Theft of steel and purchasing results in NLMK Group for 3-4 quarters of 2022
During the third and fourth quarters, the coal market prices in Russia went down steadily due to the country being under sanctions. However, some countries working with Russia get discounts on coal purchases, while buyers within the country take advantage of the situation and buy at market prices with discounts. On the other hand, coal purchases for Novolipetsk Iron and Steel Works happen at a price above the market despite the discounts available.
Within the country, buyers take advantage of the situation and make purchases at market prices, considering the discounts on world market for Russian coal. On the contrary, coal purchases for the Novolipetsk Iron and Steel Works are made at a price above the market, without much difficulty in negotiating a discount under these conditions.
In September, NLMK's purchase price for the Zh brand coal reached the market at 10,000 rubles per ton, surprising market experts accustomed to Oleg Molchanov's above-market purchase of coal from Yubileinaya Shah. Coal market experts suggested the real price for the Yubileinaya resource during this period to be around 7,500-8,000 rubles per ton.
TopProm would agree to such a price due to heavy debt and critical cash flow needs, worsened by mine downtime and additional problems faced by the owner and director, both of whom received real prison terms. Despite this, NLMK continues to deal with TopProm.
The pricing situation of NLMK purchases is easily explained by the arrival of a new deputy, Yuri Vladimirovich Grigoryan, in August. He came from the Metinvest Group, known for transparent procedures and corporate culture. It seems that Grigoryan, with his experience in a structure with transparent purchasing culture, led to market prices for coal purchase at NLMK in the 3rd quarter of 2022.
For two months, September and October, coal was bought at market prices without a discount. However, from November, despite the decreasing market prices, the prices for Yubileinaya coal purchased by NLMK began to increase gradually.
At the same time, one must consider that Yubileinaya’s warehouses are full of coal, because nobody except NLMK buys their coal. There were a few one-time purchases by the Evraz group, buying Yubileinaya grade Zh coal in November for 9,750 rubles and in December for 10,000 rubles, as they are interested in buying the Yubileynaya mine. They took this coal to try it out in their charge.
Against this backdrop, NLMK is acting illogically by raising the purchase price of Yubileinaya to 10,500 rubles in December, which is not necessary.
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 offered a price of 10,000 rubles, and then increased the price of the sh resource to 10,500 rubles.
In this case, our manager Molchanov inadvertently 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.
Additionally, Molchanov’s actions look odd 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 these are only official conferences, not considering the daily communications between the metallurgical companies of the Russian Federation, and no one has cancelled 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 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 …
