He added that Severstal’s sales in
Russia are made at a premium to the export market, which he
said is sometimes quite good, especially as the export market
price is currently slowing down, but in Russia pricing is at
a relatively stable level. At present, "It allows us to earn
additionally approximately $80/tonne because in Russia the
market for flat products is quite concentrated and three
players have more than 75% of this market, and the market is
quite well balanced," he explained. The premium in the
Russian market is above its typical level of $40-50 per
tonne, but Shevelev said that it looks likely to remain
positive for the coming months.
In Severstal’s major export market
of Europe, the company sells to Scandinavian, central
European and East European countries in particular. "Our
logistical position, at Cherepovets, is very good for us and
for exports, especially in Nordic countries," Shevelev added.
The company’s flagship mill is based at
Cherepovets, about 500 km to the north of Moscow.
"Speaking about our strategy and our main
competitive advantages, it is cost leadership through
vertical integration when we have more than 100% of
self-sufficiency in iron ore products [130%], and about 78%
in coking coal," he explained.
"Considering the cost curve, we are in the left
[very low] position globally. That has given us the
opportunity to sell our exports in any market in the world,
but we are focusing on Russia because it is a more profitable
market for us," he noted.
"Customers in local markets for us are more
understandable and more predictable. And currently we are
changing our strategy by focusing on end-customers to deeply
understand real customer needs and to be ready to provide not
only product – and not only service as usual which
we have done before – but also the products that we
cannot produce yet," he added.
He gave the example of a partnership that
Severstal has with Evraz, another major steel and mining
company, "we created a common sales platform in Russia to
complete our range portfolio and provide some customer needs
and solutions." Severstal is looking for discussions for more
joint ventures and partners.
"I am sure that through this strategy, when we
are focusing on real customer needs – and we are
solving their business needs, not problems – their
business needs and business opportunities give us an
additional push forward," Shevelev explained.
He confirmed that Severstal wants to become so
well integrated into its clients’ supply chains
that it becomes indispensable to them. "Absolutely,
it’s why we are sure that our target for
additional Ebitda – that is $2.1 billion
additionally for the period 2018-2023 – is
He said that for the company’s
results in 2018 and 2019, Severstal has already earned about
an additional $700 million, or about 27% of its five-year
target. "Our target is to add 10-15% annually to Ebitda and
our result for 2018 and 2019 says that is possible and doable
for us in the time and within the budget," he stressed.
Route to the top
Shevelev has held multiple roles on his path to
become Severstal CEO, each of which have added valuable
experience for him to lead a business that employs 50,000
people as well as to execute the company’s
over-arching vision to become "the leader of steel industry
of the future".
"I was born [in 1974] near Cherepovets. I
finished state education and studied to become a mechanical
engineer. My second education was about economics and
management, and the third was a general MBA," he recalled
Shevelev started work on the shop floor 22 years
ago, in 1997, in a Cherepovets steel rolling mill that is a
subsidiary of Severstal’s steel plant there. He
recalls the steps from working on the shop floor to the
"I built my career in this plant. After I was a
worker, I became a supervisor, the head of the shop floor;
then head of the strategic department, the technical director
and then the executive director of the Cherepovets site. Then
I became CEO of Severstal’s metalware
businesses, which produce finished products from steel, such
as ropes, mesh and fasteners.
"This post gave me the opportunity to feel [what
it is like to be] a customer of the steel industry, because
we bought product from the metallurgical plant at Cherepovets
– but not only from Cherepovets but also from the
He was free to choose what products he
purchased: "from Cherepovets steel mill or from the
[external] market because the relationships between assets in
our company is a market. If I could buy more efficiently from
the market, I could if I wanted to."
He explained that it gave him the opportunity
from the customer side to interact with his colleagues from
the metallurgical plant. "I had a lot of difficult
conversations and discussions over quality, volume and
pricing issues etc. I tried to understand better
metallurgical technology and the metallurgical business model
and how we can use them."
From the role of CEO of Severstal’s
metalware businesses, he received an offer from the local
government to become first deputy mayor of Cherepovets city.
"It was very exciting for me and it was an absolutely
different way and track for me but, because I had already
experienced more than 15 years in the steel business, it was
really interesting for me," he recalled.
Severstal’s majority shareholder
and chairman, Alexey Mordashov, agreed with Shevelev about
the merits of him accepting the role. "I went to town, where
I was responsible for development, economic strategy of the
town, construction, architecture and working with business
connections. I was in that post for a year or so and it was a
very interesting period of my life, because I received lots
of different experiences working with other parts of the
government and the political side and citizens’
He recalled holding regular meetings with the
people to hear about their needs, issues and problems. "I had
to be focused on solving these problems because, in business,
I have to demonstrate results. I was quite effective there
because I received an offer from the regional government,
which was a high position to be deputy governor."
He accepted that offer too and moved from
Cherepovets to Vologda, which is the region’s
centre. But after working for only three months in that
position, he received another offer from Alexey Mordashov to
go back to Severstal.
Business and community
Wherever they are located, it is common for
large integrated steelworks that employ thousands of local
workers to also have links and responsibilities to the
communities in which they are based. Severstal is no
exception, as Shevelev explained.
"Cherepovets is quite a small town of only
315,000 citizens and Severstal is the biggest employer there.
It is very responsible for society, the environment and the
business environment there. We have many social programmes in
the town. We have a lot of social investment into the hockey
team, sport, and some special social programmes such as the
"Road home" program for children who do not have a
"We support a lot of these things and it means
that the local government and the Vologda government and the
Cherepovets government work closely with the Severstal
management team. We decided and resolved absolutely that to
increase the effectiveness of the town we needed to care
about and increase the engagement of citizens and the
corporate culture with the town."
He said that it was quite simple and comfortable
for him to work in the government team too, because he had a
constant connection and link with business people, not only
from Severstal, but also from other businesses.
"After receiving the offer to come back to
Severstal at a higher position, I accepted it and came back
to Severstal as the CEO of hardware businesses." After three
years in that role, he was promoted to other Mordashov
businesses, in plywood, "which were also very interesting
– they have a big market share globally because
Russia is a big player in plywood business."
He worked in the hardware business for 6 months
and, after that, following changes in the management team at
Severstal, he became CEO of AO Severstal Management in
December 2016. "Of course, I accepted immediately because it
is a huge business in the Severgroup." Severstal creates 70%
of the gross revenue and 75% of the profit of the assets held
by Severgroup – the investment company for
Mordashov’s multiple businesses.
|Online sales of Severstal’s wide
product range continue to grow
Communication is key
In support of all of Severstal’s
strategic initiatives (see panel) that Shevelev ultimately
takes responsibility for as CEO, he highly values systems and
opportunities to communicate with the company’s
staff, managers and customers.
He prizes working with many different people,
with multiple emotions. "Each of us has emotions –
there are your own emotions and the emotions of other people,
and if you are a manager working with a number of people you
should understand these emotions and take them into account
and use it in a positive way for a result, and not to destroy
something but to create something," he said. "It is a way
that I constantly investigate and try to use and improve," he
The question arises of about how he achieves
that in an organization employing tens of thousands of
people. He explained that over the whole company there is a
lot of focus on communications and channels, such as through
video conferences with management teams to enable staff to
"Some years ago, it was really formal
conversation with some special questions that were prepared
before, but now with a constantly changing [dynamic]
situation, I give a short speech about our results and our
challenges, our trends and our position compared with our
competitors, and about our main tasks for everybody.
"Then I have more than half of my meeting for a
Q&A session and we use an electronic system to allow
people to ask questions confidentially from on-site. But at
the same time if somebody asks me a significant question,
everybody has the opportunity to mark, or rate, each
question." That effectively gives employees the opportunity
to vote on which questions are of most importance to them and
for Shevelev to answer those from the top of the list.
"It is good, because during these quarterly
meetings, I have the opportunity from my side to send a
message to everybody, but at the same time receive feedback,
questions and further information through this channel."
As and when needed, Severstal also uses on-line
webinars, typically lasting about an hour, for specific
topics or targets.
The company undertakes 360 degree research to
evaluate employees including top-managers, including Shevelev
himself. Customers, suppliers, colleagues, subordinates and
superiors are asked for feedback. "To give recommendations
and to give open feedback on what I should do better, and
what I should keep because it is already good," he
He said that he reflects immediately on the
feedback he receives, adding that the process is undertaken
at least once each year and that the system provides a
constant opportunity to make recommendations or comments. For
day-to-day communication, Severstal uses internal corporate
social media (Yammer), where Shevelev also has a blog, as
well as Facebook to provide a public profile and means of
"Last but not least, we have engagement research
via survey within our company, for which the response rate is
very high: 76% of our employees are involved in this
research, which is absolutely confidential for the employees
responding," he said.
There are about 75 questions, asking what
problems need to be addressed, whether there is any need for
a change in the behaviour of management, what needs to
change, and what employees think about
Severstal’s NPS (Net Promoter Score) for its
products and company.
"A lot of this information is used for focus
groups in order to better understand what our employees mean
about this: why they evaluate this [particular] topic beyond
what we expected etc. I think that we make the right
decisions in the right way because our engagement level grows
constantly. We started with 47% five years ago and currently
we have 78% in Severstal globally."
These percentage scores are for
Severstal’s engagement level in an independent
methodology that many companies use internationally. That
also enables comparison with the performance of different
companies. "Scoring above 75% means that we are an advanced
company in terms of culture and the engagement of people. We
have 78%. It is the right way to measure the feelings and
engagement in the company," Shevelev stressed.
|"I think that we make the right decisions in the
way because our engagement level grows
Shevelev is just 45 years old, so where next for
his career? "I have a great opportunity to move my company
from its current position in the local market to be a real
leader in the future steel industry," he said.
"I am going to transform our company from a
production site to a real customer-centric company that will
use not only technology for metallurgy, but implement it and
use a modern business model that is digital." He noted that
there are many digital business models at other successful
companies to emulate.
"We will not only provide products and service,
but will be a solutions provider. It is a challenge for me
and for my team and I think if I manage it, I will be really
happy. It is my target for the near future.
"Alexey Mordashov has delegated to and trusts me
to manage this company, and he trusts me to change my
company. It is very difficult, but a really interesting way
to go," he concluded.
Metal Market Magazine’s exclusive
interview with Severstal CEO Alexander Shevelev was in
London, UK, at the beginning of Severstal’s
capital markets day 2019, held on November 7. With several
senior members of his management team, he also gave a media
briefing that illustrated the range of the
company’s strategic initiatives and
Shevelev himself summarized the big picture. "We
had positive results in 2018 with an Ebitda of $3.1 billion.
Our Ebitda margin was highest globally," he said, quoting an
Ebitda margin of 37% for that year and 35% for the first 9
months of 2019.
He explained that Severstal updated its strategy
a couple of years ago to focus on several strategic
directions. "First of all, cost leadership. Our task is to
have cost advantages compared with our peers in rolled steel.
Currently we have good
result. In 2019, our cost advantage is
approximately 20% in rolled steels. A huge advantage from my
point of view," he stressed.
"A second priority is the creation of great
customer experience. For this, we divided our sales team to
focus on customer needs, investigation of special niches and
segments in the construction industry, the energy industry
and machine engineering industry," he said. He added that the
company has many projects to use the opportunity provided by
digital initiatives in areas including marketing, product
development and R&D.
"A certain priority for us is new opportunities.
It means for us that we are looking for a new business model
and try to be open… I mean that we create an
accelerator for start-ups and currently we have 15 projects
for external start-ups within our company."
The company has invested in two foreign
companies through its Severstal ventures capital fund. "We
try to be open and create new partnerships of mutual interest
for both parties," said Shevelev.
International tube & pipe business Tenaris
has formed a joint venture with Severstal for OCTG production
in Russia. Severstal also has a joint venture with Rusnano
and Windar Renovables to produce the towers for wind
"We have changed our culture quite quickly and
substantially. We launched a number of agile teams that are
working with customers. We work with cross-functional teams
with short periods focusing on results, and we have a lot of
programmes receiving new skills etc. So there have been a lot
of changes in our company now and all of them have achieved
quite a good result," he summarized.
Severstal has multiple investment projects and
organization projects in order to provide cost advantages in
its upstream activities. "Most of our projects are linked
with volume. We have several projects undergoing ramp-up,"
noted Shevelev. One example is the Yakovlevskiy mine
– one of Severstal’s assets for
iron ore production – where it will triple output to
about 5 million tonnes in iron ore concentrate in 2023,
compared with current production of 1.5 million tonnes per
Production will also increase for coal
concentrate at Vorkuta. In 2018, the output of coking coal
concentrate there was 3.4 million tonnes, but
Severstal’s forecast this year is about 4.8
million tonnes, and 5.4 million tonnes by 2023.
Investment in Severstal’s blast
furnace No. 3 will see hot metal production increase by 3
million tpy, starting from the fourth quarter of 2020. After
that, the company will have a total capacity of 12 million
tonnes of hot metal and its decisions will depend on the
market situation – to close old furnaces or maintain
them so that the company has flexibility for hot metal
"Our strategy is to produce high-value-added
products while at the same time producing greater volumes of
raw materials and semis. Also, we have investments projects
in capacity to increase the volume of production of
high-value-added product. We have invested in a pickling line
and hot rolling mill, cold rolling mill and zinc-coating
lines," Shevelev added.
"That means that all of our additional volume in
steel will be going to reproduce or use for more
high-valued-added products also. We are not going to increase
dramatically slab sales because our strategy is more to meet
new products and high-value-added product and service for our
customers," he explained.
Head of corporate strategy, Maxim Semenovykh,
said that Severstal is seeing more clarity about projects in
the pipeline for the Russian National Project for
infrastructure development, given the framework for
government spending. Three main initiatives that are most
attractive for Severstal are sea-ports, connections between
urban areas in Russia and railroads. "Railroads is one of the
best financed programmes because most of that will come from
the state Russian Railways," said Semenovykh.
Nevertheless, they are seeing some obstacles and
time lags on some of the project realisation. "We estimate
that in terms of steel consumption, if all this complex
infrastructure development will be completed in time it will
mean that there will be an additional 2.6 million tonnes of
steel demand in 2023. Realistically, we believe that it will
be about 50% of that in terms of the additional steel demand
– that is our estimate," he added.
Evgeny Chernyakov, Severstal’s
director for sales and business development for the
construction sector, said there are two areas where Severstal
is analysing modular solutions. The first is for bridges. "In
Russia, there are very traditional types of building bridges,
which can take two or three months," he noted.
Severstal has a partner in France, which he said
has a unique technology to produce a bridge in 3-5 days by
using a modular approach. He said that Severstal is exploring
the possibility of deploying the technology in Russia. It
will probably start production in 1-2 years, but is now under
In a second example, the steelmaker is looking
to their partnership with one of the biggest constructors in
the Moscow region, where they have started 20 projects
together to reduce welding operations inside buildings. They
are going to use modular construction for car parking, for
example, based on steel framework produced by Severstal.
The steelmaker also produces and markets branded
roofing products for individual housing projects.
Shevelev is enthusiastic about digital
technologies and Severstal is investing heavily in them.
"We have made good progress from our point of
view. We believe that digital initiatives should contribute
to us additional Ebitda of not less than $300 million
annually," he said. "We are focusing on several directions.
First is on quality. We have a number of digital systems
already: for example, automated cameras with neural net
systems that allow us to fix some kinds of defects and to
make decisions without human intervention."
The second is predictive maintenance to decrease
downtime. "We also have several projects in the safety area
that allows us to track the movements of our employees [to
check they are operating in safe areas, including underground
in the company’s mines]," he added.
Severstal is also introducing remote-controlled
mining equipment in their Yakovlevskiy mine. "We believe it
could be a good direction for us." The workers operating it
can work from safer locations and the equipment will increase
Shevelev said that Severstal’s
capex for digital projects and IT for 2020 will be about 6
billion roubles – a four-fold increase on equivalent
capex last year. "It is a huge sum compared with our
competitors," he said.
Investment in digital technology "is one reason
why we are going also to increase our volume in steel without
launching [more] new equipment." Severstal has estimated that
the implementation of digital projects will enable the
production of as much as an additional 1 million tpy of steel
by using their existing equipment.
Supply chain too
Maria Shalina, marketing director, said that
Severstal has plenty of digital projects in the supply chain
The company needs a differentiated approach for
different industries, whether for automotive or construction
for example, she explained. For the construction sector, for
example, it needs to be addressable in regional stores,
rather like retail, with a fast supply chain implemented. For
this aspect of the business, a very important part of
investment is digital.
"For communication with clients, we are
investing in new self-service channels with clients because
we see huge strengths when a client wants to communicate with
us through messaging, through a web application etc. This is
a trend, and clients want to receive the same service levels
as they receive from the B2C market," said Shalina. "This is
a challenge for us, but also an opportunity to do this and to
have client satisfaction."
"Now that we understand that we are keeping our
domestic market in Russia, we understand that we need to have
warehouses in each geographical zone because our end-clients
want to receive their metal not in the next two weeks, but in
just two or three hours," she explained. "It is like the B2C
level and we should change a lot in our engineering
processes, our supply chain and production to address these
huge customer needs. We are consequently changing our
On-line sales have already reached 30% of
Severstal Distribution’s total sales.
Severstal is expanding its distribution system
not only through its own facilities, but will use a low-capex
model – an easy entrance and exit model –
where it rents facilities or space from its partners.
Severstal’s own on-line store is
not only for the sales of its own products, but is also a
marketplace for those of its partners, such as its
partnership with Evraz, launched in 2019. The company is
broadening its number of different partners and product range
by these means.