In July 2002, Severstal will ship the second test batch of rolled steel with alumino-siliceous coating to Avotovaz (Volgsk Automotive Plant, Toliyatty). In the second half of the year Severstal will begin regular shipments of this product to AvtoVAZ. This was decided upon at the 10^th Coordinating Council of Severstal and AvtoVAZ, which took place in Cherepovets this week.

The Council participants discussed both companies' performance in the time passed from the previous Council and whether the decisions made then were implemented. In evaluating the performance, it was noted that an increase in sales of Severstal's and ChSPZ'(Cherepovets Steel Rolling Plant) products to AvtoVAZ corresponded with an improvement in quality. Companies were able to maintain continuous shipments and increase the share of products of high added value in the product mix, such as calibrated steel and wire steel and cables.

Parties discussed future shipments of new grades of cold, hot and section steel and shipments of ChSPZ' products. According to Dmitry Goroshkov, Severstal's sales director, the minutes signed at the Coordinating Council list twenty new products which Severstal will ship to AvtoVAZ.

"Severstal continues to come up with new grades of steel of high quality, which will be used in AvtoVAZ prospective vehicles. They are more profitable for Severstal, and allow AvtoVAZ to cut down costs of using them in the production process. High value added products are made easier to produce by deairing equipment, which was built specifically for the product line of steels with coating, such as alumino-siliceous coating, used in the production of exhaust gas systems and gasoline tanks. Severstal will be the only supplier of this product in Russia while AvtoVAZ is the main buyer. We are preparing to ship the second test batch of alumino-siliceous steel to AvtoVAZ in July. Accordingly, we are expecting a positive response from AvtoVAZ, which will give us a go ahead on regular shipments. This, in turn, will allow Severstal to use this contract with Avtovas in place of export contracts," said Dmitry Goroshkov.

The parties also reached an agreement for the 2^nd half of 2002 on shipments of hot rolled metal with zinc coating. First of all, this will involve shipments of IF grades of steel with zinc coating, produced by means of deairing equipment at Severstal. Secondly, AvtoVAZ will also buy the Extragal product made by Severgal joint plant of Arcelor with Severstal, after the plant begins operations.

The Coordinating Council emphasized the importance of continuous delivery to the Severstal consignment warehouse at AvtoVAZ. The parties stated that the amounts of steel stored at the warehouse (up to 5,000 tonnes a month) of primarily scarce items allow the automotive plant to meet its production goals. Severstal, however, is willing to go further and expand the consignment warehouse in case of increasing the volume of orders.

In discussing commercial issues, parties positively evaluated the existing scheme, which involved defining the base volumes of purchases and specific discounts and additional payments by AvtoVAZ. The Coordinating Council discussed the scheme for the second half of the year.

For information: AvtoVAZ buys 47% of all steel sold by Severstal to automotive companies. This is primarily cold rolled and hot rolled products.

In 2001 Severstal sold to AvtoVAZ:

• Cold rolled coils - 185,000 tonnes,
• Hot rolled steel - 43,000 tonnes,
• Section steel - 12,500 tonnes.

In 4 months of 2002 AvtoVAZ bought

• Cold rolled coils - 57,000 tonnes,
• Hot rolled steel - 16,000 tonnes,
• Section steel - 4,000 tonnes.