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Журнал «Metal Bulletin» выпустил статью «Norilsk sales strategy comes under scrutiny from nickel market». Metal Bulletin magazine has published an article ’Norilsk sales strategy comes under scrutiny from nickel market’ (Metal Bulletin 26.08.2010, American Metal Market 27.08.2010):

http://www.metalbulletin.com/Article/2656745/NonFerrous/Norilsk-sales-under-scrutiny-from-nickel-market.html

http://www.amm.com/login/amm-*/2010-08-27__14-55-26.html/Norilsk+sales+strategy+comes+under+scrutiny+from+nickel+market

После публикации этой статьи в Компанию поступил ряд обращений от акционеров и представителей СМИ, выражающих недоумение в отношении материалов, содержащихся в публикации.

При подготовке данной статьи Metal Bulletin (MB) направил нам список вопросов, и мы предоставили ответы на них. Поскольку в статье были использованы только отдельные фразы из некоторых ответов, мы публикуем полный список вопросов и полный текст ответов.

Мы полагаем, что полные материалы помогут ответить на вопросы, которые возникли после прочтения статьи.

After the publication of this article the Company received a number of inquiries from shareholders and members of the mass media that have expressed their confusion in regards to the materials contained in the publication.

When preparing the article Metal Bulletin (MB) has supplied us with a list of questions and we have supplied replies to them. Since the article uses only selected phrases from some of the replies, we publish the complete list of questions and full texts of replies.

We assume that the complete materials will help answer the questions that raised from the publication.

 

QUESTIONS ASKED BY METAL BULLETIN

MB: What are the main challenges that Norilsk’s marketing department faces?

NN:   Our biggest challenge under current conditions is to continue performing our duty to shareholders successfully and to keep up the momentum in further development of the sales & marketing system

 

MB: What are the strengths of Norilsk’s marketing department, and its strategy?

NN:   Our strength is a combination of a well organized management system for sales and highly qualified and motivated people.

When speaking about strategy it is necessary to be accurate with definitions.

By strategy we understand a set of long-term goals and methods and principles to achieve them. That is an extensive document that includes dozens of pages and I don’t think you want to devote your whole issue to it. But if you mean our main goal it can be summed up as increase of shareholder value by achieving maximum long-term profit at the stage of sales.

 

MB: What volumes of nickel did Norilsk sell in America, Europe & CIS, Russia, and Asia in 2009? (The results announcements don’t break down sales by regions.) Do you have similar figures for the first half of 2010?

NN:   Russia                            2%       (6 kt)

Europe (incl. CIS)         59%     (154 kt)

Asia                               31%     (81 kt)

North America  8%       (21 kt)

Total                              100%   (262 kt)

Please note that the above figures refer to finished nickel products and exclude concentrates and other semi-products.

In 2009 we were the biggest supplier of refined nickel to China (61 kt) and India (8 kt).

 

MB: MB understands that nickel demand in Russia is around 30,000 tpy, which suggests Norilsk is selling relatively low volumes of material to a large number of customers. Are there any plans to concentrate sales to larger customers, or develop its marketing strategy in any other way?

NN:   The Ministry of Industry of Russia and Brook Hunt estimated this market to be 25 kt in 2009.

We produce premier quality nickel. There are other producers in Russia that produce lower grades including ferronickel. Not all the consumers in Russia require premier quality so their first choice would be ferronickel or low grades.

We are satisfied by the existing level of relationship with the Russian market and are ready to increase our sales accordingly to the growth of domestic consumption or decrease in domestic ferronickel or low-grade nickel production.

 

MB: Norilsk said not a single customer refused the company in favour of a competitor in 2009. Is Norilsk’s marketing strategy with end-users to always win business, or to win optimum prices, or a combination of the two depending on circumstances?

NN:   We assume that this is due to the fact that Norilsk has established itself as the most reliable supplier that never has declared a force major on its contracts.

We always base our contracts on market terms. As a mining house our focus is not the immediate market but the long-term average. We believe that partners should help each other to go through difficult times. We do not attempt to take advantage of the spikes in market parameters corner our clients and we believe they appreciate that.

As to your question, I can say that we lost many deals with end-users because they found cheaper material from our competitors. To give you a more general answer I can say that our major KPIs are: number of tons, profit per ton, industrial diversification of sales, geographical diversification of sales, share of industrial users and share of long- and mid-term contracts.

These KPIs have different weight factors which vary from one period to another. When we make a decision we value the combination of abovementioned parameters.

 

MB: Does Norilsk offer any internal discounts – for example, in sales to Normetimpex?

NN:   Our inter-group transactions are done at fair market terms. Normetimpex acts as our agent in the Russian and CIS markets and is paid a commission less than 1%. For our exports we do not have a shipping team in HQ since we can use competent shippers in Normetimpex. As a forwarding agent in our export shipments this company is paid a fee of around 0.01%.

 

MB: Do the average premiums in the document include high-value products such as Carbonyl?

NN:   Yes, the average premiums cover all of our finished nickel products. Of them high-value products in 2009 were only 3% whilst another 15% have lower quality than LME requirements. If we assume that high-value has an extra premium of $1000 per ton it adds $30 to the average premium. If we assume that low grades have a discount of $100 per ton it would decrease the average by $15. So the average premium is mostly a function of premiums for our standard products.

 

MB: Is there anything else we should bear in mind as we write about this?

NN:   We believe that your staff and readers are professional people and when they read different funny things about our company they use common sense and our public reports to form their opinion not only about Norilsk but also about people who are capable of swearing that white is black.

At all times to form an opinion on something we need to compare it with something else. For this reason we would propose to compare our reported results and achievements with the ones of our critics.

 

MB: How many sales staff and sales offices does Norilsk have in Asia? (I know there are offices in Shanghai and Beijing) How does this compare to the European and domestic Russian markets?

NN:   Our sales & marketing structure can be found on our web site. We have 3 offices in Asia – sales offices in Hong Kong and Shanghai, a representative office in Beijing.

The number of front people in our sales companies is determined by the number of existing and potential partners that those companies work with. The number of people in middle and back office – by the number of operations done by these people.

These principles are the same for all our offices worldwide.

 

MB: I’m told Norilsk uses sales agents in Hong Kong, Singapore and India, can you confirm this? Is all of Norilsk material sold in these markets sold through agents?

NN:   We use different channels to deliver our products to end-user markets. When making a decision on utilization of a specific channel of supply to a specific customer or a group of customers we would optimize our decision based on two parameters at least – economic efficiency and risks. Should the analysis show that the optimal decision is a direct contract with the customer, we conclude a direct contract. Should the analysis show the feasibility of an agent, for example if we are not prepared to take the credit risk, we would supply through a company that is prepared to take this risk.

If you can publish materials containing more details on how other metallurgical companies work in those countries, we will be happy to learn more and use their experience.

In general we can say that the results achieved are a combination of direct sales and utilization of regional distributors.

 

MB: How much nickel was shipped to the LME in the first half of 2010? Is this a typical amount or unusually high/low?

NN:   You are asking a question that previously was asked by our main competitor. Is it a coincidence? I do hope you understand that any transparency has a limit. As an exception we will reply that in 1H2010 we shipped less than 1 ktons. In general our position in this matter is rather simple – if our competitor, for example, has accumulated stocks and starts dumping the material by offering unjustified low prices we will not engage in senseless struggle but sell the metal in the most economically efficient manner.

 

MB: Why does Norilsk put material on the LME rather than selling it to customers?

NN:   Before asking “Why?” we think it is more appropriate to start by asking ”Do you?”. We prefer selling material to end-users than to LME.

If by using the word ‘customer’ you actually mean a trader, than sometimes it is better to sell to the LME, sometimes not. It depends on a number of conditions including what kind of a trader it is. If it is an ordinary trading company that makes a living by providing extra services to clients then we may do business. If it is a speculator that makes most of its profit through market volatility than we rather sell to the LME.

But of course in all our sales the highest priority is price. If we don’t receive what we could it’s considered an investment and, like any investment, should have a clear return.

we assume you realise that the market balance does not change depending on who we sell metal to. If production exceeds consumption then the metal is accumulated in stocks somewhere.

If you would like to raise a discussion on what is better for long-term market parameters – transparent stocks (i.e LME stocks) or hidden stocks, including the ones that could be accumulated for the purpose of manipulating the market – we would enjoy being part of such a discussion.

 

 We are happy to continue this dialogue with you anytime hoping that questions you ask as a person well familiar with the level of transparency of other market participants (including our competitors and critics) will be in line with industrial standards of confidentiality.

 


Comments

( 1 comment — Leave a comment )
(Anonymous)
Jan. 8th, 2011 05:41 pm (UTC)
xengi
Отличный блог у вас, много интересных постов, буду постоянным читателем!
( 1 comment — Leave a comment )