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Severstal NA sees pickup despite mart concerns

Keywords: Tags  Sergei Kuznetsov, Severstal NA, imports, flat-rolled, steel, catherine ngai

NEW YORK — Severstal North America Inc. expects strong demand growth in the second half of 2012 as it aims to capitalize on the rebounding automotive and energy sectors, chief executive officer Sergei Kuznetsov told AMM.

"The first quarter was very good and the second quarter was decent. Looking ahead at the rest of the year, we think demand is growing, and definitely so year over year," he said in an interview.

Kuznetsov forecasts a 6- to 6.5-percent demand improvement this year in the North America Free Trade Agreement flat-rolled steel segment, although a number of challenges continue to pressure the U.S. steel pricing environment, including excess supply, rising imports and instability in Europe.

U.S. raw steel production has been on an uptrend in recent months, with nearly 1.98 million net tons produced in the week ended May 19 at an average capability utilization rate of 80 percent (AMM, May 23) compared with 1.78 million tons produced in the same week last year at a 72.7-percent utilization rate.

But while capacity utilization is on the rise, Kuznetsov conceded that the market could still be stronger.

"We’re running the whole industry between 76 and 80 percent and that’s not enough for the market environment to be healthy. The steel industry needs to be running close to 90 percent," he said, noting that Severstal is running at around an 85-percent utilization rate. "While we have this lower utilization in the industry, of course, you will see strong competition for orders, and sometimes you’ll see pricing wars. Customers are taking advantage of it . . . especially (with) a very lean inventory. Every time they sense an opportunity that the market will be going down they hold back, and that puts pressure on us."

Imports also have been an issue as demand weakness overseas is enticing large shipments of foreign material to arrive stateside.

"Imports are coming in waves. We’re definitely seeing imports come in. There is weakness in the home markets in Asia (and) Europe, and people will try to increase their offerings. That’s putting pressure on the market," he said. "Customers are taking advantage of the surge in imports."

Fortunately, an improvement in a number of key end-use sectors has helped mitigate some of that oversupply. Although construction has remained slack, a number of industries—including automotive, energy and agriculture—have continued to show strength, Kuznetsov said. "The best (sector) is automotive, and we have pretty good exposure to the automotive markets. We are also growing our participation in the pipe and tube market."

Meanwhile, the company continues to examine ways to improve its positioning through vertical integration. To control input costs, Severstal has said it is considering setting up a direct-reduced iron or pig iron plant in Trinidad and Tobago (AMM, Jan. 11). "We believe in vertical integration and we think that we need to achieve a good degree of integration of raw materials for our Columbus (Miss.) mill. That’s what we’re pursuing with this project," he said.

Earlier this year, Severstal lost out on a controversial $730-million conditional loan from the Department of Energy (DOE) to fund a portion of the expansion at its Dearborn, Mich., operation in order to develop lighter, stronger steel for automotive production (AMM, Jan. 10), but Kuznetsov said some of those plans are still in the works.

"The DOE decision . . . was quite an unfortunate development at the 11th hour. It was quite a setback for us, but we’re not giving up our plans," he said. "We believe that this light-weighting trend will continue and we are working on other financing solutions at this point." Kuznetsov declined to say whether another Energy Department loan application was a possibility.

The company also is holding back any concrete plans to rebuild the "B" blast furnace at its Dearborn mill, which was shut down after molten metal breached the furnace’s shell in January 2008. "The possibility is there and it has been there. It’s not going anywhere. But we have to be absolutely sure we have enough demand before we make our decision," he said.

Kuznetsov was quick to dismiss any major acquisition plans in the near term, including possible interest in RG Steel LLC or ThyssenKrupp AG’s Mobile, Ala., plant. Severstal was the previous owner of the RG Steel assets prior to the company’s formation in early 2011.

"We have no plans," he said of possible acquisitions. "It (selling the assets to RG Steel) was a fair transaction. We got caught in a very unfortunate development, but we sold the plants in a firm negotiated transaction. We’re prioritizing our efforts going forward and aggressively pursuing (a number of end markets) where we see good growth."

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