption of strong demand in the long run and believes that a rate of 1.8% is more realistic in the medium term. He foresees relatively strong domestic consumption in 2019, but a slowdown compared with 2017.

High dependence on a limited number of domestic industries is a weakness of Russian steelmakers. Ilya Gushchin, vice president of sales Greater diversity in the domestic market for steel would greatly benefit Russian steelmakers.

introduction of further sanctions has slowed down this process.

According to data from the Federal Customs Service, exports of ferrous metals from Russia in January-August 2018 increased by 13% year-on-year despite the negative outlook for the external environment.

Regions close to Russia, which are relatively unaffected by the tariffs epidemic, will be most promising for exports in the medium term. The advantages of developed markets (growth in demand and higher prices) have become less pronounced, both due to economic stagnation on those markets and the introduction of duties, which make exports unattractive for Russian steelmakers. Political factors may continue to threaten export prospects in the foreseeable future.


Russian metal producers are focused on large machine-building enterprises

The future of steelQuality and customisation

Globalisation has driven competition in international and domestic steel markets to new heights in recent years and customers make increasingly tough demands on their suppliers. Many foreign markets are now almost impossible to access without quality certification from international supervisory organisations, which impose ever more stringent tests to ensure compliance.

12 Feature

The winners in the new environment will be companies that learn to reduce costs, use new technologies, develop and deliver innovative steel types, and customise products with high added value.

According to Ayrat Khalikov, director of the Centre for Economic Forecasting at Gazprombank, this year both Russian and foreign companies are increasingly competing not for volumes, but for product quality.

Dmitry Maximov, head of marketing at Severstal, confirmed that his company’s investment strategy is now focused on the improvement of the properties of steel products and strengthening of positions in specific segments, rather than on volume increases. Severstal is modernising its production in order to improve quality and expand the product range. The company is working on new types of premium rolled products for the oil and gas, automobile and engineering industries. These include:

• pipe steel for use in tectonic fault zones;

• high-strength dual-phase steel and ultra-ductile alloy steel for passenger car bodies;

• unique bimetals for automotive components.

MMK is expanding its range of high value-added products. The company’s strategy for the period to 2025 calls for the modernisation and launch of new production lines.

Mechel is working to increase the share of high-margin products in its steel division. The Mechel CEO, Oleg Korzhov, says that the company is developing new steel profiles at its rail and beam mill, and has plans to modernise the production of stainless steel, which offers high margins and could significantly increase revenue in the steel business.

Evraz is also developing its product portfolio, improving the properties of its steels and upgrading customer service in order to strengthen its positions in key segments.

Metalloinvest experts confirm that demand for quality steel grades is on the increase. Customer requests sometimes go as far as the combination of several conflicting requirements in one steel, with an ever greater demand for reproducibility, geometrical characteristics, surface quality and delivery times. Steel is expected to perform more tasks than ever before with less waste and lower processing costs for the customer. Metalloinvest is now focused on improving the properties and expanding the range of its products. The company’s product range is now entirely geared

to customer needs, and new grades are developed to match customer orders. The company is researching various promising market niches, where it has long-term competitive advantages and can put production facilities in place for acceptable levels of investment.

Steelmakers are also working hard to reduce product defects. A machine-learning technique developed at Saarland University identifies the microstructure of steel using computers and compares it with an accepted standard, increasing the accuracy of steel quality assessment to 93%. In 2017,

Customised solutions by Russian steelmakers (2017-2018)1. In early 2018, high-strength steel plate produced by Ural Steel (part of Metalloinvest) was awarded a certificate of conformity by the Russian Maritime Shipping Register, opening up new sales markets for Ural Steel.

2. In the spring of 2018, Evraz launched the production of rails with increased wear resistance, meeting an order by Russian Railways. The rails, which are the first of their kind to be produced in Russia, offer an 8% improvement in wear resistance and gains of 30% in cyclic crack resistance. The Evraz vice-president for sales and logistics, Ilya Shirokobrod, says that the new rails will significantly improve traffic safety and efficiency of operations on sections of the Russian rail network that are subject to extreme loads and other specific challenges.

3. In the spring of 2018, Chelyabinsk Pipe Plant began production of large-diameter pipes using innovative cold-resistant strip (K60 strength class), produced by Severstal. The metal has unique properties that enable retention of impact hardness at extremely low temperatures (-42° C). The pipes will be used in the construction of the Power of Siberia gas pipeline facilities.

4. The Machine Building Research Institute reported in October 2017 that it had developed a corrosion-resistant steel with an unmatched ability to resist destruction and aggressive environments. Specialists at the Institute spent 2.5 years developing the new steel, which is designed specifically for use at gas fields where extracted gas has a high content of H2S and CO2.

5. In December 2017, Severstal began to supply the unique rebar, ArmaNorma (А600С), for work on the Akkuyu nuclear power plant in Turkey, which is under construction by the Russian nuclear engineering company Atomstroyenergo (part of the engineering division of Rosatom state corporation). Up to 32,000 tonnes of the metal will be delivered to Atomstroyenergo by 2019.


The cosT of cusTomisaTionCompanies do not always disclose how much it costs to develop new steel grades. But the cost can be estimated by analysis of open-access requests for the development of new grades. For example, the ‘Structural steels with ultrafine and nanostructures, methods for their production and processing’ project cost 25 million rouble, and a total of 20.8 million roubles were paid by the Russian nuclear industry for the creation of nanocrystalline hard magnetic alloys using refractory metals.

Cost levels depend on industry requirements. Development of a new special steel for the nuclear power industry is particularly costly: laboratory development of special steel for a VVER-SKD nuclear reactor costs 40 million roubles, and pilot industrial testing and certification will require a further 200 million roubles. These figures are average for the industry.

source: 4science (platform for business-science cooperation)

Severstal used new quality-control technologies to reduce the defect rate to as low as 0.0005% in steel supplies to the Caterpillar Tosno machinery manufacturer. By the end of 2018 Severstal will introduce a new system for measuring correspondence of products to customer requirements and for preparing recommendations on product improvement. The system developers expect it to reduce customer complaints by 25%.

A multitude of new steel grades (more complex, higher-strength, dual-phase, etc.) are now being introduced worldwide and requirements for ductility and strength are becoming more stringent. While the development of a new steel grade previously focused on a single property, it is now often necessary to improve a number of properties which may not always be fully compatible, for example:

• strength, ductility and stampability;

• strength and corrosion resistance.

There is great potential for the use of steel in a wide variety of industries. Advances in technology and the expansion of

customer geography is opening up new specialised niches. Russian steelmakers are increasingly focused on the specific needs of customers and are ready to design and deliver steel grades with unique properties.

Russian steel customers are keen to buy domestically-produced steel grades that match expensive foreign products in quality. Russia’s Laboratory of Special Metallurgy points out that foreign machine-building plants switched some time ago to use of steels containing boron, while Russian machine-builders are still using more expensive low-and medium-alloy steel without boron. This makes imported steel grades superior to those produced in Russia. Changeover by Russian steelmakers to lower-cost alloy steel grades containing boron would represent a major breakthrough for the domestic industry. Highly active elements, such as boron, offer properties that substitute the properties of more alloy steel, so the changeover will reduce consumption of expensive and scarce alloying elements (chrome, nickel, molybdenum) without diminishing the technical and operational properties of steels.

Increasing global demand from high-tech industries for metal products with a high degree of processing is another major trend. For many products in aviation, instrument engineering, for the manufacture of structures operating in the Far North, or space machinery, steel with a low contents of gas, non-metallic inclusions and other additives are often needed.

There is growing interest in technology for the inclusion

of nitrogen in iron-based alloys. Recent studies have shown the advantages of high-nitrogen steels in comparison with alloy steels, which are widely used in industry at present. The new steels could be supplied to the aviation, defence and nuclear industries, which are major consumers of alloy and high alloy steel.

As pointed out by Deloitte, Russian steelmakers are at present mainly focused on large customers in the fuel and energy, transport and mechanical engineering sectors. The domestic steel industry needs to build a communication system in order to encourage demand for steel from small- and medium-sized businesses. For example, in the 1980s, UK demand for steel frames in real estate construction was jeopardised by competition from concrete structures. The British steel industry reacted with a long-term educational programme working with architects and builders to demonstrate the many potential uses of steel. Dmitry Maximov, head of marketing at Severstal, sees huge potential for greater use of steel in real estate construction in Russia. For example, only 3% of single-storey and 13% of multi-storey buildings in Russia have steel frames. That compares with use of steel frames in the construction of 70% of multi-storey non-residential buildings in the US, according to Tata Steel. Greater use of steel frames in Russia would be a major step towards an increase in volumes.

Metal powders for 3D printers is another promising niche, created by lower prices for printers,

The trend towards the creation of a circular economy provides the industry with both new challenges, as well as opportunities.

14 Feature

Metalloinvest is now focused on improving the properties and expanding the range of its products

development of laser and laserless technologies, and the appearance of software for high-precision printing of large metal products. At present, polymers are more often used for 3D printers (53% of the market), while the share of metal in the world market is 44%. However, as reported by Ernst & Young, demand for metal printing is higher than for polymer (52% vs. 31%) and has been growing faster since 2012, which has powered the development of metal printing technologies and increase of turnover.

The capitalisation of additive production is expected to grow as demand for metal powder increases, meeting the needs of many other industries as well as 3D printing. The company Hoeganaes sold only GBP 200 million worth of metal powder in 2017, but IDTechEx predicts an increase in demand to USD 1.8 billion by 2025. Wohlers Association expects

the metal powder market to be worth USD 10 billion by 2035.

3D-printer manufacturers are already reacting to the trend:

• GE has acquired Arcam and Concept Laser;

• Siemens has acquired an 85% stake in Materials Solutions, which uses additive technologies in gas-turbine manufacturing;

• Desktop Metal, which develops 3D printing technology for metal products, has received USD 45 million from BMW, Google and Lowe’s.

The key driver of growth in additive manufacturing is the aviation industry, which is expected to account for 15% of the market, worth nearly USD 2.2 billion, by 2025.

Russia has less than 1% share of the additive technologies market and domestic demand for metal powders for 3D printers is met by imports from Germany and the UK. The powder is purchased mainly by the Russian

engineering companies Aviadvigatel and NPO Saturn for gas turbine and engine manufacture and also by Novomet-Perm for the production of submersible centrifugal pumps used in the oil industry. The market potential is obvious, with customers of varying size across many sectors, and large Russian steelmakers are beginning to stake their claims.

The steel industry faces tough times at present due to tariff and trade conflicts. But, at the same time, steelmakers understand the opportunities, which are offered by greater focus on quality and customisation of products.

The trend towards a circular economy also poses new challenges to the industry as the increase in the lifetime of steel products could entail a reduction in demand – however, the emphasis on recycling and durability also creates a number of new opportunities.


Product innovationEnsuring stability in changing times

Competition in the steel market is intensifying and customers are making tougher demands on their steel suppliers. Metalloinvest is constantly improv-ing its technologies and developing new steel grades in order to stay ahead of competitors. High-quality rolled steel products (SBQ), produced at OEMK, have a special place in the company’s product portfolio.

Irina Peshkova

Tough challenges are nothing new for Russian steelmakers. In 2016, there was a fall in demand for steel products from main customers in the domestic market (as measured

by the Russian Ministry of Economic Development). The largest reductions of rolled steel in that year were seen in the automotive, construction, and steel pipe industries. There was some recovery of demand in 2017

and experts are caling 2018 a year of gradual improvement for the Russian ferrous metallurgy. Meanwhile, the deterioration of the US-China trade relationship has created new difficulties in the global market.

Export of rolled steel is subject to special difficulties. The Russian Steel Association counts more than 50 restrictive measures in force against Russian steelmakers at present (10 new restrictions have been introduced or confirmed in this year alone).

Despite the challenging environment, average capacity utilisation at steel facilities in Russia this year will remain above 80%, according to Moody’s analysts estimates. Key players will focus on improving production efficiency and launching new high-quality products.

One step ahead“Competition is growing in the market for high-quality steel products, and customer requirements are becoming

16 Industry

Over 50 сrestrictive measures are currently in place worldwide against Russian steelmakers

more stringent,” said Andrey Varichev, the CEO of Metalloinvest Management Company. “We need to constantly improve our technologies and develop new steel grades for our partners in order to win the competition race.” OEMK develops dozens of new steel grades each year for Russian enterprises and customers in Europe.

Steelmakers do their best to meet customer needs by offering innovative products and OEMK is well placed to do so thanks to its advanced facilities for processing of rolled products. OEMK not only produces high-grade steel but carries out finishing touches to ensure full customer satisfaction.

The rolled-steel finishing shop at OEMK carries out machining of steel rod produced at rolled-steel shop No. 2 (part

of the mill 350), ensuring that products exactly match required parameters. In 2017 OEMK installed a reduction-calibration unit on the medium-sized long product line at the mill 350. The new unit enables production of rolled steel with precise geometric dimensions (diameter tolerance of ± 0.15-0.2 mm) without the need for further work in the finishing shop. Rod produced at the mill 350 using the reduction-calibration unit is ready for delivery to the customer without need for further processing.

SBQ: How to remain tHe market leaderSBQ (special bar quality) steel is a rolled product with exceptional quality characteristics, which make it suitable for specific applications. SBQ includes

more than 500 grades of steel and is used to make critical parts in the automotive, mechanical engineering, shipbuilding, aerospace and other industries. SBQ steel is often referred to in Europe as “engineering steel” and in North America as “special quality steel”. SBQ steel often undergoes additional processing (heat treatment, mechanical treatment and surface preparation) to enhance machinability, ductility, strength, hardness, ability to withstand deformation and impact loads, etc.

High-quality SBQ long products account for about a quarter of all Metalloinvest output. “Prices and demand for these products are less subject to market fluctuations than prices for iron ore,” Andrey Varichev noted.

The biggest customer for SBQ is the automotive industry, which uses SBQ to make:

• connecting rods;• distribution shafts and crankshafts

for internal combustion engines;• transmission wheels;• shafts and other parts for gear

boxes;• steering parts;• pistons, struts and springs for

shock absorbers.The main consumers of SBQ

are manufacturers of passenger and commercial vehicles

SBQ is also used to manufacture components for aircrafts and ships.

SBQ steel undergoes heat treatment and various mechanicalprocessing before it is ready for delivery to the customer. Performance of SBQ steel (machinability, ductility, hardness, strength, ability to withstand deformation and impact loads) are being constantly improved by means of testing.

Analysts foresee changes in the product structure of Metalloinvest’s

Worth noting According to Deloitte, ferrous metallurgy is one of the most technologically advanced industrial sectors with a high level of commitment to innovation. 64% of steel companies give preference to process innovation, mainly in order to reduce production costs, while 27% prioritize product innovation.


current SBQ customers in the next few years. Transition to the production of electric vehicles in the EU countries will tend to reduce global demand for high-quality rolled steel products. According to Bloomberg, by 2025 growth of the automotive industry will depend mainly on production of electric vehicles and hybrids, and assembly of such vehicles requires 65% less steel than conventional cars. Other SBQ-consuming sectors are not expected to show significant growth.

The modern market sets stringent standards for the production of high-quality rolled products. Steelmakers are currently designing programmes to improve production efficiency and investing in innovation and expansion of their product range.

The production of high-quality rolled streel (SBQ) accounts for approximately a quarter of all steel product output at Metalloinvest

64% of companies prioritise process innovation, mainly to reduce production costs

In 2017, Metalloinvest launched a comprehensive programme to improve customer focus and product quality in its SBQ business, including modernisation of OEMK facilities, further expansion of the SBQ product range and development of a sales system.

OEMK plans to commission a new heat-treatment complex for rolled products with annual capacity of 70,000 tonnes by 2019-2020. About 3 billion rubles will be invested in the project.

“The new facilities will enable Metalloinvest to increase SBQ sales and strengthen its position in the SBQ market,” said Andrey Varichev. OEMK will build a heat-treatment facility and two thermal furnaces, install heavy-lifting and transmission equipment, and create supporting infrastructure.

Company specialists believe that heat treatment (400-980°C) will enable production of high-quality rolled steel meeting with a specific microstructure.

The quality of SBQ produced at OEMK is ensured by the use of steel smelted at the plant with a narrow range of chemical components, low gas content, minimal impurities, increased strength and ductility, and increased machinability. These properties are achieved by the use of pure furnace charge (metallised pellets) for steel smelting. OEMK is the only steel plant in Russia that uses direct-reduced-iron technology (metallised pellets are obtained from iron ore concentrate and the pellets are then melted in electric furnaces to produce steel). OEMK does not use blast furnaces to obtain iron ore for steel smelting.

SBQ SupplieS: long-term cooperationRussian steelmakers are keen to expand their markets. Metalloinvest

18 Industry

set new records for shipments to consumers in 2017, delivering about 1 million tons of SBQ compared with 0.9 million tons in 2016. The company supplies its products to automotive and ball-bearing plants in Russia, Europe and the CIS.

Today’s steelmakers aim to not only anticipate customer needs, but also to work closely with customers on product development and process optimisation. Metalloinvest has been among strategic suppliers of Russia’s leading truck maker, KamAZ, for more than eight years. In the period from 2009 to 2017, OEMK shipped 400,000 tonnes of rolled metal to KamAZ, which was used to manufacture critical and high-load components and assemblies:

• pistons and shafts for engines and gearboxes;

• gear wheels; • shock absorber parts, etc.

KamAZ sources up to 80% of its high-quality rolled-steel products from OEMK.

Representatives of Metalloinvest and KamAZ meet regularly in coordination councils, where the two companies make joint decisions on expansion of product range, testing of new steel grades, and approaches for optimising warehouse and transport costs.

The development of steel industry is bound to entail stricter requirements for SBQ quality and for the range of SBQ grades and sizes in the future. The automotive, machine-building and ball-bearing industries, will remain the principal market for SBQ, but other factors (sanctions, restrictive measures, price and demand fluctuations, the creation of alternative energy storage systems and materials) could lead to increase or decrease in demand for existing and new SBQ types. A strong business model and carefully designed business strategy will enable Metalloinvest’s SBQ segment to look into the future with confidence.

Passenger cars and commercial vehicles production development are both driving SBQ consumption in the segment world-wideGrowth in output of passenger and commercial vehicles is driving global demand for SBQ

Source: RCG

Parameter

SBQ Use

Dynamic

Main applicatio

Typical dimensions

Grades

Accessibility for OEMK

Major restrictions

Technical requirements

~12 Mt

10–950 mm

Transmission, Engine, Suspension, Gearbox, Steering

2012 2013 2014 2015 2016Е 2012 2013 2014 2015 2016Е

Transmission, Engine, Suspension, Gearbox, Steering

Gear steel: SAE4118H, SAE8620H, SAE4320H, SAE8720HFree-cutting: EN10087

SAE4118, SAE4140, SAE4340, SAE5120

~10 Mt

2221 2222 236863 6966 71

KamAZ sources up to 80% of its high-quality rolled-steel products from OEMK


Taking customer relations to a new level

In 2017, the Board of Directors of Management Company Metal-loinvest approved a comprehensive programme for developing high-quality rolled steel product (SBQ) sales and for improving quality and customer focus in its SBQ business. The main ac-tions of the programme will be implemented by 2023. The objec-tives are to maintain the company’s position in the domestic market and increase export deliveries of SBQ steel. Investments in the programme are estimated at USD 120 million.

Irina Peshkova

Metalloinvest is the fifth largest steelmaker in Russia and a leading manufacturer of high-quality SBQ steel and steel for bridge construction. But

the rules of the game on the modern steel market are increasingly tough, as customers set higher standards for rolled products, insisting on superior quality and a combination of properties in products. New players are entering the Russian SBQ market and Metalloinvest faces fierce competition in foreign markets. Nevertheless, demand for high-quality Russian SBQ remains high, and Metalloinvest is targeting an increase in its SBQ exports.

The company has set ambitious goals for the Oskol Electrometallurgical Plant (OEMK) as part of the programme to develop sales and improve customer focus in the SBQ segment. The tasks include:

• strengthening the company’s position in the high margin, high quality steel segment;

• increasing annual SBQ production capacity at OEMK by 300,000 tonnes in 2021 compared with 2016.

The main stages of the project will be as follows.

Modernising and upgrading technologiesMetalloinvest has always been focused on technology, and the SBQ project is no exception. In 2017, a reduction and calibration section was commissioned for the mid-size production line of Rolling Mill 350 at OEMK. The new unit offers the following advantages:

• improved quality of rolled steel, particularly SBQ;

• reduction of metal losses during turning;

• higher productivity at Rolling Mill 350 and the rolled product finishing plant.

Equipment for the project was supplied by Germany’s SMS Group GmbH, and the design documentation and cost sheet were prepared by the Metalloinvest subsidiary, Gipromez.

In 2018, OEMK began work on a heat treatment section for hot-rolled steel with annual capacity of 70,000 tonnes. Investment in the project will be approximately 3 billion roubles. The new section will increase the heat treatment capacity for rolled products and improve product quality. OEMK also plans to change its product structure towards more high-margin and priority products.

“We see high demand from customers for high-quality long products

that require heat treatment,” said the Metalloinvest CEO, Andrey Varichev. “The new capacities will help Metalloinvest to increase sales of these premium products and strengthen its position in the SBQ market.” The new section will carry out various types of heat treatment in a broad temperature range (400-980° C) to produce high-quality rolled products with specific microstructure.

Heat treatment is used in the production of various types of spring, ball-bearing, structural and high-strength steels. OEMK will build a heat treatment facility and two thermal furnaces as part of the project. The building will be equipped with lifting and transfer equipment together with supporting infrastructure. The first furnace is scheduled to be commissioned by the end of 2019 and the second will commence operations at the beginning of 2020.

In another important project, OEMK will upgrade its continuous casting machine No. 3 (CCM-3) and carry out technical re-equipment of the 5th and 6th cooling water circuits to enable the simultaneous operation of five CCMs. OEMK began work on this project in 2018. The outcome will be the improvement of the quality characteristics of concast billets from CCM-3 and continuous water

20 Business plan

supply for the simultaneous operation of five CCMs. Commissioning of the 5th and 6th circuits is scheduled for the fourth quarter of 2018 and the upgraded CCM-3 will commence operations in the third quarter of 2019.

Coordination of sales, logistiCs and produCtion teamsThe coordination between sales and production teams needs to be improved in order to maximise the smooth operation of all departments. The implemented changes will have the greatest impact on the supply chain. Loading and shipment by road will be increased, and new sales channels will be accessed in Europe (most notably, specialised distribution and direct deliveries with the assistance of logistics partners).

Another focus is cost control based on a system of dynamic calculation of logistics costs and review of supplies and deliveries. All of the changes are supported by specialised IT solutions, and a logical system module has been programmed in SAP.

In February 2018, the company completed work on a data processing centre in the town of Stary Oskol (adjacent to OEMK). The centre provides reliable engineering infrastructure for the IT systems that are being implemented, and has enhanced the

efficiency of collection, storage and processing of data at Metalloinvest, as well as ensuring information security.

Company IT specialists have implemented a number of solutions, including the installation of software solutions by Quintiq (part of Dassault Systèmes group) at all of Metalloinvest’s key enterprises: Lebedinsky GOK, Mikhailovsky GOK, OEMK and Ural Steel.

Quintiq enables the efficient management of the different elements of the supply chain (various types of

orders and transportation tariffs), as well as taking account of fluctuations in commodity prices due to global economic factors and market volatility. The solution also enables calculation of monthly sales planning cycles for steel products using several versions of sales plans, compares different pricing scenarios and takes account of currency factors to select an optimal plan to address demand.

first resultsMetalloinvest has successfully invested in improving the quality, productivity, efficiency and development of SBQ production capacity at OEMK. The results of these efforts are already apparent: Metalloinvest shipped approximately 1 million tonnes of SBQ to customers in 2017, up from 0.9 million tonnes in 2016. The increase in sales of high-margin products and the growth of its share in the supply structure ensures successful results for the company and the strengthening of its financial sustainability.

Completion of the programme will further enhance margins across the product portfolio. Metalloinvest looks forward to increasing its SBQ export shipments and maintaining its position in the domestic market.

By 2021, OEMK plans to increase its production capacity by 300,000 tonnes a year, compared to 2016 levels

21№2(19) 2018IRON MAGAZINE

The future of steel New niches - new opportunities

Traditional steel, notwithstanding the rapid development of alternative materials, is not about to give up its dominant position. In Russia, steel demand increased by 7% in 2017, growing in every sector of the economy. However, not only the traditional steel market is growing, the range of steel alloys is expanding too, opening opportunities to exploit new market niches.

Alexander Bulanov

22 Growth path

Progress in the steel industry will lead to improved steel alloys being widely used in advanced applications, so a successful future for the industry seems to be guaranteed.

Printing from steelToday’s steel market is characterised by fierce competition, hence, companies have an incentive to constantly develop new products to meet continuously

evolving customer requirements and demands. That being so, a priority for producers is to reduce the technological costs of manufacturing. One of the latest methods is industrial 3D printing.

A large-scale industrial production of metal 3D printers began in the late 1990s - early 2000s (the first models were made by the German company EOS). The aerospace industry immediately leapt at the possibilities offered by 3D printing. They were

closely followed by automotive engine manufacturers, medical implant makers and others.

The first opportunity in response to increasing demand was to accelerate existing production processes. For example, whereas previously it might have taken ten years to make an aero engine by conventional means, now thanks to additive technologies the major manufacturers have managed to cut that time to two years. Moreover, 3D printing does not require any

Alexey Merkushev, Head of additive technologies, Regional Engineering Centre of theUral Federal University:

“The 3D prinTers DesigneD aT our cenTre comprise by over 70% of russian-maDe componenTs. ThaT incluDes complex parTs such as lasers, which are maDe by ipg phoTonics (nTo ire polus) near moscow. iT shoulD be noTeD ThaT

jusT 15 years ago The efficiency raTe of lasers useD in 3D prinTing was aT besT 5%. now The efficiency raTe is above 35%, which makes iT relaTively economical To manufacTure meTal parTs by aDDiTive layering.”


must be of the right size (25-30 microns diameter), spherical and smooth.”

The requirements are so strict to ensure the stability of the 3D printing process. Mr Merkushev added: “Not only the material itself is important, but also the temperature, the atmosphere inside the printer chamber and a number of other factors. Being able to control these parameters ensures high-quality finished products that are consistent from one batch to another.”

Currently, a number of Russian companies - PJSC Severstal, RUSAL, Polema and others - produce metal powders of the required specification. The printers themselves are designed by specialists of the Regional Engineering Centre of the Ural Federal University.

Yet, there are still challenges slowing the adoption of 3D printing. They include the underdeveloped state of regulations governing the use of 3D printers in the industry and quality controls of finished products, there is also a lack of qualified personnel. However, these are all solvable issues. In particular, a few years ago the Ural Federal University launched a degree programme in Composite Materials and Additive Technologies, which will produce its first graduates this year. The university also runs training courses for employees of manufacturing companies who work with additive technologies.

CleAring the wAyWhereas metal 3D printing is being developed successfully all over the world, other technologies, such as cold-resistant steels, are an authentically Russian speciality. The main driver behind this is the country’s commitment to explore the Arctic, which necessitates a considerable expansion of the icebreaker fleet.

Russia currently has three super-icebreakers under construction “Project 22220” (named Arctic, Sibir and Ural). The hulls are to be made of the latest cold-resistant steel designed by the Prometey Central Research Institute of Structural Materials, which was first presented in late 2017 at the international exhibition “Materials and Technologies for the Arctic”.

Steel quality is crucial in shipbuilding as the material is continuously exposed to the impact of sea water and large fluctuations in temperature; structures are subject to continuous dynamic loads. Metalloinvest produces steel products that meet all the requirements of shipbuilders: they have passed all the relevant tests and have a consistent chemical composition meeting both international standards and the requirements of the Russian Marine and River Registers.

The production of innovative Arctic steel is characterised by technologies

additional equipment, unlike traditional manufacturing methods like casting, forging or pressing, which saves money.

Alexey Merkushev, Head of additive technologies at the Regional Engineering Centre of the Ural Federal University, noted: “The advantages of 3D printing can only be exploited, if the charge material is of sufficiently high quality- the special stainless steel in powdered form. The 3D printing manufacturers have very specific requirements: the powder particles

Over 10,000 tonnes of shipbuilding steel was supplied for the construction of two multi-purpose diesel-electric icebreakers

For inFormationanother excellent invention by the Prometey Central research institute of Structural materials is an additional (outside) coating of stainless steel applied to the lower portion of icebreaker hulls to provide optimum abrasion resistance and active cathode protection against stray current. it was first used ten years ago on the nuclear icebreaker “Fifty Years of Victory”. Specialists say that, after all the time the ship has been at sea, its outer layer has lost barely a few microns in thickness, whereas on average a loss of 3-4 mm in a single season could be expected.

Russia currently has three super-icebreakers under construction “Project 22220” (named Arctic, Sibir and Ural). The hulls are to be made of the latest cold-resistant steel

24 Growth path

ensuring maximum homogeneity throughout the thickness of a finished rolled product comprising several layers without chemical reactions between layers.

These innovations enabled the steelmakers to apply thermo-mechanical treatments to sheets up to 150 mm in thickness. The result was an unprecedented combination of strength and plasticity, both of which can be specified to fit the intended purpose.

It is also important to say that the new technology serves to minimise the quantity of alloying additives (for example, molybdenum or nickel) necessary in steel of previous generations. Thus, the Arctic steel has only 1% of alloys, and as such substantially cheaper to produce than the alternatives.

Hull elements made from the new material will possess high strength and resistance to extreme temperatures, enabling the ships to traverse extensive ice fields.

“In cold-resistant steels we really are ahead of others,” says Alexey Oryshchenko, Dr Tech. Sci., Head of the

Prometey Central Research Institute of Structural Materials. “If you had to use, say, Korean steel in the hulls of gas tankers plying icy waters, they would become so massive they would be uneconomic to operate. That is no use to anyone. Whereas we offer cold-resistant materials to shipbuilders , that are far lighter and are still strong and resistant to below zero temperatures and corrosion.”

Prometey’s innovative steels are useful for more than shipbuilding alone. They have also been used in, among other places, the ice-resistant Prirazlomnaya drilling platform, the first of its kind. It contains pipes made by the Izorsk Pipe Plant to Prometey’s specifications. As for the use of innovative products onshore, similar steels have been used in the construction of the Bovanenkovo-

TesT smelTingCooperation between the industry and research organisations is particularly important for the successful development and testing of new steels. A good example of such cooperation is the steel smelting laboratory opened at OemK as a joint project between metalloinvest and the national University of science and Technology misis.

The laboratory is currently carrying out experiments on a number of special steels and complex alloys. By creating a vacuum inside the furnace, or inert environment, specialists are able to eliminate admixtures from the working material so as to obtain very clean alloys which may become special steel products.

The possibilities of vacuum-induction furnaces are practically unlimited. “We can smelt entirely novel alloys and make inventions in both ferrous and non-ferrous metallurgy,” said nikolay Repnikov, deputy director for science and innovation at the stary Oskol branch of the national University of science and Technology misis, “but our principal role is to work together with metalloinvest and OemK in particular.”

The smelted prototype materials are sent to the repair and mechanical section and the technical department of OemK where they are thoroughly tested.

it is important to note that metalloinvest and the national University of science and Technology misis cooperate not only in the industrial research, but also on educational projects. For example, one group of students at misis is currently receiving a training in “economics and management at industrial companies” under a programme jointly written by lecturers from the institute and specialists from OemK. The students gain not only the theoretical knowledge, but also a practical experience by undertaking internships at metalloinvest.

“The students of the stary Oskol branch of the national University of science and Technology misis are potential future employees of OemK and metalloinvest,” said Andrey Ugarov, Chief Operating Officer of management Company metalloinvest. “We are interested in attracting highly qualified specialists, so we strive to. create the right conditions for students to learn. essentially, by investing in misis we are investing in the future of the industry.”


Ukhta gas pipeline which withstands severe conditions.

Mr Oryshchenko added: “Our specialists have studied many of foreign-made pipe steels commonly used in gas pipelines. However, these begin to rust within five or six years and pipes sometimes fail. Our pipes are 10-15% more expensive than the ones made from imported slab, but we guarantee 25 years of incident-free service.”

Metallic shineSpeaking about the versatility of modern steels, we should not forget their aesthetic qualities, which many designers and architects find indispensable. Decorative stainless steel, for example, is commonly used as a finishing material in public spaces.

The practical advantages of the material to designers include its ability to be used without further surface protection and also its ease of cleaning, which is very important for maintenance.

As for the artistic possibilities of stainless steel, specialists emphasise its suitability for polishing and texturing, which give it considerable potential in the creation of original designs. Interestingly, modern technology makes it possible to vary even the colour of steel, so it is capable of imitating gold, bronze or taking on sombre dark blue or black hues.

Decorative steel is particularly frequently used in hotels, restaurants, shopping centres, airports, and railway and metro stations.

In touch How customers help producers to grow

The best way for steelmakers today to gain com-petitive advantages is by paying more attention to customer service. The future belongs to producers who strengthen partnerships with their customers, involving them in the development of new products and technologies.

Vasilya Plekhanova

Competition between steelmakers is no longer down to price alone – it also depends on several other factors that are important to customers. Attention

to customer needs is crucial, and all the leading steel companies in Russia are working to strengthen ties with

buyers of their products in order to improve business performance.

Steel companies have several strategies for building successful customer relationships. Most of these strategies have the additional effect of improving production technology, optimising supply chains and reducing product delivery times.

Key customer meetingsHosting meetings with key customers is an excellent way of collecting feedback. Metalloinvest is committed to holding such meetings on a regular basis in the form of joint coordination councils with representatives of its customers. In 2017, meetings were held with United Metallurgical Company (OMK), Pipe Metallurgical Company

26 ManageMent

Research Institute of Ferrous Metallurgy to discuss ways of improving the quality of railway wheels.

Other Russian metals companies have also turned to coordination councils as a useful way of optimising their work with customers.

In-depth surveys and pollsInformation obtained from in-depth customer surveys and polls helps to understand levels of satisfaction with product quality, analyse market processes and assess trends in service provision and product innovation. The company can use this information to adjust its approach to production and sales.

Metalloinvest carries out:• an annual customer survey that

meets the requirements of the ISO: 9001; 16949 quality management system;

• visits to customers and conducting on-site interviews/polls.

Employees from various departments at customer companies of Metalloinvest are invited to take part in the polls.

educatIonal vIsIts Customers visiting their suppliers and vice versa helps to increase customer focus and strengthen the connection between the two parties. Metalloinvest regularly organises educational visits for its customers and sends its own representatives to familiarise themselves with the production facilities of its customers. This is an excellent way for Metalloinvest to demonstrate the quality of its technology and business processes and to better understand the needs and work environment of its customers.

Metalloinvest held more than 600 face-to-face meetings with its counterparties in 2017 alone. Educational visits to Lebedinsky GOK were organised for representatives of OTEKO, TMK and Volzhsky Pipe Plant, as well as foreign partners from Switzerland, Japan, Spain, Turkey, Lithuania, Indonesia, Korea and other countries. Representatives of OMK, TMK, Chelyabinsk Pipe Plant, Voronezhstalmost, Tyumenstalmost and Expatel visited Ural Steel. Additionally, in 2017, OEMK hosted delegations from AvtoVAZ and Gidrosila.

Important visits by specialists of Metalloinvest included the visit of a delegation to Brenco in the USA.

Face-to-face contact with customers facilitates a deeper understanding of their operations, helping the supplier to use their experience and capacities to meet customer needs more quickly and efficiently.

partIcIpatIng In eventsBy taking part in industry conferences, exhibitions and associations, Metalloinvest is able to discuss market development trends, identify potential Russian and foreign clients and learn about potentially-attractive infrastructure projects and government initiatives.

Metalloinvest sends its representatives to both Russian and international industry events. The company is also a member

(TMK), Chelyabinsk Pipe Plant, Russian Railways, truck maker KamAZ, and several other Russian companies. Metalloinvest lends special importance to coordination councils with OMK and TMK, which took place in 2018.

Metalloinvest has supplied pipe billets, flat products, long products and hot briquetted iron to TMK enterprises for many years, and a TMK-Metalloinvest meeting was recently held at the Volzhsky Pipe Plant, which is a subsidiary of TMK. Matters that were discussed included:

• rolled steel product deliveries to Volzhsky from Ural Steel;

• further development of flat product production;

• possible expansion of billet deliveries by Metalloinvest to other TMK plants.

The coordination council with representatives of OMK was held at Ural Steel and discussions were focused on supplies of concast billet from Ural Steel for the production of railway wheels at the Vyksa Steel Works (part of OMK, located in the Nizhny Novgorod region). The council agreed:

• to carry out joint work to identify and investigate all instances of defects in railway wheels produced at Vyksa;

• to hold a joint meeting with specialists from the Bardin Central

Digital transformation has become a necessity, otherwise it’s not possible to adjust to the changing business environment

More than 600 face-to-face meetings of Metalloinvest representatives with counterparties in 2017


of the International Metallurgical Manufacturers Association (IIMA), and a Metalloinvest representative works on the IIMA board. The Association brings together companies specialising in the production and use of metal resources for steelmaking and foundry, carries out research and prepares analytical materials.

DigitalisationYuriy Gavrilov, Strategy, Development and Transformation Director at Management Company Metalloinvest, points out that, in just a few years, digital transformation has progressed from a vague idea to a make-or-break issue for companies, who must introduce digital solutions in order to survive. Hence, in 2015, the management of Metalloinvest committed to transforming the company business using digital technologies.

The timely introduction of new products to the market, responding to customer needs, making deliveries, etc., is more important today than ever before. However, this is also harder to achieve than ever before, as customers demand complex, tailor-made products rather than standardised alternatives, and ask for additional technical features,

18 functions are covered by the Industry 4.0 comprehensive digital transformation programme

Metalloinvest constantly monitors the quality and conditions to facilitate the careful loading of its products

special packaging, unique transportation arrangements, and more.

Making quality products in a timely manner and anticipating and meeting customer needs is impossible today without automation based on digital solutions.

Metalloinvest chose SAP products as the foundation of its digital transformation. The company has installed the SAP S/4HANA digital core as the basis for its integrated financial and business management system.

The company is also implementing more than 20 add-ons to the integrated management system in order to successfully implement the Industry 4.0 comprehensive digital transformation programme. The add-ons include:

• transformation of 18 functional areas, including sales management,

procurement, repairs, volume planning, IT and warehousing;

• additions to multiple projects (‘quick closure’, ‘electronic document exchange’, ‘contract work’, ‘information security’ and ‘self-service’) and a manufacturing execution system (MES). Installation of the MES alongside the integrated financial and business management system ensures integrity of the IT system, as well as speed and reliability of data processing.

Lebedinsky GOK and Mikhailovsky GOK launched an integrated financial and business management system on 1 July 2018, as part of the first wave of Industry 4.0. The installation was carried out remarkably quickly (work began in October 2017) and included a detailed survey of the enterprises as well as more than 3000 organisational changes, six

28 ManageMent

of which are designed to transform the repair, procurement, sales, production, IT and logistics functions.

As a result, more than 4000 employees at the aforementioned enterprises now work on a single platform that centralises end-to-end business processes. A huge array of reference and regulatory information has been transformed into “clean data” as part of the work. The new platform is gradually replacing more than a hundred production and management systems.

The second wave of Industry 4.0 began on October 1 and focuses on OEMK and Ural Steel. Solutions implemented in the first wave will be adapted for these two enterprises, taking account all the lessons learned. Completion of the second wave is scheduled by mid-2019.

A full-feature electronic trading platform will be developed as part of the Industry 4.0 digital business transformation programme. The first stage was already completed last

year when the company launched an electronic product catalogue (products.metalloinvest.com), which won the gold award of the Rating Runet-2018 national contest for sites and applications in the business services category. The catalogue is a highly-effective tool for interaction between Metalloinvest and its partners. Customers can view the full the range of products made by company enterprises and submit an online purchase application to the sales team.

The task today is not only to meet customer needs, but to offer additional benefits, working with customers to develop new products and propose comprehensive technical and financial solutions to their problems. As a result, Metalloinvest can be viewed not just as a supplier of steel products, but valued as a genuine partner.

The carrying out of cargo inspections in ports is one way to increase client loyalty

The firsT waveresults of the first wave of industry 4.0 at Lebedinsky GOK and Mikhailovsky GOK:• transition to the single integrated saP s/4haNa system;• transferring calculation of employee payroll to saP s/4haNa;• creation of a single book of reference and regulatory information, unification of technical repair maps;• unification of organisational structure and processes with improved consistency and data quality and transparency of business processes;• increasing the integration between various functions at the plants;• transition to real-time reporting on production and shipment operations;• automating the receipt of procurement needs for production, repair and investment functions.


30 Sign of quality

Clean steelHow steelmakers aim to reduce their impact on the environment

For a long time it went without saying that the steel industry was worse than all others for adversely affecting the environment. But now steelmakers are among the biggest investors in environmentally friendly technologies. Here we examine what made them start to care about the natural world and how the quality of their output is affected.

Olga Krutova

For many years, the environment was simply not something that Russian industry concerned itself with. In Soviet times, the country needed steel; when the

USSR collapsed, the steelmaking giants had to learn to survive in new economic conditions. At first, there was no time to worry about nature; then there was no money. Nowadays the environmental component is integral to all modern business and part of becoming competitive.

Line up for sustainabLe deveLopment

“The whole world now acknowledges the priority of saving the climate, cutting emissions and reducing human impact on the environment,” says Andrey Varichev, the CEO of

Metalloinvest Management Company. “Consumers prefer environmentally friendly products and, increasingly, they look at the whole of the production chain. We have become accustomed to wondering, when we buy milk, what the cows were fed on. We accept as a matter of course that vegetables are more expensive if they are organic and free from chemicals. The same goes in other areas too: people won’t buy a car if it is made of steel produced in polluting factories. Investors won’t buy corporate bonds from a company which damages the environment.”

nvironmental protection is part of a sustainability concept which is integral to Metalloinvest’s long-term strategy - a key factor in its future competitiveness.

Sustainable development is more than just fine words. It has proper

Over 6 billion roubles Metalloinvest annual investment in environmental protection programmes


scientific and economic grounding. In line with the UN World Commission on Environment and Development definition, sustainable development means development which improves people’s living conditions without exceeding the capacity of the biosphere to absorb the effects of human activities. The term has a quite concrete meaning in the context of business. It means engaging in economic activity without causing irreversible changes to the natural world or jeopardising your ongoing presence in the region.

Accordingly, no company can achieve qualitative long-term growth unless:

• the regions where it is present enjoy socio-economic stability;

• the interests of all stakeholders - employees, local residents, partners, consumers, investors, financial institutions and the state - are in balance.

This is why major steelmakers voluntarily undertake annual investments in environmental programmes. Metalloinvest, for example, invests over six billion roubles every year in such projects.

EnvironmEntal cErtification In any large company, environmental protection depends on a systematic approach. Therefore, the major players in the steel business are introducing environmental management systems (EMS). Metalloinvest operates an ISO 14001 EMS with planned and recertification audits. All the Company’s major businesses - Lebedinsky GOK, Mikhailovsky GOK, OEMK and Ural Steel - retained ISO 14001 certification in 2017.

Large enterprises are audited in detail. At Lebedinsky GOK, for example, experts from the

12 years Period for which Lebedinsky GOK’s ISO 14001 certificate is valid

environmental audit company Econedroconsult made:

• site visits to the crushing and sorting, beneficiation and pellet, and HBI plants,

• examinations of documentation and

• assessments of work stations and the environment.

The audit showed the company’s EMS to be compliant with the international standard. Its industrial processes and products are environmentally safe.

“Recertification against international and national standards is voluntary. Lebedinsky GOK’s thorough and open approach underlines the company’s social responsibility and reflects the priorities of management,” said the head of Econedroconsult, Galina Petrenko. “The certificate is proof of compliance with the international standard on the use of natural resources. It shows that Lebedinsky GOK is operating in accordance with the company’s mandatory environmental policy.”

Lebedinsky GOK’s certificate is valid for 12 years with recertification every three years.

EnvironmEntally friEndly raw matErialsThe environment is already a significant factor in projects currently underway to modernise old and create new facilities. Lebedinsky GOK commissioned its HBI-3 Plant - one of the world’s largest using MIDREX technology - in 2017 as part of the Russian Federation Year of Ecology.

Hot briquetted iron (HBI) is an innovative raw material. It is over 90% iron, chemically consistent and over 93% metallised. It is obtained by direct reduction of iron in ore pellets. First the pellets are sent to furnaces where the iron is reduced by reducing

gas consisting of a mixture of carbon monoxide and hydrogen. The reduced pellets are sent still hot to roller presses and formed into briquettes at high temperature (ca. 700°C) and pressure. The HBI process is currently the most environmentally friendly way of obtaining iron. It eliminates the emissions associated with the production of coke, agglomerate and pig iron, and solid residue in the form of slag. By comparison with pig iron production, the HBI process is 35% cheaper in terms of energy and emits 60% less greenhouse gases.

“Lebedinsky GOK is uniquely well suited to the creation of a complex and expensive HBI facility

- it combines a rich resource base, efficient iron ore beneficiation capacity, and access to energy and gas pipelines,” says Andrey Varichev.

“The decision to build HBI-1 in the late 1990s was bold - even revolutionary

- but has been vindicated by experience.”

The focus on the environment also creates new opportunities for producers to strengthen their position in the market for high-value-added products. “Which primarily means SBQ steels,” explains Andrey Varichev.

“Metalloinvest is in a position to offer customers SBQ produced with minimal environmental impact at all stages of the process from ore mining at the Lebedinsky GOK mine to direct reduction of iron and steel smelting in OEMK’s electric furnaces.”

GrEEn modErnisationMetalloinvest invests annually in plant modernisation, the latest filters and systems to clean up waste gases and water, and land rehabilitation. Analysis by independent laboratories confirms that the Company’s businesses are well under the environmental impact limits prescribed by law.

“By using the latest environmental protection technologies we can reduce our operating costs,” says

32 Sign of quality

60% Greenhouse gases saved by HBI compared with pig iron

Over recent years, Lebedinsky GOK’s light aircrafts have conducted “ecological flights” as part of its dust control measures

Andrey Varichev. “In 2015, we commissioned the Pellet Plant #3 at Mikhailovsky GOK. It is fired by gas recovered from the ore pellet reduction process. Process water is recycled. Consequently, we reduce both emissions and our energy costs.”

In 2017, the amount of water recycled by Metalloinvest businesses increased by 3.3% to over three billion cubic metres. Process water is recovered and stored in special reservoirs to prevent it from leaking into the soil.

At OEMK, following modernisation of the gas-cleaning plant, atmospheric emissions have

been reduced by 2.5 times and the concentration of dust in gas emissions 3-fold.

In the last decade, atmospheric emissions have been successfully cut by a third at Ural Steel. Environmental protection measures have led to an 85% reduction in the amount of dust in the air at Lebedinsky GOK. Work has been done to reduce emissions and waste at Mikhailovsky GOK. Thanks to these efforts, Metalloinvest’s impact on the environment is significantly lower than the state’s acceptable limits.

In recent years the Company’s businesses have adopted the practice

of burying industrial waste in designated areas. Landfill sites are designed to meet all environmental protection requirements by using the latest technological and design solutions and low-permeability materials.

“Our specialists,” said Elena Timofeyeva, state inspector at the Orenburg regional directorate of the Federal Service for Supervision of the Use of Natural Resources (Rosprirodnadzor) “appreciate Metalloinvest’s principled attitude to waste. As of today, they are one of the few Russian companies to have addressed industrial waste disposal in a civilised way at plants including Ural Steel. Building an environmentally friendly facility costs time and effort, but is very necessary to improve the environment in the region and the country as a whole.”


Men of steelPioneers of modern Russian steelmaking

Russia experienced rapid industrial growth in the second half of the 19th century. Expansion of the engineering, arms and transport industries depended on the supply of high-quality steel. Russian metallurgists took up the challenges of the modern age and made revolutionary technologi-cal breakthroughs.

Olga Krutova

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Pavel anosov,ahead of his timePavel Anosov was born in 1797 in St. Petersburg to the family of the secretary of the Berg-Collegium (a government institution for management of the mining industry in the Russian Empire – Ed. note). He was brought up in the house of his grandfather, Lev Sobakin, a gifted engineer at the Kama mining and iron-working factories in the Ural region, east of Moscow. After graduating from the St. Petersburg Mining Cadet Corps, Anosov began work as a trainee at the Zlatoust

arms factory. Two years later he became superintendent of the factory, before being promoted to the role of managing director. In 1847, he was appointed head of the Altai iron-making factories and governor of the city of Tomsk in Siberia. Anosov was a key figure in the modernisation of Russia’s metallurgy industry.

Expanding the raw material base in the Urals. As manager of the Zlatoust factory, Anosov did much to develop the potential of local raw materials for iron making. He led exploration work to discover new ore deposits and worked on the mapping of mineral resource distribution in the Ural Mountains.

Launched the domestic production of crucibles. In the second half of the 19th century, crucibles were the main tool for steelmaking; however, they could only be purchased abroad and were expensive. Anosov developed high-

Aged 50 Pavel Anosov was appointed head of the Altai factories and governor of Tomsk

Pavel Anosov

quality and relatively cheap crucibles (40-50 kopecks each) for use at the Zlatoust armaments factory, using local refractory clay mixed with finely crushed charcoal.

Learning to make high-quality cast steel. In Anosov’s time, steel was made by carburizing iron, which was then melted in crucibles. Anosov proposed combining these two processes, proving that it was possible to carry out surface saturation of iron with carbon by means of furnace gases, which contain carbon. This method was called «gas cementation of metal».

dmitry Chernov,imProving the quality of steelDmitry Chernov was born in St. Petersburg in 1839. He graduated from the St. Petersburg State Institute of Technology and began his career in the engineering department of the St. Petersburg Mint. In 1866,

Dmitry Chernov


he was assigned to the largest steel and gun-making enterprise in Russia, the Obukhov factory, where he served as chief metallurgist. He worked for almost 30 years as a teacher, becoming a professor at the Mikhailovsky Artillery Academy, where he was in charge of the metallurgy department and lectured on steel and iron foundry techniques.

Discovery of factors affecting the quality of steel. During his time at the Obukhov Factory, Chernov investigated the causes of frequent steel defects in guns. He found that the steel at the places where gun barrels most often ruptured had a coarse-grained structure, while the metal in defect-free weapons had the same chemical composition, but a fine-grained structure. Chernov used experiments to establish the relationship between thermal transformations and the properties and structure of steel. He proved that the decisive factor for obtaining high-quality steel is thermal, rather than mechanical, processing.

Inventor of metallography. Chernov pioneered the theory of the structure of metals and alloys. His method for the construction of diagrams showing the internal transformations, which occur when steel reaches critical points, were prototypes for the subsequent development of fusibility diagrams and diagrams showing the state of equilibrium systems. Chernov’s work led ultimately to the emergence many years later of thermal analysis, which is the principal laboratory method for studying saline solutions, metal alloys and many other substances.

Improvement of the Bessemer process (transformation of molten iron into steel by blowing air through a converter – Ed. note). Chernov made improvements to the construction of Bessemer converters and divided the process into four parts, defining the precise start and end of the process for the first time.

Vladimir Grum-Grzhimailo,Furnace masterVladimir Grum-Grzhimailo was born in St. Petersburg in 1864 and graduated from the St. Petersburg Mining University. He worked for more than 20 years at Ural metallurgy plants in Alapaevsk, Nizhny Tagil, Nizhnyaya Salda and Verkhnyaya Salda. He headed the department of steel and furnace technology at the Ural University where he designed courses on steel production, steel rolling and calibration, and the hydraulic theory of metallurgy furnaces. Grum-Grzhimailo published more than a hundred works on mining and was a corresponding member of the USSR Academy of Sciences. His book Steel Production was the main textbook

for students of ferrous metallurgy in the USSR for more than 20 years. After 1924, he designed metallurgical and factory furnaces at the Moscow Office of Metallurgical and Heat Engineering Design, which he also set up.

Design of blast furnaces. In his first year working at Nizhny Tagil steel plant, the young Grum-Grzhimailo was instructed to redesign the blast furnace for smelting of ferro-manganese. His design, which used blast-furnace gas to heat air, doubled furnace productivity and reduced losses of manganese during the alloy smelting process by seven times.

A new hydraulic theory. The hydraulic theory of Grum-Grzhimailo was the first attempt in the world to create a scientific method with general application for calculating furnace parameters. It was described in detail in his book Open-Flame Furnaces and widely recognised both in Russia and abroad.

The design of a number of industrial furnaces was based on the principles described by Grum-Grzhimailo:

• continuous furnace (heating of ingots prior to rolling);

• forging furnace (heat treatment of metal);

• drying furnace;• annealing furnace;• open hearth furnace.Grum-Grzhimailo’s hydraulic

theory was the basis for the design of 800 furnaces, which were built and successfully launched into operation.

Increase of 2.5 timesin productivity of the rail rolling workshop thanks to the design proposals of Vladimir Grum-Grzhimailo

Vladimir Grum-Grzhimailo

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