#DigitalDialogue with Branislav Klocok, General Director of OFZ

In this edition of our #DigitalDialogue series of interviews, our Price Data Manager - Alex Andreev invited one of our Metalshub Price Index Committee Members - Branislav Klocok. Branislav is a General Director of OFZ, the diversified manufacturer of ferroalloys in Central Europe with a history dating back to 1952. The dialogue is available in audio format on Spotify and Youtube.


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Script of the interview

Alex Andreev: Branislav, thank you for this opportunity. OFZ is more than a well-known manufacturer in Europe, but for our Asian and American readers, please tell us more about your plant, its potential, and its value for the European market. 

Branislav: OFZ is a ferroalloys producer located in Slovakia. We have been established in 1953 in order to supply the former Soviet Union’s block of Eastern European countries with ferroalloys. Historically, we’ve been producing many types of ferroalloys starting from ferrosilicon to ferrochrome and even ferromolybdenum. Nowadays (or at least until the middle of 2022) we produce ferrosilicon, high-carbon ferromanganese, silicomanganese, calcium-silicon, silicon metal, and also some cored wire. The plant’s installed capacity is approximately 120 MW, we have 7 furnaces operating at our single site which is located in north Slovakia, 40 km from the Polish border. Due to our location, we are mostly focused on delivering the products within the European Union and especially neighboring countries, which are Poland, Czech Republic, Slovakia of course, Hungary, Austria, and a little bit of Germany and Italy. The plant will celebrate its 70 this year. 

Alex Andreev: Recently, in the media, it’s been more and more reported about the problems faced by OFZ. First of all, they are about the high cost of electricity. You have been forced to stop the furnaces and even, if this is true, to downsize. Can you tell us more about the situation now? 

Branislav: Indeed, we are facing a common problem for the entire European market, which is a situation with electricity prices. In Slovakia, in addition, there is no government-guaranteed electricity pricing scheme for industrial consumers. So, at least over the last 10 years, we were mostly purchasing electricity on the open market. That is why we were influenced pretty much soon since the energy prices started to increase. In the middle of last year, we had to pay € 500-700 per MWh. Until prices of ferroalloys in Europe were at a high level, those electricity costs were not such a big deal. However, since May ferroalloys prices started to decline, while electricity prices were getting higher and higher and at some point, it became impossible for us to manage it. We had to shut down basically all production.

Alex Andreev: Are you indeed so sensitive to the spot electricity prices? Are you not secured with a long-term contract for electricity supply?

Branislav: The longest possible period of the contract is three years. The same applies to the rest of the ferroalloys-producing countries, such as France, Germany, and Spain. Long-term contracts that we had, have expired, and as the energy prices started to move upward the suppliers were reluctant from signing the new ones, pushing us to the spot market. 

And here is where a difference in governmental regulation across the EU plays its role, because, for example, in France under the same market circumstances ferroalloy producers are still running. French company EDF, the biggest operator of nuclear power plants in the country, is obliged by law to sell some part of its energy to industrial consumers at production costs price. That’s why local ferroalloys producers still pay 10 times less for electricity than the industry in Slovakia pays. It is simply because we don’t have such a governmental supporting scheme. Unfortunately, it destroys the principles of the EU, the principle of “same market – same rules”. 

On top of that, the energy problem is only a European problem, and it doesn’t exist in America or in Asia. And as the European ferroalloys market has no big entry barriers, the overseas producers from Asia for example, having € 50-60 per MWh electricity prices, can still produce a lot and successfully compete here, in Europe. 

It’s a paradox, but this is our reality. Approximately 80% of Slovakian electricity is produced by hydro plants and nuclear ones with one of the lowest possible costs, but still, we have one of the highest electricity prices in Europe. 

Alex Andreev: Western European countries have abandoned coal-fired power plants, and many of them also abandoned nuclear power, in favor of renewable sources. In the meantime, the Mochovce Nuclear Power Plant in Slovakia started the commissioning of its third unit last October. Do you think Slovakia's energy sector will follow the path of nuclear power? 

Branislav: In my opinion, Europe has no other alternative, we just must reassess our nuclear strategy for a very simple reason. We cannot rely anymore on Russia. That was a huge mistake, and it’s shown right now to everybody. We don’t want to burn coal, we should be more cautious about the environment. So, nuclear energy right now is the only energy for which we have all the raw materials and technology needed. And it doesn’t take decades to build a new power plant. It takes some years, but not too long. Nuclear technology is also a reliable and stable source of energy, as opposed to renewables which depend a lot on weather conditions, so heavy industry cannot rely on it.

Unfortunately, it will take time before the energy security questions become dominant across the continent. And unfortunately, it will hurt before the changes happen.

Alex Andreev: After the Russian invasion of Ukraine, the European Union imposed unprecedented sanctions on the Russian Federation. In this context, what fate has befallen your enterprise in Novokuznetsk? 

Branislav: As many European companies which had some investments in Russia, we are facing a lot of challenges. First of all, we have lost any direct control over what is happening there, because there is no staff from Slovakia there any longer. We can rely only on Russian employees. We of course had to reduce production to a minimum because the project was based on the calcium silicon produced here in Slovakia, and then packed in Russia and sold to Russian customers. It is not possible any longer, so let’s say, we are in a kind of survival mode there. Also, it is still uncertain whether the Russian government will nationalize this asset, or will ultimately have to sell this plant. It is a very complicated situation.

Alex Andreev: In your opinion, what is the perspective of the European metals industry for 2023-24?

Branislav: If I knew I’d probably not be working for OFZ! I am not a big optimist in this case. What we see right now it’s kind of a big tsunami or iceberg ahead of us, and people are still playing music and dancing, and pretending that nothing is going to happen. However, you see what is happening to the energy-intensive industry, you can see huge problems, and companies are getting closed everywhere. Instead of doing something to bring the balance back to the market, governments are just working on making people not feel the impact for the next two-three months. It is not a solution; it is just postponing the problem. I am afraid more and more industries will face serious challenges in the nearest future.

Alex Andreev: For the foreseeable future, metallurgy in Europe will increasingly focus on decarbonisation, sustainability, and green initiatives. What is being done at OFZ in this respect? 

Branislav: I personally believe it’s not time to think about this right now. Believe it or not, the world will not come to an end in 2-3 years, so let’s take a pause to solve urgent matters and then come back. 

Nonetheless, decarbonisation is an issue on a global basis, but decarbonization has to be done in a sense. You cannot just close down the metals industry here in Europe with one carbon footprint and let it develop in any possible way somewhere else with 5-6 times higher footprint and pretend the problem with carbon is solved. It will be a lie. 

From the technical side, of course, there are ways how to reduce carbon footprint and we are working on it. One way is to replace carbon products with different types of recyclable carbon, renewable carbon, for example, carbon coming from waste. In OFZ we were doing a few projects with the usage of recyclable carbon and the results were very promising so far.  

There is also another possibility to replace carbon with hydrogen. In this field, we are now making some research with local universities. However, hydrogen requires cheap electricity. 

The last way to reduce the carbon footprint is the usage of low-carbon electricity. The last two points bring me back to nuclear power.

Alex Andreev: No transformation in the steel industry is possible without extensive use of new, digital solutions, tools, and technologies. What is your view of these processes?

Branislav: Digitalization and automatization were always crucial as it helps to decrease labor intensity and increase efficiency. In the metals industry, you can ultimately have fewer people to do more stuff in sales and purchases if you’re supported by good software, system, technology, and knowledge. Plus, the result might be better than in case it’s done by people. I believe it is a good thing because nowadays we are lacking skilled people, and not only experienced engineers but even low and middle-level administrative personnel. So, in my opinion, the primary role of supporting systems and technologies is to replace people and help to make better decisions.  

Alex Andreev: You have been a member of the Metalshub Price Index Committee since 2020. What do you think about the technology-based pricing of ferroalloys and metals and its role in the future?

Branislav: Of course, the metals pricing based on real transactions data with computerizing calculations behind makes a lot of sense. It provides much more transparency for the business. While everything is transparent and digital, a lot of companies might even lose the reason for its existence. For example, why would then we have so many traders? Whether it is good or not is still a question mark. In general, I say yes to the technologies, but there needs to be a human element for safety control when some bug in the digital algorithm happens, to avoid the system to collapse.

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