Magnitogorsk Iron and Steel Works
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|ПАО "Магнитогорский металлургический комбинат"|
|Traded as||MCX: MAGN|
|Revenue||$5.63 billion (2016)|
|$1.46 billion (2016)|
|$1.11 billion (2016)|
|Total assets||$6.5 billion (2016)|
|Total equity||$4.71 billion (2016)|
Magnitogorsk Iron and Steel Works (Russian: Магнитогорский металлургический комбинат, translit. Magnitogorskiy Metallurgicheskiy Kombinat), abbreviated as MMK, is the third largest steel company in Russia. It is located in the city of Magnitogorsk, in Chelyabinsk Oblast.
History of Magnitogorsk mining
Located in the mineral rich Ural region that demarcates the separation between Europe and Asia, significant mining in Magnitogorsk dates back to 1752. The effort to explore the Magnitnaya Mountain region for potential iron ores was undertaken by two investors named Myasnikov and Tverdysh who petitioned for the first rights to begin extraction of the metals. Following the granting of their petition by the Orenburg government, mining operations were soon initiated in 1759.
Historically, the center of Russian iron production had been focused in the Tula region. However, in the beginning decades of the 18th century, a shift towards developing the industrial capabilities of the Ural took place that more than doubled Russia’s iron production. In 1828, a series of geological surveys began in an effort to determine the mineral make up of the Magnitnaya Mountain and create estimates for the possible amount of iron contained within the mountain. By the later part of the 19th century, the small town had begun to grow with more than 10,000 residents reported. During this time, between 30,000 and 50,000 tons of raw iron was being extracted there annually.
Establishment of MMK
In the 1870s, the vast majority of the iron ore, steel, and pig iron were being produced in Ukraine. Comparatively, Ukraine with its large deposits and developed industry, was responsible for 75% of the iron ore in 1913 to the Ural’s 21%. Ukraine remained the focal point of metal production while the competing regions found themselves relegated to significantly reduced importance. It was only following the Bolshevik Revolution in 1917 that the drive to push for an expanded iron and steel industry began to come to the forefront.
As a part of Soviet leader Joseph Stalin’s First Five Year Plan to implement a rapid development of the nation’s industry, it was decided that the government would sponsor a project with the goal of establishing the world’s largest steel production complex. Initially the plan for the project was designed by the Soviets but then they also collaborated with Arthur McKee & Company, an American company, to oversee the construction and planning. The plan to turn Magnitogorsk into the complex that would become MMK came in conjunction with the buildup in the new city of Stalinsk that held large resources of coal. The promotion of the coal mines project in Stalinsk that was used to produce steel and other metals was part and parcel of the plan to not only improve Russia’s industrial capabilities and independence but as a way of helping to grow their presence in areas with far sparser populations.
While there were disagreements regarding the timetable and massive shortages of supplies, the project to build the complex broke ground in 1929 with the influx of thousands of idealistic Soviet workers. The American contractors were critical of the handling of the project and were frustrated by mismanagement and so the majority of the design ended up falling to the Soviets. Much of the failure to properly organize the construction efforts was due in part to the desired speed at which the Soviet government had laid out as a part of their Five Year Plan. Additionally, there were changes in personnel who had faced removal over political concerns that emerged over loyalty to the Communist Party.
In opposition to claims by the advisors from Arthur McKee & Company that the facilities were not yet ready for use, the furnaces at MMK were put into action in 1932 with the first flow of molten pig iron being produced. While this move to initiate activities at the complex was applauded by the Soviet leadership, the plant was forced to halt their production only a few days later due to the need for serious repairs in the furnaces. By 1933 the plant was producing steel.
World War II
MMK played an important role in the Soviet victory over Nazi Germany, being the largest steel company in the Soviet Union, and also geographically the most distant from the fighting. The strategic concept of developing various huge modern iron and steel works deep inside the country relied on the idea that future defense of the socialist homeland was going to require both huge amounts of steel and places to produce iron and steel that were as safe as possible from foreign invasion and aerial bombing raids. Thus, what huge iron and steel plants such as Gary Works were to the United States as the "arsenal of democracy", huge plants such as MMK would be to the Soviet Union as the arsenal of socialism and patriotism. Although MMK was tooled up and operated to focus just as much on civilian needs as military needs during the 1930s, its move to primarily military use did not take long. MMK itself did not produce specialty steels, which are a vital part of the defense industry, but it produced large amounts of iron that other plants would convert to specialty steels, and it produced large amounts of general steels, which were also greatly needed for the war.
The notion of protecting the USSR's industrial base from invasion and bombing by locating it deep in the interior was not pursued as completely during the 1930s as it might have been, which left a lot of Soviet industry in Western Russia and the Ukraine; what parts of it were not overrun and confiscated by the Germans were hastily moved eastward in 1941 and 1942. In 1942, just from what could be learned at secondhand by a Westerner no longer living at Magnitogorsk, the West knew that "at least one armament factory previously situated near Leningrad has arrived in Magnitogorsk lock, stock, and barrel, complete with personnel, and is already going into production using Magnitogorsk steel.":258 The extent of Western knowledge of the huge eastward shift was summed up as follows: "No figures are available regarding the quantities of factories and plants evacuated from Western Russia to the Urals and Siberia. It is known, however, that even before the outbreak of war, large electrical equipment plants were removed from White Belorussia on the German frontier and also from the Leningrad district to the Urals and Western Siberia. One such plant is reported to have been removed to Sverdlovsk during 1940 and to have been producing normally in March, 1941. Any plant except the largest smelting, steelmaking, and chemical works can be moved by railroad fairly quickly and with little damage.":262–263 […] "Thus, while no figures will be available for some time, it is my opinion that large portions of the industrial machinery formerly located in areas now occupied by the Germans, instead of being captured by them, are already in operation a thousand or more miles east of the present front, in Stalin's Ural Stronghold.":262–263
After the attack on the USSR, on June 22, 1941, MMK obtained its first order for production of metal armour. Instructions were given to proceed to the production of blanks for live shells, and to explore the possibilities of creating specialist products for armoured tanks, which required rebuilding the production facility. The government provided a number of specialists for the development of armoured steel. The factory created an Armour Bureau, which was responsible for the development of technology for the production of armoured steel products. By July 23, 1941, the third hearth furnace of MMK produced its first steel output for the military.
Simultaneously with the development of armoured steel smelting technology at the plant, other military orders were produced. In order to provide more armour for the front they decided to on a quick solution – and began the production of rolled sheets in the blooming mill. Testing was successful, and the factories constructing the tanks received armour at least two weeks ahead of the deadline set by the government.
Armour sheet production at MMK in the end of 1941 exceeded its pre-war production. Simultaneously, specialized areas and workshops for the production of ammunition was improved. Hand grenades, components for missiles, and other defense products were manufactured. Magnitogorsk was converted into the major military arsenal of the country. The construction and commissioning of new production units continued. Attention was concentrated on blast furnaces № 5 and № 6, and this blast furnace steel became the biggest in USSR.
A number of novel techniques that enriched the theory and practice of construction were developed at the site. Due to the completion of such a large plant and it's capability to fully cycle ore to final product, the nation survived the loss of huge tracts of territory to the Nazis.
In 1941, though the factory was not yet completely built; child labour was already being employed at what was called the CL (Central Laboratory).
During the first years of the war, about 200,000 teenagers arrived to work at the factory. They worked for 10–11 hours a day, and sometimes in extreme situations as they stayed for 10 days at a time in the factory. It is due to these children that Magnitogorsk was able to build the first tanks and aircraft, as they collected 57 million rubles to help the war front. Later, these children organized the Popular support for the front which raised 185 million rubles. On 17 occasions, people from the Urals sent divisions of young soldiers to the front, as well as 613 wagons for 223 million rubles.
By February 1, 1941, about 428,000 people were sent to the Chelyabinsk region to help and to work at the factory and its surroundings, to raise necessary funds for the war effort. There was a huge housing shortage, so the factory leadership decided on August 25 upon a project which included the development of barracks and huts. Educational institutions and health centers with hospitals were also planned as the factory grew.
Between 1941-1943, 483 military hospital trains and about 220,000 wounded and sick arrived. One month after the war started, at the time of receiving the first military hospital train, the region already had nine hospitals. And on December 31, 1941, there were already 73 hospitals, which treated 24,500 injured military personnel. - obtained from the documents of Communist Party of the Soviet Union.
People were hungry and emaciated, as most of them also donated blood for the wounded and the sick. People fainted on the job and there were many signs hung reading Combat mission. Before the first hostile exchanges of war began in 1940, MMK was producing tanks but production was sluggish. It was so decided to close the production of tractors and other machine products and to concentrate on the development and manufacturing of tanks. According to the direction of the State Defense Committee, it was decided to organize mass production of the medium battle tank T-34. The fate of the front and the country largely depended on how soon the factory could begin to produce tanks.
Years would be required for this work in peace time, but the war set new rules. In just 34 days the job was done. Workers made the impossible possible, and after 34 days one of the first massive ranges of T-34 tanks rolled off the production line.
"The T-34 was a sensation. This 26-ton Russian tank was armed with a 76.2 mm gun shells that pierced the armor of German tanks with a 1.5 - 2 thousand meters, at the same time when the German tanks could punch Russian with a maximum range of 500 meters, and then only in when the shells fell in the vehicle or the rear part of the T-34" - Connoisseur of military equipment German General Erich Schneider.
MMK in the Post-Soviet Era
As with the majority of the State run industries, MMK underwent a series of shifts towards privatization after the fall of the Soviet Union. In 1992, MMK transitioned to become a joint stock company. Due in part to the economic downturn that was experienced in Russia during this time, MMK suffered a significant drop in its levels of productivity. In 1996, production fell to 5.8 million tons per year.
However, in recent years, MMK has rebounded with significantly increased levels of productivity by entering new sectors of the metal works industry. In 2007 the company became a publicly traded company on the London Stock Exchange, and in 2008, crude steel production at the plant was reported to have reached some 12 million tons. There has also been a move to enter into new international markets. Production has increasingly shifted towards the export market with some years reporting the share of exports comprising 70% of total production.
In recent years, however, the focus of MMK's shipments has significantly changed towards domestic market (over 70% of the company's production). MMK maintains leading positions on the Russian rolled steel market. This was possible largely due to the introduction of high-margin products that meet domestic demand, including products that replaced imports.
The Urals and the Volga Region remain the Russian destinations most important for MMK in terms of sales accounting for 69% of the total domestic sales. This sales structure is determined by the concentration of major sectoral consumers in these regions and has remained unchanged in recent years. Another major market for MMK is the central Russia, which accounts for 10% of total domestic shipments, while another 6% going to Siberia.
MMK Group's net profit in 2016 exceeded USD 1 billion, marking a 2.5-fold increase over 2015. The company's EBITDA margin was 34.7%, the highest since 2007. Free cash flow totalled USD 728 million.
In 2016, MMK Group increased steel production by 2.5% to 12.5 million tonnes. Overall steelmaking capacity utilisation at the main Magnitogorsk steelmaking site increased in comparison to 2015, exceeding 89% (while global capacity utilisation was around 70%).
Joint venture investment in Turkey
The MMK signed on May 23, 2007 a joint venture agreement with the Turkish steel company Atakaş to construct and run a steel plant in Hatay Province of southern Turkey. On March 15, 2008, the plant's foundation was laid in Dörtyol, Hatay. Already with the beginning of 2009, plant's service center consists of a hot shear line and a combined cold shear and slitting line went in operation.
The plant, which has a capacity of 2.5 million tons of steel products a year, was officially opened by Turkish Prime Minister Recep Tayyip Erdoğan on March 9, 2011. It is one of the biggest of its art in Turkey. On March 10, 2011, it was reported that the MMK applied to the Turkish competition board to buy its Turkish partner's stake. In September 2011, MMK announced the completion of its acquisition of 50% minus one share of MMK-Atakaş from the Atakaş Family. The total price of the deal was USD 485 million. As a result, MMK consolidated a 100% stake in the Company.
Being an investment project implemented in Turkey with the 100% equity ownership, MMK Metalurji is Turkey’s largest industrial enterprise, which is established by a private owner as a green-field project. The integrated plant is designed to produce annually 2,3 million tonnes of steel products, using advanced automation systems and globally acclaimed innovative technologies.
Sales of commercial products at MMK Metalurji in 2016 increased by 7.4% during the year.
MMK’s facilities employ 38% of the city’s working-age population. The company accounted for 57% of the city’s budget in 2016, an increase of about 7% on 2015. Magnitogorsk Iron and Steel Works has implemented numerous projects to play a role in improving conditions for the community.
In 2015, MMK spent around EUR 21.4 million on social projects, and this figure rose to EUR 32.9 million in 2016. This included EUR 13.2 million for pensioners and disabled people, EUR 6.5 million for medical support for staff and implementation of medical programmes; and EUR 6.7 million for health breaks for employees and members of their families.
Metallurg Charity Foundation
One of the channels of MMK’s social investments is Metallurg Charity Fund founded in 1993. It helps сhildren and elderly people through variety of philanthropic programs, such as "Veteran", "XXIth century – for the children of the Southern Urals", etc.
In 2016, the financial resources of the fund were EUR 8,7 million. MMK is the main contributor in the fund’s budget with more than 90% share.
Metallurg Hockey Team
MMK's Chaiman Victor Rashnikov is the owner and the president of Metallurg Magnitogorsk ice hockey team. Since he took over in 1993, the team worked up a reputation as one of the top Russian teams of the new era. Magnitogorsk advanced to the Russian Superleague finals six times becoming a three time champion of Russia.
With the support of Rashnikov and MMK, in 2006 on the bank of the Ural River a modern ice palace with a capacity of more than 7,500 people was built (the investments amounted to $50 million). The Arena Metallurg stadium is the base of the Metallurg ice hockey club, as well as the junior ice hockey team Stalnye Lisy(Steel Foxes).
Metallurg has twice won the highest trophy of the Kontinental Hockey League, the Gagarin Cup. Magnitogorsk hockey school has given the world famous players from the NHL, including Evgeni Malkin, Nikolai Kulemin, and many others.
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