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
"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
"Were running the whole
industry between 76 and 80 percent and thats 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 youll 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.
Were definitely seeing imports come in. There is weakness
in the home markets in Asia (and) Europe, and people will try
to increase their offerings. Thats 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 industriesincluding automotive, energy and
agriculturehave 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. Thats what were 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 were 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 furnaces shell in January 2008. "The possibility is
there and it has been there. Its 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 AGs
Mobile, Ala., plant. Severstal was the previous owner of the RG
Steel assets prior to the companys formation in early
"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. Were prioritizing our efforts going forward
and aggressively pursuing (a number of end markets) where we
see good growth."