DigitalDialogue with Branislav Klocok, General Director of OFZ

Alex Andreev: Branislav, thank you for this opportunity. OFZ is more than a well-known European manufacturer, 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 were established in 1953 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 make ferrosilicon, high-carbon ferromanganese, silicomanganese, calcium-silicon, silicon metal, and some cored wire. The plant’s installed capacity is approximately 120 MW; seven furnaces operate at our site in north Slovakia, 40 km from the Polish border. Due to our location, we are primarily focused on delivering the products within the European Union and especially neighbouring countries, Poland, Czech Republic, Slovakia, 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 downsize if this is true. 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. Slovakia also has no government-guaranteed electricity pricing scheme for industrial consumers. So, we mainly purchased electricity on the open market over the last ten years. 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 ferroalloy prices were high in Europe, 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 all production.

Alex Andreev: Are you indeed so sensitive to the spot electricity prices? Do you need to be secured with a long-term contract for electricity supply?

Branislav: The most extended possible period of the contract is three years. The same applies to other ferroalloys-producing countries like France, Germany, and Spain. Long-term contracts that we had expired, and as the energy prices started to move upward, the suppliers were reluctant to sign 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 ten 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 direction of “same market – same rules”.
On top of that, the energy problem is only a European problem and doesn’t exist in America or Asia. And as the European ferroalloys market has no significant entry barriers, the overseas producers from Asia, for example, having € 50-60 per MWh electricity prices, can still produce a lot and successfully compete 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. However, we still have one of Europe’s highest electricity prices. 

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

Branislav: I think Europe has no other alternative; we must reassess our nuclear strategy for a straightforward 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 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 energy source, unlike renewables, which depend greatly on weather conditions, so heavy industry cannot rely on it. Unfortunately, the energy security questions will take time to dominate 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 with some investments in Russia, we are facing many challenges. First of all, we have lost direct control over what is happening there, because no staff from Slovakia are there any longer. We can rely only on Russian employees. We 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 no longer possible, so let’s say we are in survival mode there. Also, it is still uncertain whether the Russian government will nationalise this asset or will ultimately have to sell this plant. It is a highly complex situation.

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

Branislav: I’d probably not be working for OFZ if I knew! I am not a big optimist in this case. What we see right now is kind of a giant tsunami or iceberg ahead of us, and people are still playing music and dancing and pretending that nothing will 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 soon.

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 believe it’s not time to think about this right now. Believe it or not, the world will not end in 2-3 years, so let’s pause to solve urgent matters and return. Nonetheless, decarbonisation is an issue on a global basis, but decarbonisation 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 a 5-6 times higher footprint and pretend the problem with carbon is solved. It will be a lie. Of course, there are ways to reduce the carbon footprint from the technical side, and we are working on it. One way is to replace carbon products with different types of recyclable, renewable carbon, for example, carbon from waste. In OFZ, we were doing a few projects using recyclable carbon, and the results have been promising.  There is also another possibility to replace carbon with hydrogen. In this field, we are now doing some research with local universities. However, hydrogen requires cheap electricity. The last way to reduce the carbon footprint is by using low-carbon electricity. The previous two points bring me back to nuclear power.

Alex Andreev: Transformation in the steel industry is only possible with extensive use of new digital solutions, tools, and technologies. What is your view of these processes?

Branislav: Digitalization and automatisation were crucial as they helped decrease labour 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 suitable software, system, technology, and knowledge. Plus, the result might be better than in case people do it. I believe it is a good thing because nowadays, we lack skilled people, experienced engineers, and 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 Metalshub Price Index Committee member 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 actual transactions data with computerising calculations behind makes a lot of sense. It provides much more transparency for the business. While everything is transparent and digital, many companies might still need to find the reason for their existence. For example, why would we then have so many traders? Whether it is good or not is still a question mark. In general, I say yes to the technologies. Still, there needs to be a human element for safety control when some digital algorithm bug happens to prevent the system from collapsing.