Interview with Andryi Korotkov, Interpipe’s CEO (Forbes-Ukraine, July-22)

 

- You were appointed as Interpipe’s CEO at the very beginning of the war. What was the most difficult issue during this time?

- Our case is quite typical for the entire industry. On February 24, after first explosions in Dnipro, Interpipe decided to stop all production facilities, let people go home and organized shifts at plants to avoid possible thefts. In such mode the company spent all of March.

However, these are not the only problems Interpipe faced. At that time, many thousands of tons of products were on their way to customers. The situation in the seaports of Odesa and Chornomorsk was particularly complicated as the products supposed to be loaded onto vessels turned out to be blocked.
 

- How did you react?

- Interpipe started exporting its products to Europe by road and railway transport with further transshipment in seaports. However, a new problem appeared. The number of road carriers decreased. After February 24, no European company provided its autos for the export of products from Dnipro or Nikopol. Meanwhile Ukrainian carriers increased its prices for their services. Moreover, all Ukrainian exporters directed their transport flows through the nearest ports of Romania which turned out to be unable to process the entire volume of new cargo. For example, the Romanians lacked the experience of transshipment of pipes and railway wheels. However, gradually a new system of transportation started to format.

All the time the carriers were crippled by missile strikes on various infrastructure objects in the new transport corridors. For example, now there is no railway link between Odesa and Izmail. For Interpipe, it’s a problem because it is easier to load one wagon with 60 tons of products than to order three trucks for this.
 

- Does Interpipe ship products just through Romanian ports?

- Yes, today the main ports of shipment for Interpipe are Romanian ones. We are also trying to set up a corridor to the north of Europe. However, it’s not Polish ports of Gda?sk or Gdynia, as they did not process pipes before. Therefore, we decided to transship our products through the ports of Belgium and the Netherlands. However, this corridor is longer path than through Romania.

It is complicated and expensive to deliver products by car or railway to the Benelux countries. So, Interpipe is developing transport coridor to the north-west of Europe via the Danube. At first, the products are delivered by trucks to the Ukrainian port of Izmail, then it goes on a sea barge to the Romanian port of Galati, and finally it goes up the Danube to northwestern Europe by river barges. However, right now, it is only experimental batches.
 

- How did the transport costs increase?

- Comparing to pre-war levels the transport costs have already increased by 2.5-3.5 times from the Ukrainian plant to the client. The figures vary widely depending on the various transport schemes. If in the pre-war period logistics costs accounted for 3-4% in the production costs, now they have increased at least 2.5 times.
 

- How did the share of domestic and export sales change?

- In 2021, the share of export and domestic sales stood at 82% and 18%, respectively. However, since February 24, sales in Ukraine have greatly decreased: the war negatively affected both the oil and gas sector and the construction sector, since the entire southeastern part of the country is war-torn.

But the enterprises of National Joint Stock Company «Naftogaz of Ukraine» in other regions keep running, and Interpipe still cooperates with them supplying steel pipes. Additionally, national railway operator «Ukrzaliznytsia» and some private enterprises repair railroad cars ordering our wheels.
 

- What are the company's production plans?

- In May-June, Interpipe’s pipe capacity utilization averaged 60-70% of the pre-war level, railway wheels - 45-50%. For the 3rd quarter we plan to maintain this level and, if possible, increase it by 5-10%.
 

- Where do you see Interpipe’s future? In which markets?

- The war had a slight affected geography of our sales. I would like to remind you that after the imposition of customs duties and embargoes by the Customs Union on Ukrainian pipe and railway products in 2019-2021, Interpipe did not supply its products to this market.

Generally, since 2014 Interpipe has been actively diversifying its sales markets. Currently, the main markets are the European Union, the Middle East, and the USA. The company supplies products up to 80 countries of the world, in all main markets of steel consumption, except for Japan and China. We also develop new products for our customers, as the demand for them depends not on the war in Ukraine, but on the evolution of the global oil and gas, construction, and railway industries.

For example, Interpipe have already entered certain premium niches in the global pipe market, such as high-level gas-tightness connections for the oil and gas industry in the Middle East and the US. In addition, we develop and supply new steel pipes for customers in mechanical engineering and construction in Europe.

The situation with railway products sales is little more complicated, as the CIS markets accounted for a large share of the market. However, we are intensifying cooperation with European, Turkish, and Indian railway companies. These markets are more competitive and have lower capacity, but Interpipe is able to work in premium niches, such as wheels for high-speed passenger trains.
 

- Ukraine has already lost about 30% of its steelmaking capacities. In general, these are Soviet era giants such as Ilyich Iron and Steel Works and Azovstal. How do you see the future of Ukrainian steel industry?

- After the war, a certain issue will arise very acutely which was previously believed better only to talk about. I mean a fundamental modernization of production facilities. Without this, the future of Ukrainian steel industry seems to be a problematic. Europe won’t make exceptions for our products if we do not modernize facilities in accordance with modern environmental requirements.

The plants remained on the territory controlled by Ukraine are able to produce an ordinary, limited range of steel products using outdated technologies, that is, they have poorly developed diversification. For example, Zaporizhstal produces sheet steel and coils, ArcelorMittal Kryvyi Rih makes long steel products. Interpipe is more confident because our facilities use more modern technologies. For example, until 2012, we produced steel using the outdated, ecologically dirty open-hearth furnace. However, we invested circa $1 billion in a modern electric arc furnace steelmaking complex Interpipe Steel.
 

- What would you recommend to Metinvest, ArcelorMittal Kryvyi Rih, which you bought raw materials from? Have you other suppliers to substitute them?

- Recently, Interpipe has been purchasing some coiled steel and pig iron from Metinvest. However, currently completely lost Ilyich Iron and Steel Works in Mariupol which supplied rolled steel to Interpipe NMPP to produce welded pipes. And Zaporizhstal, another Metinvest’s iron and steel works which also produces rolled steel, cannot replace this loss because it does not manufacture the types of this product Interpipe needs. In addition, Zaporizhstal’s output volumes now are very limited.

The situation is little easier with cast iron. All metallurgical enterprises produce this raw material - ArcelorMittal Kryvyi Rih, Dnipro Metallurgical Plant, and Zaporizhstal. Interpipe is purchasing pig iron from Metinvest.

In recent years, Interpipe only sporadically cooperated with ArcelorMittal Kryvyi Rih. Now this plant is passing through difficult times. It has larger scale of operations than we have, so AMKR is much more affected by logistical issues. If Ukrainian steelmakers fail to solve them, then production will be quite limited. And now it is impossible to quickly expand transport corridors. After all, miether Ukrzaliznytsia is adapted to new logistics schemes nor railways of neighboring countries. Additionally, there are not enough transshipment bases at the borders.
 

- Biden Administration withdrew 232 section tariffs on Ukrainian steel products for a period of 1 year. When will you restart supplies to US consumers?

- At the beginning of the third decade of June, Interpipe sent the first vessel with steel pipes to the USA for the first time since the beginning of the war. I hope that we will send the second one on the 20th of July.

The US currently maintains 23.75% anti-dumping duty on Ukrainian linepipes and 27.8% anti-dumping duty on Ukrainian OCTG products. However, the temporary withdrawal of 25% tariffs yet imposed by Donald Trump Administration initiated Section 232 investigations increases the economic feasibility of resuming pipe sales to the USA. Increased oil production in North America has driven up pipe prices. Therefore, even paying the anti-dumping duty Interpipe's sales efficiency in this market increased by 10%. Though in May-June, price hikes of pipe products in the US market slowed down.

After February 24, Interpipe has not yet shipped steel billets and rail wheels to the US due to increased logistics costs. So far, it is economically impractical.
 

- Also, the EU withdrew all duties and quotas for Ukrainian goods for a year. What is an effect?

- This slightly improved the economy of our sales. However, the situation in Europe is different: pipe prices have not increased as much as in the USA. However, there was a shortage of pipes in the European market in April-May when Interpipe products were temporarily unavailable that caused a small price jump of several percent. In addition, the EU abandons the Belarussian and Russian pipes. However, this hype has now died down as the Europeans are confident Interpipe is able to supply its pipes regularly.

European market also received a batch of pipes from China as insurance. However, Chinese products have a particularly strong influence on the Middle East market. Due to this OCTG prices do not rise there.
 

- How did the management system at Interpipe change after the war began?

- There were no significant changes in the business management, there was no need for it. The entire team is in the workplaces both in Ukraine and in foreign offices. The management structure has not changed.

However, the team began to solve many issues more quickly, new specific operational issues appeared. For this purpose, we have created several operational headquarters that deal with charity, volunteering, and security. Some managers have been additionally empowered so they can resolve related issues as quickly as possible.
 

- How actively is the owner of Interpipe Viktor Pinchuk interested in the company's state of affairs? Maybe he plans to take over operational management during the war?

- Viktor Pinchuk is not indifferent to the state of affairs at Interpipe. He solves certain humanitarian issues the company faces at his level more quickly than we do. As far as I know, he has no plans to return to operational business management. For this, there are other people who perform its tasks.
 

- What are the reasons for top-management rearrangements took place at Interpipe in 2022? On February 1, Franz Josef Marks was appointed as Interpipe's CEO. Does he stay with the company?

- Yes, on February 1, Franz Josef Marx started to serve as Interpipe’s CEO but after the war began he left the territory of Ukraine. After that, he cooperated with Interpipe for some time. However, it is practically impossible to manage a business like Interpipe remotely, especially in crisis situations. Therefore, in March, a decision was made to dismiss Mr. Marks from the office, to appoint me to Interpipe’s Board of Directors and to appoint me as new CEO. However, Mr. Marks remains in the Board of Directors of the Company.
 

- Do you experience a shortage of personnel?

- Now the most important our target is to keep staff and ensure a level of its income that will allow to support itself and their families. After the war began, part of the staff resigned for various reasons, for example, family reasons. Additionally, 840 people went to serve in the Armed Forces of Ukraine. Therefore, in some areas, we perceive a shortage of personnel.

All Interpipe’s employees who joined Armed Forces are provided with all kinds of assistance like uniforms, protection, and medicines. Several of them were injured, and Interpipe accompanies the process of their rehabilitation in medical institutions. In addition, we support the families of the killed workers, we do not forget anyone.
 

- Does the company have a plan in case of a negative development on the frontlines?

- Our production facilities and technologies cannot be relocated. There are no prepared places for this in Ukraine or abroad. Therefore, Interpipe does not have a plan B for the relocation of production units. If the frontline situation worsens, the basic option is to preserve production and ensure the safety of employees. This option is similar to the one we went through in March.