The shipyard "Zvezda" under construction by Rosneft may remain without metallurgy

The new steel producer in the Far East is not needed, experts say.
Igor Sechin, chief executive officer of Rosneft, and Andrei Bokarev, co-owner of UMMC, announced in December 2016 that they had set up a joint venture for the construction of a metallurgical plant near the shipyard Zvezda, the Eastern Mining and Metallurgical Company (VGMK). This is necessary to ensure the annual need of shipyards in ship steel - 330 000 tons. But the project "stalled", the federal official and two interlocutors of Vedomosti, who are close to different participants of the shipyard construction project, are assured. What the problems are, they do not specify.

Two interlocutors of "Vedomosti" say that "works on the project [construction of metallurgical production] are not currently underway." Moreover, VGMK is still not registered, according to SPARK-Interfax. According to the resource, among legal entities established by PJSC "NK Rosneft" or OJSC "UMMC", there is no company registered after the announced creation of the joint venture. The project for the construction of the plant in the Far East is not present, and in the updated list of priority investment projects of the Ministry of Industry and Trade in the development of ferrous and non-ferrous metallurgy until 2030, the Ministry did not receive any documents on the draft and proposals on this subject, the representative of the Ministry of Industry and Trade said.

A representative of Rosneft stated that "the project of building a metal-producing and metalworking complex for the needs of the shipyard" Zvezda "is being implemented in accordance with the approved plan." Two weeks ago he told Kommersant that "feasibility study [feasibility study]" of the project is being prepared. When it should be ready, who the executor and who the customer, the representative of Rosneft could not say. Answer to the question whether a joint venture was registered with UMMC, a representative of Rosneft did not. The representative of UMMC declined to comment.

Preliminary feasibility study of the project for the construction of metallurgical production in the Far East by September of last year was prepared by Hatch and McKinsey, follows from the report of Sechin during the Eastern Economic Forum. Whether the conclusion was positive and the project was recognized as effective, representatives of Hatch and McKinsey refused to speak.

Preliminary feasibility study is being prepared in three months. For a normal feasibility study, it takes about a year, and the preparation of the construction documentation takes about two years, the interlocutor in the large metallurgical company, who recently launched a new production, points out. "At the same time between the beginning of construction and the release of the first production can take about five years," - he points out.

Ship steel for the needs of the "Star" will be purchased in Korea, China, Russia or Japan - depending on the price, one of Vedomosti's interlocutors knows. This is the most correct and cheap way to get the right metal, because there is no iron ore and coal base in the Far East to create steelmaking, and it's expensive to deliver raw materials, he says.

Kirill Chuiko, head of the analytical department of BCS, agrees with him. The efficiency of metallurgical production of a full cycle with a capacity of 330,000 tons per year is not obvious, he believes. Metallurgy is effective at the expense of scale of production. Therefore, if you build, then the enterprise for 1-2 million tons a year, it needs about $ 2 billion, says Alfa-Bank analyst Boris Krasnozhenov. But if the company makes a profit, the traditional suppliers of steel to this market (MMK and Evraz) will have to look for new markets, he believes. Looking for a competitive export market for thick plate producers is not very promising, given the overproduction of steel in the world and global protectionism, Aton analyst Andrei Lobazov said.