Nikolai Sopidi (Commercial Director), interview for Internet media "Metal Courier"

The capacity of metal rolling in Kazakhstan continues to increase, but independent traders are not always able to increase product sales. Evaluating the results of the work, Nikolay Sopidi, commercial director of the Company “Steel Yard Astana”, noted that price competition with trading houses remained extremely high, and as a result of their aggressive pricing policies, the marginality of sales also decreased significantly. To strengthen its position in the market, the company is negotiating with manufacturers about the possibilities of working under conditions of storage. In addition, it develops a range of products that are underrepresented or not at all represented in the offers of trading houses.

- Nikolai Ivanovich, the consumption of rolled metal in Kazakhstan is recovering, did the company manage to increase sales?

- Unfortunately not. We kept the sales of metal-rolls close to the level of last year - about 300 thousand tons, and this is only due to the growth in sales in certain regions. We have grown in Shymkent by opening a new warehouse in Almaty, where we continue to develop the work of the branch opened in 2015, and in Aktobe, which is remote from the concentration sites of competitors. In Pavlodar and Karaganda, sales are at the same level as last year. Very strongly - by 40% - sales in Astana decreased.

- What is the reason for the decline?

- Competition with trading houses of Russian combines. If we consider the components of sales - price, quality, assortment, work of managers, paperwork, order support and delivery, then we maintain a high level in all respects, and at a price, not always lately. You understand that it is extremely difficult to compete if for Kazakhstan traders the prices for rental purchased from the mills are often comparable to the prices at which trading houses sell from the warehouse. In the case when we get a more reasonable redemption price from the mills, the trading houses review prices to our level.

- Is there competition with domestic traders?

- Small trading companies in Kazakhstan remained, but very few of them, and we do not consider them as competitors. There are five major independent traders, but they are partners for us, because we work in the same conditions. Between us there is a healthy market competition - who has better managers, better structure of the company or better established business processes.

- What is the expected profit of the company in the current year?

- Due to the aggressive pricing policy of trading houses, the sales margin has decreased significantly, so profits will be significantly lower than last year.

- Today in Kazakhstan there are several Trade Houses of Russian steel plants, with whom it is more difficult to work?

- It is quite comfortable to work with EVRAZ Metal Kazakhstan LLP as an independent trader aimed at making a profit.

Mechel-Service Kazakhstan LLP this year, at least according to our feelings, slowed down its turnover in the Kazakhstan long products market. I admit that it is more profitable for them to trade on the domestic market than on export. But unpleasant situations sometimes arise on the beam, which they promote.

It is most difficult to work in our market with Trading House MMK-Kazakhstan LLP. This is probably due to the aggravated confrontation between the manufacturers - Magnitogorsk Iron & Steel Plant and ArcelorMittal Temirtau (AMT), but losses are borne by a third party - independent traders in Kazakhstan.

- How has the increased competition with TD affected the procurement structure of your company?

- We were forced to reduce purchases of rolled metal from MMK by about 3 times. But they increased purchases from EVRAZ and AMT.

- Are Kazakhstani producers supporting home buyers?

- The main difference between Kazakhstani producers and Russian producers is that none of them works with open prices: signed the offer, pay money and get the metal. The price is final and not subject to revision. The price will rise further or fall - this is our problem.

- Today in Russia, work on conditions of storage is gaining popularity, do you consider the possibility of such cooperation? Will it be profitable?

- I believe that it is profitable and will help the company in the competitive struggle. Having a stock of products in stock and understanding the situation on the market, we will be able to quickly make a buyout and significantly reduce the credit load. For us it will be a great help. We are already negotiating with AMT for their storage of the entire range of their products. So far, no decision has been made, but I hope that by the end of the year there will be results.

- What other options for improving your competitiveness are you considering?

- This year we have increased the warehouse range due to products that our competitors do not work with. For example, we are developing in profile pipes, here both marginality remains and there is demand. Today, purchases of this product have grown from domestic manufacturers - the Sonik Company and the Ross Prokat plant. Our production in Karaganda, though small (600 tons per month), but loaded at 100%.

Also this year, in addition to the profile pipes, we delivered straight-seam pipes of medium and large diameter of the TEM-PO plant. The products of this manufacturer is one of the best, according to Kazakhstani consumers. For the time being we are buying on a common basis, but here we are also working to conclude an agreement on storage.

- New pipe products are presented throughout the company's branch network?

- While it is only in Astana, it is convenient in terms of logistics for import into Kazakhstan and further deliveries in the regions. Next, we expect to bring products to warehouses in Almaty and Shymkent. In these cities, it is in demand by companies of the oil and gas and heat and power complex.

- If the new branch in Shymkent this year showed good sales results, do you plan further development of the distribution network?

- Of course. Today we see that in the West of Kazakhstan there is low competition, very interesting prices and profitability. In addition, AMT is interested in the development of this region. If we can build mutually beneficial cooperation on this project, we get support, for example, in terms of volumes, through storage and tariff preferences, we will quickly go to the region.

Independent implementation of the project is also possible, but in a more distant future. We invested more than $ 3 million in the opening of a metal warehouse in Shymkent, immediately opening a new branch means reducing the range in other warehouses that are not included in the company's plans.

- Do you open your own warehouses?

- No, today it’s not efficient to buy back, prices are very high. If you count the cost of lending for the purchase of the site, then they are several times - and this is not 2, and not 3 times higher than its rent. Therefore, in Shymkent, we are working on lease terms, similar plans for Western Kazakhstan.

- Does the company have metalworking services? See the prospects for their development?

Due to the aggressive pricing policy of trading houses, the sales margin decreased significantly

- We have services, but the number of operations is limited. Mo can pull the wire or reinforcement, cut long products and sheets in size. Today, these services are necessary and demanded by buyers, but are not designed for profit, but more for convenience and retention of customers.

We considered the options of care in a deeper redistribution. But, as someone else’s experience has shown, this does not take root yet, such as, for example, knitting frames, or has ceased to be profitable, like welded meshes. As for frames, in the country the specifics of design are complex. For example, houses are built in stages - drawings are first issued on the foundation, then on the first floor and so on. In addition, Kazakhstan is a big country, but the cities are scattered, the concentration of consumers, customers in one city is not enough to make such production efficient and in demand.

With welded meshes, the situation is the opposite. Today, we have installed so many facilities for the production of welded meshes that the margin has greatly decreased, and companies hardly make ends meet. Therefore, I do not think that the development of services and production by trading companies is still worth considering as a profitable business.

- But the above talked about the pipe production of the company, which is loaded at 100%, why then is not effective?

- Today we have several productions –profile, sandwich panels and welded pipes. High, even 100%, loading only through pipes and sandwich panels. But I would not consider these industries as promising for development and capacity building. The reasons are too much competition and the dependence of the margin on the capacity: the more these capacities will be expanded, the less will be the margin.

- What is the yield today bring their own production?

- I will give an example through the pipes. Five years ago, when we discovered this, the margin in absolute numbers was about $ 100 / t, now it is about $ 20-30 / t. For 6 years, opened a lot of pipe production. The situation is close to this and in other production areas.

Everyone should do his job: the plant - to produce, the trader - to sell. Business should be clearly focused on the goal. The principle - cheapening the final product due to the elimination of the trading margin - is not effective today.

- When can the development of services or production by trading companies of Kazakhstan be profitable?

- It is hard to say. Today in trading in the first place is the price of metal, respectively, and the possibility of making a profit for further development.

We have the necessary services. Without this, it is impossible to exist. But there is no need to go deeper yet. The culture of construction, from design to construction, is only in the development process.

- E-commerce is becoming increasingly popular, you lead the development in this direction?

- Actively - no. Behind this, the future, and we, in principle, are ready for this, but so far have taken a waiting position. Yes, it is convenient for the client to go to the site, look, choose, throw the goods in the basket, pay and set the time when to bring. But today, customers of metal, especially large customers, is still very important personalized approach. The individual consumer, in turn, is not always competent in the choice of products, and personal communication is extremely necessary for them.

At the same time, we are not planning to stand still. We are currently working on the development and integration of personalized ERP and CRM-systems based on AGILE to improve communication with our current and future customers. This will allow us to make an internal optimization of workflows, increase the efficiency of each employee of the enterprise, freeing him from the routine work.

But the main task of the company in this and next year is to achieve a consensus in pricing with the producers of metal. Because, first of all, the effective activity of the company and the growth of sales depend on the prices of rolled metal products.

- Is there any room for growth next year?

- There is. The economy is recovering, the budget is good, since the oil price is higher than expected - not $ 35, but almost $ 60. Therefore, the next year and metal consumption will be better. We hope that our volumes will grow.

- What projects will support metal consumption?

- So far I see two projects - the construction of a subway in Almaty and the development of light rail transport in Astana.