Metals and polymers: Capacity of Ukrainian market color coated coils will be increased

Nowadays not nearly all representatives of the steel industry have the possibility to place their stake on the domestic market increasing. Financial crisis has considerably undermined the investment plans, however even in these conditions it is possible to find the niches of the domestic manufacture growth that can be considered as flagrant necessity.

Company “Metals and Polymers”, started the construction of the plant for production of galvanized and color coated coils in the middle of the past year and continues the project's realisation in accordance with the earlier mentioned target dates. Alex Dvoinos, one of the directors of the company, told us about production and marketing plans.

Alexander, from where did the idea of plant construction in Alchevsk take place?

Today the galvanized coils’ consumption per head of population is 12-15 times less than in USA. Until recently OJSC “Ilyich Iron and Steel Works of Mariupol” was an exclusive producer of these products that can not cover the demand for galvanized coils in all market segments. At the same time market capacity is steadily increasing. Generally the idea of galvanized line construction in the Ukraine firstly appeared at former owners of “AZST-Kolor” in 2002 (later this idea was fulfilled at the plant “Module”, Kamenets-Podolskiy). At that time the first negotiations with the company “Bronx International Pty Ltd” took place (this company appeared “on the horizon” at the end of the 90s). At that time, the plant on production of the galvanized stock was constructed in Estonia (Former Galvex) and Bronx International was regarded as one of the potential equipment suppliers. The first close contacts we had with this company was during the engineering process of the construction project of the continuous galvanized line at AZST-Kolor. The result of this cooperation was the realisation of the project at Samara Reservoir Plant, that has been the first experience of construction of continuous galvanized and color coated lines of Australian origin in Eastern Europe. Later the realisation of the same project started in the Ukraine.

What conditions for start-up of such a project realisation should be created?

In order to start the construction of the plant on coated stock manufacturing it is necessary to have the following: a reliable partner and a strong team. We have both of these important components.

What design face do you have at the present moment?

We’ll have a production line equipped with furnace instead of liquid flux as distinguished from the line, placed at Samara Reservoir Plant, so we can use either annealed or unannealed hot rolled coils. The line capacity is higher: nominal capacity is 100 000.00 tons annually. Color coated line differs from one, installed in Samara. If the simple, two-passed line is mounted in Samara, we’ll have a completely continuous line that paints the coils in one pass (passivation, prime coater, finish coater). This line will include IR ovens for prime and finish coatings, and moreover the coaters give the opportunity to change the type and color of the coatings rather quickly. Also the hot laminator assembly is provided. The annual capacity of color coated line is 70 000.00 tons. The range of lines is: galvanizing line produces the coils with thickness - from 0.2 to 0.6 mm; color coated line – 0.2 -0.8 mm with width for both lines 1250 mm. In addition our line can produce the color coated coils with aluminum.

The main task of our enterprise is manufacturing and sales of the coils with polymer coatings. We are planning to sell about 30 000.00 tons of the galvanized coils per year as the consumers of the galvanized coils are the purchasers of the color coated coils at the same time.

Can you give us the estimation of the steel equipment market for organisation of similar manufacturing? To what extent does the machine building enterprises charge with the orders?

It depends on the concerned engineering companies. The Company Bronx International is a rather big company, but it is highly specialized at the same time. They offer nothing except for galvanizing and color coated units, in contrast to the big concerns as SMS Demag, Danieli, Voest-Alpine, etc. These companies can provide all equipment, starting from blast furnace up to rolling mills for producing of million tons per year. That’s why they “suffer from gigantomania” in cases with galvanized or color coated lines. Respectively the cost of their production lines is higher. At the present time all machine building enterprises are full for producing of galvanized and color coated lines as the world-wide tendency to capacity growth has taken place. But we can not say that someone queues up for the equipment, it is easy enough to place an order on production of galvanized or color coated equipment.

Meanwhile the engineering companies are passing through tense times nowadays because of revision of steel development strategy. It is necessary to point out that we have received the offers from other suppliers of the big European corporate groups during the stage of selection – the cost of lines was two times higher as compared with Bronx equipment. Moreover, the Australian specialists are considerably specialized in supplying such equipment, taking into account increased focus of their company. For instance, Danieli reference list numbers 7 or 8 lines, while Bronx has 41! Produced materials and trade mark of Ruukkii are well known, but only a few know that its first color coated line was supplied by Bronx. Besides, the previous positive experience had an effect on the supplier choice.

You will consume semi-finished rolled coils in capacity of raw materials. Will you have any problems as for supplying of these products for requirements of galvanizing line?

Our main advantage is that we are rather 'small manufacturing', so we do not need big quantities of the raw materials. Our galvanizing line can run on annealed temper-rolled coils that are considered as finished product (in contrast to “cold-worked” material) and therefore we’ll have no problems with its purchasing. Besides the potential suppliers of the cold-rolled coils will be satisfied with appearing of the new consumers of their products in connection with reduction in sales.

Obviously the main part of raw materials will be purchased in Russia and near abroad countries. Concerning strong competition for Russian Steel Works at the Ukrainian market of galvanized and color coated coils they have never had any dominance in Ukraine (as shows long-term practice). Working experience of “Module” argues that if the Russian Works were aimed at severe competition they would not be supplying cold-rolled coils to them. We do not close out the possibility of purchasing the cold-rolled coils in Ukraine – at “Zaporozhstal”, but we have some restrictions on required thickness and width of the coils.

What are the advantages of an independent manufacturer of the coil coated coils?

It is necessary to have own galvanized coils, to be rather small, to be presented at the market with a few local manufacturers and be flexible as for service (delivery volumes, color, etc.)

What is the trade direction of the products, produced by your enterprise in future? Do you see any special “undeveloped” niches?

At the present time our potential customers are purchasing the imported material, they are the levellers and sandwich-panels’ producers. We are planning to sell the galvanized coils to the manufacturers of different specialisations, on a whole, this will be the construction sector. There is not any new consumption segment in Ukraine.

And what about automobile industry?

This is a special aspect. Firstly, this segment of coated coil market consumes only 12% of the world production. Secondly, all the automobile coils’ producers have had a frame contract with automakers for 3-5 years. Thirdly, any automobile plant will not sign the contact with the independent producer of the galvanized coils and work only with the manufacturer of the cold/hot rolled coils, etc. Automobile body-sheet is produced at the integrated iron-and-steel works all over the world. Besides, the cost of the production line, specialized in coils for automobile industry is considerably higher because of technical peculiarities.

How much will the crisis influence on the coated coils’ market of Ukraine? And when do you assume the renewal of the former demand level?

There are a lot of uncompleted buildings in Ukraine which should be finished sometime in the future. Now it is difficult to assume the influence level of crisis but nevertheless the market will subsist. Sooner or later the money will be recovered to the economy and the consumption will start to increase. We can compare Ukrainian market with the Turkish one. Both countries are located in one region; their population and economy are similar. Two years ago coils’ consumption in Ukraine was approximately 1.4 million tons that includes 1 million tons, used for construction purposes according to the official statistics. Herewith the consumption per head of population was 10 times less than in USA. That’s why if we come up to such a level, this will mean two-fold increasing of the consumption level as compared to figures of 2008 year. In any case market demand for coated coils will grow as there is no suitable alternative for these goods now.

Import volume considerably increased last year. What happens with import in future?

Until we “leapfrog” with hryvnya, the importers will be in involvement. But this can not last for a long time; sooner or later the situation will change. Taking into account market growth the import volumes will increase, especially concerning the market of color coated coils. The world tendencies show that coils with polymer coatings replace the galvanized coils step-by-step. We have only 2 manufacturers of color coated coils in the Ukraine, one of them (“AZST-Kolor” – Ruukkii) paints the coils mostly for own requirements. So the domestic enterprises can not cover all market demands of Ukraine.

How does your company settle a point with the specialists for the needs of future manufacturing?

One of the reasons for production building in Alchevsk is that it is the “town of metal-makers”. Here you can find Iron-and-Steel institutes and therefore highly skilled specialists. We have already been solving this point without any problems in this direction.

Does your company have any plans for consolidation with any major holding that is interested in Ukrainian market?

Everything has its own value. When we started the given project we did not contemplate selling it. We would prefer another way. At the present time we are realizing the first production stage, but we are planning the second stage too. When the producer is a well-established trade mark, it’s a real time for capacity “upgrade”. After start-up of the galvanizing and painting lines we are planning to construct cold-rolling mill and pickling line. In this case the manufacturer receives more advantages (i.e. possibility to produce own semi-finished rolled product) and consequently the efficiency of engineering output increases.

You have an idea, capabilities and team for idea implementation. What difficulties does the investor face?

The first impediment is illogical requirement of Ukrainian legislation as for payment of VAT while importing production equipment. The new production is constructed, the high-technology equipment is imported, the workplaces are provided, and at this stage the investor is encumbered with money costs. Actually the state doesn’t encourage the business development, and even hampers it – the investor is reluctant to pay substantial sums as taxes’ repayment at the initial production stage. At the same time the business entity can not carry out its legal rights under the pressure of “manual” regulation of Ministry of Economic Affairs of Ukraine, State tax administration and other bodies. Also the whole authorisation system of Ukraine presupposes the fair quantity of documents for importing, performing customs clearing, equipment certifying and standardisation, obtaining the licenses for construction, etc. In a word the “freedom of enterprise” is more likely a declamation than reality.

What facilities should be provided for efficiency of this business in the market?

Firstly it is necessity to mention the existence of the market. The advantage of the manufacturer over the trader is that the manufacturer is able to supply the full range and any quantity of the goods. Any trader can not provide all range of colors and dimensions of the coils at the stock, besides delivery terms are rather long-lasting. We understand that the independent producer should not pursue to production capacity but create the service system for the consumers, i.e. maximum flexibility as for dimension and color range required by the particular customer. The present situation shows that enterprises focused on the internal market will surmount the crisis with smallest losses.

Correspondingly we are going to work in this direction. Worldly, the Ukrainian market capacity will increase. After a crisis always comes a period of activity, consumption volumes will grow in that segment. Besides nowadays we are at the construction stage and in accordance with the contract terms the test run is fixed in November 2009. Actually we are planning the start up of the color coated line in September and galvanizing line a little bit later.

What will include the second stage of your project?

We are thinking about pickling line, cold-rolling mill and another line for production of color coated coils. Probably we’ll construct the combined line for galvanizing and painting in one pass. Capacity growth of the “coated” coils is required as the capacity of reversing cold-rolling mill will be approximately 300 000.00 tons annually. If we are going to install this machinery we’ll have to use it fully.

 

Coil Coating Lines, Galvanizing Lines, Pickling Lines and Cold Mills can all be supplied by Bronx International.