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Annual Report & Accounts 2012

Research & Development

The steel industry has undergone significant structural change over the last five to seven years. Producing quality steel products is no longer enough to maintain leadership in the field; today, we have to adapt to the constantly evolving needs of our customers by offering them the best price-to-quality ratio. Therefore, research and development (R&D) is central to our business culture and the key to our future success.

NLMK has historically provided a platform from which new technologies have been developed. These technologies have been adopted successfully, initially by other companies within the sector and then, as a result, they have spread around the world. For example, we developed the technology for the combined use of BOF production and casting of steel in continuous casting machines, which is now used universally.

A commitment to innovative ideas lies at the heart of NLMK’s business culture. Flexibility, willingness to adapt to new conditions and a spirit of innovation are each important components of our success. We encourage our employees to develop and to introduce new technologies. In cooperation with our customers, we develop new or adapt existing solutions that fully meet consumer requirements and offer the best options to help our clients improve their competitiveness. Furthermore, we actively cooperate with specialist universities and academic and research institutions when developing new industrial solutions.

An ability and willingness to change will distinguish the company of the future; without these qualities, it will be impossible to maintain and strengthen market position over the coming years.

Today, the NLMK Group employs around 1,174 staff in R&D and their work has resulted in approximately 200 active patents. Over the last five years, approximately RUB 7,476.2 million (US$ 257.9 million) have been invested in innovative R&D in the following areas:

Increasing our operating efficiency.

Improving competitiveness by developing new products that satisfy customer needs.

Increasing energy efficiency, and

Minimizing our environmental footprint.

Altai-Koks gets patents for charge preparation innovations

Rospatent, Russia’s Federal Service for Intellectual Property, has granted Altai-Koks patents for two inventions relating to a method for preparing charge coal for coking and to the composition of the charge.

The Group’s specialists have proposed adding granulated coal-tar pitch to the charge and using it in the coking process as a sintering component, which has a positive effect on the qualitative characteristics of the coke. A new pitch granulation plant was commissioned in May 2012.

The introduction of pitch to charge coal allows the consumption of high-quality brands of coking coal to be reduced, replacing them with lower quality grades while retaining the required quality in the coke produced. This lowers the risks connected with the increase in coking coal prices and also creates a basis for the use of alternative technologies that reduce the use of coal and natural gas in blast furnace production.

 

An innovative approach to production processes

NLMK undertakes a programme of continuous scientific research, seeking out ways to use resources more efficiently, to optimize existing production processes and to implement new technologies. Efforts to increase productivity are carried out in an integrated fashion, covering all stages of production, from processing raw materials to improving the consumer properties of the finished product, including HVA products.

The following are the most important developments that were introduced into the production route in 2012:

1. A new ‘blow-in’ technology for the blast furnace that uses a special type of agglomerate and stabilizes the operation of the blast furnace at start-up, lowers the specific consumption of coke and speeds up the commissioning process following major repairs.

2. A technology that accurately models the flows of liquid steel during casting, significantly improving the quality of semi-finished products and reducing the number of casting faults that are detected during the later stages of the production of end products.

3. Development of new technical processes for the production units that significantly improve the flatness properties of grain-oriented steel. Before the implementation of this innovation, the final quality could be improved only through additional operations that would add to the cost of this type of product.

We believe that efforts to optimize the Group’s business processes, reducing the consumption of resources and materials, improving operational efficiency, cutting production costs and improving product quality, lie at the heart of our success and, ultimately, will allow the Company to strengthen its leading position in the industry.

Product liability

Studies carried out by the Group, alongside regular consultations with key customers, help us to understand developing trends in consumer sectors and customer needs. They also guide us in the development of new high-quality products and the adaptation of our existing product line. Our innovations help customers to improve the quality of their products and services and, ultimately, enable them to strengthen their position on the sales market.

Construction

The construction sector is a key sales market for the Group. In 2012 the construction sector and infrastructure development accounted for approximately 80% of the Group’s Russian sales. In recent years, the Group has developed the production of galvanized steel (based on hot-rolled steel) with a gauge of 2.5–4.0 mm, in order to expand its presence in this market. Our technology allows us to produce galvanized steel with high ductility and high strength, a product that is in great demand in the construction industry but which has not previously been manufactured in Russia. NLMK has also developed a technology for continuous hot-dip galvanizing of cold-rolled steel with a gauge of 0.22 – 0.29 mm. This allows us to obtain hot-rolled steel sheet, which was previously produced in Russia only by using an electrolytic galvanizing process.

Energy

NLMK is the industry leader in the production of high-tech electrical steel for the energy and machine-building sectors. The rapid development of consumer sectors imposes new requirements on the quality of grain-oriented and non-grain-oriented steel, which must be met in order to remain competitive. A number of innovative patented solutions, including decarburizing, nitriding and laser treatment of grain- oriented steel sheet, will improve the productivity of the transformers that use our products, reducing specific energy losses to 15%.

A technology to produce a qualitatively new product developed by NLMK engineers – nanostructured high-permeability grain-oriented steel – is being introduced successfully at the Lipetsk site. The quality of this steel is superior in a number of respects to the best products of a similar type available on the international market. After this technology has been adapted for manufacture by NLMK, the production of high-permeability grain-oriented steel will be introduced at the VIZ-Steel site, which is already carrying out the preliminary work and modernization of its production units necessary for the new product to be released.

For more information on our transformer steel production upgrades

The automotive industry

The expansion of the Lipetsk site’s secondary metallurgical capacities has allowed us to develop new products with mechanical properties that will help automotive manufacturers to improve the reliability and safety of vehicles, reduce their weight and therefore decrease their fuel consumption. We have mastered the production of high-strength, low-alloy steels (hot-rolled S700MC grade steel, as well as cold-rolled and hot-rolled class HSLA grade steel), which reduce the amount of steel that is needed for vehicle bodies.

NLMK has successfully implemented the production of high-strength steels (cold-rolled BH-effect steel and cold-rolled and galvanized steel sheet based on IF steel), which provide an optimal balance of strength and adaptability when stamped.

Finally, the use of modern technology has allowed us to master the production of dual-phase steels, which combine high ductility and strength. NLMK Europe’s sites, which cooperate closely with automotive manufacturers, are expanding their production of S700MC, HCT600X, HX220Y, and HC260Y grade rolled steels, which are used in machine building, including in the automotive industry.

Machine building

Manufacturers of machinery and equipment are traditionally the key consumers of our products. Consequently, the Group has consistently developed a range of special products for this discerning customer group.

To strengthen its position in this market, NLMK DanSteel has installed a new 4.2 m plate mill. This will permit significant expansion of NLMK Europe Plate’s product mix. The new mill can produce a wide range of sheet with gauges of 5 to 200 mm and a width of up to 4,000 mm; this provides the Group with access to promising markets where it has not previously had a presence. For example, NLMK now supplies products for the construction of offshore oil and gas platforms and offshore wind power plants.

For more information on our new mill at NLMK DanSteel

In addition, NLMK Clabecq has continued to implement measures to further expand its product mix, including the development of quenched and tempered (Q&T) heavy plate production technology. The new quenching and tempering unit, which was commissioned in 2011, has allowed the Company to produce specialized niche steels in several grades:

Quard® – a group of abrasion-resistant steels.

Quend® – a group of high yield strength steels.

In 2012, technology for producing Quard® 400 grade plates with a gauge of between 4 and 40 mm and Quard® 450 grade plates with a gauge of up to 20 mm was fully implemented. In Q4 2012, we began testing the production technology for Quard® 450 grade steel plate with a gauge of up to 40 mm, and in Q1 2013, we are planning to begin industrial production of this unique product. We work continuously to improve the chemical composition of our steels by reducing the amount of harmful impurities and specifying the content of alloying elements; the process improves the performance properties of goods made from our products.

Quard® and Quend® plates are unique on the market, and in contrast to traditional heavy plates, enable buyers to reduce the weight and to increase the performance qualities of their manufactured goods. Quenched and tempered plates will be in high demand among the Group’s niche consumers, including wind power facilities, offshore oil and gas drilling platforms and producers of abrasion-resistant machinery parts, thus allowing the Company to strengthen its position as a supplier of reliable, high-quality solutions for the machine building industry. These products are being brought to market at an encouraging rate; in 2012 sales of quenched and tempered plates reached 29,000 tonnes.

Semi-finished products

A range of equipment for secondary metallurgy, which has greatly expanded the range of grades under production, was introduced in 2012 at the main production facility in Lipetsk. NLMK now has the ability to produce new kinds of rolled products and commercial slabs with ultra-low sulphur (less than 0.001–0.002%) containing more accurate quantities of alloying elements and can now improve the quality of steel in terms of non-metallic impurity content.

Due to changes in the production route, the Lipetsk site is now able to supply all of our European divisions with semi-finished products, including slabs for the Quard® and Quend® product lines, which must meet very strict chemical and physical property requirements.

The Lipetsk site will continue to modernize its steel casting equipment. The introduction of new continuous casting machines has allowed NLMK to begin production of slabs with a gauge of up to 355 mm. The Group delivers unique slabs to NLMK DanSteel, as well as to manufacturers of large-diameter pipes, including those based in Russia.

A customer-centred approach

Education for the steel marketplace

NLMK is continuously improving both the technical characteristics of its products and the quality of its customer service. We aim to be the preferred supplier of steel products for our customers and we are focused on their needs and expectations.

The Group regularly organizes meetings with customers, conferences and site visits in order to study and clarify customer requirements. This customer-centred approach allows us to expand our customer base by attracting new clients and to quickly find effective ways of solving problems with existing partners. Moreover, productive cooperation with our customers is a valuable resource that allows us to identify possible areas for Group development and product improvement.

NLMK assesses customer satisfaction on an annual basis. The main evaluation criteria are the technical characteristics of products, the level of customer service, and the meeting of delivery deadlines. By assessing the level of customer satisfaction, we are able to identify bottlenecks in our relationships with our customers and we become better equipped to solve problems quickly and to adapt our products to precisely meet customer needs. According to the results from 2012, NLMK Group earned an overall customer satisfaction score of 8.4 out of 10 (‘good’).

The Company intends to continue its practice of actively cooperating with consumers by further improving its information exchange system and the quality of its products.