News

27 March 2007

Novolipetsk Steel (NLMK) signs an agreement to supply GO steel to China

Novolipetsk Steel, NLMK (LSE: NLMK), the leading Russian steel producer, announced today that it has signed a long-term supply agreement with Tebian Electric Apparatus Stock Co., Ltd. (TBEA), the Chinese transformer producer, to supply grain-oriented (GO) electrical steel to China.

The agreement will ensure a stable supply of GO steel produced by NLMK Group companies to China. NLMK will supply 94,000 tonnes of grain-oriented steel to TBEA during the period 2007 – 2011. The agreement has a total value of USD460 million. The parties have nominated “RUSSTEEL” trading company to act as a commercial agent for shipments under the agreement.

The agreement is of strategic value to both parties. NLMK will increase its supply of high value-added products to Chinese consumers while TBEA will develop its competitive advantages in the domestic and global electrical products market.

The parties have agreed to conduct regular monitoring of the efficiency of TBEA finished electrical products. The parties will also exchange information about major trends and developments in the transformer manufacturing industry in China as well as other countries. This approach will enable NLMK to obtain essential information to continue to improve GO steel quality.

Commenting on the agreement, Mr. Alexei Lapshin, President of NLMK, said: “This agreement is an important step in developing NLMK’s relations with fast-growing Chinese producers. Securing a stable GO steel supply to China will allow NLMK to increase the production of high value-added products along with ongoing quality improvements and gain a strong position in the growing Chinese market.”

The General Director of TBEA, Mr. Yu Jun, said: “NLMK and TBEA hold leading market positions. This agreement is a result of the unique match of interest between our two companies. I strongly believe that that strategic relations between TBEA, the largest Chinese producer of transformers, and NLMK, one of the world’s leading GO steel producers, are mutually beneficial not only for our companies but also for the development of trade relations between China and Russia.”

According to the agreement, the first GO steel supply contacts should be signed in the first half of 2007.

About Novolipetsk Steel (NLMK) - www.nlmksteel.com
Novolipetsk Steel is one of the largest steelmaking companies in Russia and in the world, with annual steel production of 9.1m tonnes. NLMK is among the world’s most profitable steel companies, with an EBITDA margin of more than 40%.

After the acquisition of VIZ-Stal in August 2006, NLMK became one of the largest grain-oriented (GO) steel producers in the world. The total GO steel production volume of VIZ-Stal and NLMK’s Lipetsk site is 320,000 tonnes per year. In 2006, GO steel sales amounted to 11% of consolidated Group sales revenue. The share of GO steel sales in NLMK’s sales revenue is expected to further increase in 2007 due to the full year consolidation of VIZ-Stal.

GO steel is primarily used in the electrical industry for the production of a wide range of transformer cores. GO steel has a thickness of 0.23–0.35 mm and thermostable insulating coating. NLMK is also producing special purpose GO steel with the thickness of 0.15–0.80 mm.

About Tebian Electric Apparatus Stock Co., Ltd. (TBEA)www.tbea.com.cn
Tebian Electric Apparatus Stock Co., Ltd. (TBEA) is the largest transformer producer in China and the first company in the Chinese transformer production industry to go public. TBEA is known worldwide as a steel producer of electrical equipment for transmission, conversion and distribution of the electric power. The company’s product mix includes transformers, telecommunication and high-voltage cables, insulating materials and other products. TBEA sells its products to more than 60 countries, including the USA and European Union. TBEA’s transformers are used in all major energy projects in China: SanXia – the largest hydro-electric power station in the world, “West to East electric power transmission”, “railroad electrification project in China”, “hydro-electric power station LongTann”, etc.

About RUSSTEEL Co., Ltd.www.russteel.ru
RUSSTEEL is a steel trading and service company operating in the Russian and South-East Asian markets. RUSSTEEL is the first foreign company that has obtained permission for independent import sales of GO steel to the Chinese market. This status enables RUSSTEEL to reduce transportation costs and delivery times for end-consumers.

NLMK and VIZ-Stal exports to China
NLMK is a long-term supplier of GO steel to China. NLMK’s total export sales of GO steel to China over the 2002 – 2006 period amounted to 214,000 tones, with a value of USD370 million. VIZ-Stal sales of GO steel to China for the corresponding period were 129,000 tones, with a value of USD174 mln. NLMK and VIZ Stal’s combined sales of GO steel represented approximately 70% of total Russian steel export sales to China in 2006. Despite the general trends in the Chinese steel market, the demand for GO steel continues to grow. The primary reason is the fast growth of the electrical equipment industry in China, which outstrips the GO steel production growth rate.