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Severstal forecasts ‘challenging’ year-end

Keywords: Tags  Severstal, Severstal North America, Alexey Mordashov, steel, Chris Prentice

NEW YORK — OAO Severstal expects the fourth quarter to be more challenging than the third quarter, forecasting falling global steel prices amid stable input costs.

The outlook for the end of the year comes as the Moscow-based steelmaker reported net sales of $3.59 billion for the three months ended Sept. 30, down 3.4 percent from the second quarter, putting year-to-date sales at $10.99 billion, a 9.1-percent decline from the first nine months of last year.

"Severstal delivered a solid financial and operational performance in (the third quarter); a quarter that, across the steel and steel-related mining markets, was characterized by contracting prices," chief executive officer Alexey Mordashov said in a statement Thursday. "Until the (year’s) end, we anticipate coking coal and iron ore prices to remain stable, while steel prices have some downside risk. Therefore, we expect (the fourth quarter) to be more challenging for us compared with (the third quarter)."

Citing lower realized prices and "weaker" sales volumes at Severstal North America, the company said its international division posted net sales of $910 million during the third quarter, down 14.4 percent from the second quarter.

Severstal noted that capacity utilization rates in the United States were below 70 percent at the same time the country saw finished steel imports increase 18 percent year over year.

However, Severstal said that most market segments "remain healthy" thanks to demand from the automotive and pipe and tube industries. "There are some signs of recovery in the residential and non-residential construction segments," it noted.

Unlike its other divisions, Severstal’s Russian unit reported a 2-percent increase in sales to $2.8 million as the company benefited from strong sales of value-added products.

Despite the decreased earnings during the quarter, Severstal saw a higher profit margin thanks to a change in foreign exchange rates. The company’s profit totaled $329 million for the quarter, more than double the $155 million it posted in the second quarter.

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