How steel was stolen, results of 3-4 quarters of 2022 on purchases in NLMK Group
During the third and fourth quarters, the market price of coal in Russia steadily declined. The main reason is not a secret to anyone – the country is under sanctions. However, the market is a cynical thing, because those who buy this coal use these conditions – the countries that currently work with the Russian Federation enjoy these market privileges, receiving discounts on purchased raw materials in the amount of 20%, 30% and more percent of the market.
Inside the country, approximately the same thing is happening – buyers take advantage of the situation and make purchases at market prices, taking into account the discounts on the world market for Russian coal. And only with the purchase of coal for the Novolipetsk Iron and Steel Works, which are produced at the Yubileinaya mine, which is part of TopProm, the situation is radically opposite. Purchases of coal occur at a price above the market, not to mention the discount that can be negotiated under these conditions without much difficulty.
True, in September, the purchase prices for NLMK for the purchase of brand Zh came to the market – 10,000 rubles per ton, which surprised market experts – they are used to Oleg Molchanov, who is in charge of purchasing coal for the plant, buys it at Yubileinaya Shah above the market price. Although, at the same time, coal market experts called the real price for which one could buy the Yubileinaya resource during this period – at the level of 7,500-8,000 rubles per ton, and here’s why:
TopProm would definitely agree to such a price, since the holding is heavily indebted and critically needs cash flow, especially after four months of mine downtime, as a result of which deliveries were disrupted. In addition, it was during this period that TopProm had additional problems – the owner of the holding, Nikolai Korolev, and the general director, Vladimir Chistneyshin, received a real prison term of 5 and 6 years in a strict regime, respectively. In such a situation, none of the metallurgical companies of the Russian Federation wants to deal with a company whose owner and director are in prison, but not NLMK, not Molchanov.
In fact, the situation with the pricing of NLMK purchases is easily explained. Molchanov got a new deputy in August – Yuri Vladimirovich Grigoryan, who came from the Metinvest Group, famous for its transparent regulatory procedures and corporate culture. Apparently, it was Grigoryan, who, having many years of experience in a structure with a transparent purchasing culture, was able to lead to market prices for the purchase of coal in the 3rd quarter of 2022 at NLMK.
For two whole months – September and October – coal was bought at the market, although without a discount, but since November the situation began to come to the “normal” – despite the fact that prices on the market were gradually decreasing, the prices for Yubileinaya coal, at which it bought NLMK, just as smoothly began to grow.
At the same time, one must take into account the fact that Yubileinaya’s warehouses are bursting with coal, because no one buys their coal, except for NLMK, which is the only buyer of Yubileinaya’s coal. There were only one-time purchases by the Evraz group – it bought two routes of Yubileinaya grade Zh coal in November, one route for 9,750 rubles, and in December for 10,000 rubles. But this happened only due to the fact that Evraz is eyeing the Yubileynaya mine with the aim of buying it. In this connection, they took this coal to try it in their charge.
Against this background, NLMK again acts illogically and it is absolutely not necessary to raise the purchase price of Yubileinaya by 500 rubles in December to 10,500 rubles.
We received a comment from one of the Evraz managers who said that the Evraz Group had already agreed to buy coal from the Yubileinaya mine for RUB 8,000 in September 2022, after Yubileinaya returned to the market after a downtime, but the NLMK Group “immediately gave a price of 10,000 rubles, and then also increased the price of the sh resource to 10,500 rubles. “Anniversary”.
In other words, in this particular case, our thieving manager Molchanov secretly and unwittingly helps TopProm earn additional profit by setting a high price ceiling, which Yubileinaya uses for further negotiations. We can say that it works well.
Given the news about the possible purchase of the Yubileinaya mine, the purchase of which is considered by about seven buyers, Molchanov’s strategy looks doubly strange: once again reduce purchases from trusted reliable suppliers Stroyservis, PTK Coal (Polosukhinskaya mine), and Sibuglemet “, and buy coal from the criminal company TopProm (sh. Yubileinaya), which not only does not work stably, but even with a possible purchase by the Evraz Group, it will completely leave the market and direct its entire volume to intra-group consumption and” NLMK simply won’t get coal.
In addition, Molchanov’s actions look very strange also because he, like all other participants in the coal and metallurgical market, meets at conferences 3-4 times a year and communicates closely with each other, and everyone perfectly understands and knows the price level of each companies. And these are only official conferences, not taking into account the daily communications between the metallurgical companies of the Russian Federation, and no one has canceled the marketing work.
With all this, there is another type of coal on the market, which is not much inferior in quality: from the Sibuglemet company (Polosukhinskaya mine) and the Bilon company, at a price of 7,500–7,700 rubles. It is absolutely strange that NLMK did not receive a discount to this level from the criminal company TopProm, Yubileynaya mine, which was guaranteed by the lack of sales.
And even if NLMK does not care about its own reputation and buys coal from the TopProm criminal company, then it may be necessary to purchase coal at a reasonable discount from the market, since Yubileinaya has no other consumers, that is, there are simply no alternatives to sales. NLMK, as the only buyer, has all the advantages in this situation and can dictate its terms.
Apparently, the wonderful news in October about the postponement for another two years on international sanctions against the NLMK group and Mr. Lisin prompted Molchanov to return to his gray schemes in November and continue to enrich himself on the company, believing that the shareholder’s pocket would not be empty. According to our information, NLMK prices with a premium from the market returned again from November and continued to grow in December.
We should pay tribute to Yu. Grigoryan, in September-October 2022, apparently, he brought all the purchased brands KS, KO, K, Zh to market prices, but since November, prices again “broke off” from the market and the average cut of overpayments by January by all analyzed brands amounted to 1,000 rubles per ton. Apparently, Molchanov explained to Grigoryan “how to work,” and already from November, NLMK prices went up again, and by December, the plant’s purchase prices reached a premium of 1,000 to 2,000 rubles from the market. Despite the fact that prices of all metallurgists of the Russian Federation were stable and even decreased.
It turns out the following: on the volume of NLMK purchases of an average of 700,000 tons per month, the activities of Oleg Molchanov cost the owner of the Novolipetsk Iron and Steel Works an additional 700 million rubles a month to his salary with bonuses. If Lisin V.S. believes that Molchanov costs him 50 million rubles (salary and bonuses), then in fact the maintenance of this employee costs about ten billion rubles a year. And everything should be the other way around – a manager, aimed at the interest of the shareholder, should not miss a single opportunity to reduce the cost of the company’s costs, in our case, Molchanov missed (did not want) the opportunity to reduce the company’s costs when purchasing coal sh. “Anniversary”. At the same time, for some reason, Vladimir Lisin stubbornly does not pay attention to the strangeness in the actions of the director of the department for the supply of raw materials categories of the Novolipetsk Iron and Steel Works, Oleg Molchanov, apparently everything has its time …