OREANDA-NEWS. April 30, 2008. ESTAR Group announced launching of a large investment project to the amount of RR3.8 bn for construction of electric furnace steelmaking facilities at JSC Novosibirsk metallurgical plant named after Kuzmin (NMP). The project will enable the plant to get rid of dependency on its main slab supplier – JSC West-Siberian metallurgical plant, whose rates do not allow the Novosibirsk plant to work at a profit. Novosibirsk authorities are ready to subsidize the project to the amount of RR383.2 mn.

Yesterday, the investment committee under the Novosibirsk region governor was submitted a project of NMP upgrade at the value exceeding RR3.8 bn. During the presentation, ESTAR co-owner Vadim Varshavsky emphasized that a brand new plant will be constructed as a result of the project implementation. Besides, as he put it, the project will enable NMP to get free of raw material dependency, since “the plant is still operating on supplied slab blanks, unit costs of which account for 80% in the NMP finished products”.

NMP was founded in 1942. In 2007, the plant cast more than 31 ths t of hot-rolled steel sheet (a 117% increase vs. 2006), 7.9 ths t of cold-rolled steel sheet (a 119% increase vs. 2006), 5.59 ths t of cold-rolled strip (a 116% increase vs. 2006). Sales of commercial products surpassed RR6.5 bn. NMP is a part of ESTAR Group.

ESTAR Group, which acquired ownership for NMP in 2005, encountered a raw material problem at the Novosibirsk metallurgical plant due to the fact that some slab suppliers shifted towards new products and others – raised their prices. At present, NMP buys slabs at the West-Siberian metallurgical plant (ZSMK, Novokuznetsk, Kemerovo region) which is a part of Evraz Group, to the volume of 20,000 t monthly given demand for 40-45,000 t. Initially, ESTAR revealed its willingness to purchase Stal NK LLC in Novokuznetsk (previously, produced 1.2 mn of melted steel yearly), but it failed to reach agreement with the owner of Evraz Group. Then, it acquired Gurievsk metallurgical plant from ITF Group Holding, which was specializing in manufacturing of equipment for mining industry, which ESTAR top managers hoped to convert for the production of slabs. The idea also fell through.

As the deputy managing director at NMP Alexander Usachev told the committee yesterday, the project will take 5 years until 2012. The first stage implies development of its own steelmaking facilities, which would allow to produce 550 ths t of slab blanks yearly and virtually meet demand of the plant in the raw materials. With commissioning of a new strip mill instead of hot-rolling mill at the second stage, the capacities will be raised to 700,000 t of slabs. The third stage implies construction of an electric welding pipe mill to produce pipes of medium diameter for oil and gas pipelines, as well as general purpose pipes. Own funds of the plant and ESTAR Group will make up RR2.6 bn of the total volume of investments, with the rest to be funded through borrowings. According to the experts, creation of such production facilities is a recent trend in metallurgy. “The reason beyond it is application of more advanced technologies, as well as escalating prices for raw materials used in outdated blast-furnace process”, explained analyst from Finam Investment Company Denis Gorev to Kommersant. At the same time, he emphasized that electric furnace steelmaking “may be effective only provided there are no problems with metals in the region, applied for such steelmaking, and prices are adequate”. The analyst also believes that ZSMK is unlikely to get seriously damaged by loosing NMP as its slab consumer: “Evraz Group has lots of opportunities to deliver its products to other Russian consumers, as well as export opportunities”. Evraz Group press service refused to comment on its partners’ plans to Kommersant.

Sponsors of the investment project to upgrade NMP requested aid at the regional authorities to the amount of RR382.3 mn for the whole period of project implementation through subsidizing of the interest on a bank loan, as well as certain property tax and profit tax privileges. NMP promised to increase tax payments to the consolidated budget from RR103.8 mn in 2007 to RR370 mn in 2013.

Novosibirsk governor Viktor Tolokonsky pointed to “crucial importance” of the plant upgrade in the region, and committee members, having approved the project, decided to provide the aid.