Mordashov Steels Severstal for the Auto Industry

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After Alexei Mordashov appeared among the Russian industrialists assembled for last summer's high-profile meeting with President Vladimir Putin, Mordashov began to get something of a reputation as an oligarch himself.

The head of leading steel producer Severstal reacts rather nervously to this description. He prefers not to be linked to politics but to be known as a manager. He also doesn't like "aggressive takeovers," favoring "amicable purchases" instead.

According to the Severstal press service, the company acquired shares in the Ulyanovsk Automobile Factory, or UAZ, on the open market — but only after representatives of the combine had met with the factory's management, other sources say.

Q:
Why did Severstal come to the Ulyanovsk Automobile Factory?
A:
In my opinion UAZ is the most promising car plant in the country. Other factories operate in places where competition is much higher. UAZ has extremely high export potential, and exporting cars to the Third World could be a very promising business. We are counting on production doubling or tripling at UAZ, which will clearly lead to an increase in its cost and prices, but will also result in increased tax proceeds for the budget. We will work on improving the construction of our off-road vehicles. On the other hand, I think it is pointless to have a high-quality UAZ automobile at the price of a Toyota. Off-road vehicles should be reliable and inexpensive.

Q:
Why are metals concerns starting to take an interest in the automobile industry? You aren?t buying GAZ [Gorky Automobile Factory] are you?
A:
Not us. As far as investments in the automobile industry are concerned, this is natural. We need points of leverage, which should include the car industry. At the end of the day, one has to diversify. Steel is a useful product of course, but no one is making any discoveries in this sector anymore. Consumption is falling, and steel has turned into rather a simple product with quite high-added cost. The market is overloaded, and no one is making any money on it anymore. There are few people who can come up with anything new. The steel production process is a cyclical one. We have good years — we have bad ones. These were good years — we have been paying a lot in taxes.
Our profits have increased 2 1/2 times this year. There has really been a positive state of affairs on the steel market. But lean times always follow the fat.

Q:
Metals ventures are not buying only into car factories. The Seversky and Volzhsky pipe factories have been bought up, as has the factory in Taganrog. What kind of tendency is this? Aren?t you buying anything?
A:
We have our own pipe project. Naturally, we are working with pipe factories, but hostile takeovers aren?t our style. The most important thing for us is not to simply buy something, but rather to do business. In the pipe business, and particularly in connection with metallurgy, you have high profits and high-added costs. Of course, we are interested in pipe factories. But most of all, we are interested in cooperation ? not hostile takeovers ? but cooperation.

Q:
But all the same it would be interesting to know what you think about these tendencies. The press reported that you bought a controlling stake in the Kolomensky Diesel Locomotive Repair factory. What do you gain from controlling this factory?
A:
Diesel locomotive repair is a very promising field with significant possibilities for export. Generally, Russian heavy industry and automobile construction has huge potential. Firstly, the Kolomensky factory is a major buyer of metal products, and we, naturally, are interested in the sale and processing of metals, first and foremost in Russia. The city of Kolomna with its population of several thousand is dependent on the factory. Secondly, the factory can be used for other types of activity other than its principal designation [the repair of mobile train parts] such as the production of mini-power plants that run on diesel, even mobile ones. Many people are interested in this. It is what we call the small energy sphere.

Q:
Apart from automobile and pipe factories, the metals enterprises are actively fighting for control over the coal mining associations. At Severstal, you are using coal-dust injection techniques. Won?t you have problems with a lack of coal? And if major enterprises move to using new technologies, won?t there be a surplus of coal on the market?
A:
It?s not our fault if demand for something falls. It?s a market. We have a contract for several blast furnaces where this coal-dust injection technology will be employed. All furnaces in Europe and America are fitted with this kind of equipment. The owners of [coal enterprises] must find alternative markets.
As far as the struggle for coal organizations is concerned, there is a deficit on the coking coal market. The struggle for raw materials is connected specifically with this. There is an idea for vertically integrating metals companies with coal mines, and this is more or less what?s happening on the market. Only metals enterprises, which in general are buyers of coal mining associations, must understand that as well as the enterprises, they are also acquiring social obligations.