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No big spending on tap: Severstal's Mordashov

Keywords: Tags  Severstal, Alexey Mordashov, Dearborn, Columbus, World Steel Association, Catherine Ngai

SAO PAULO — OAO Severstal will remain cautious amid an uncertain global steel environment marked by overcapacity, and is unlikely to make any major investments in the near term, according to its top executive.

"It’s probably not the right time for any ambitious investments. Our focus is now inward and looking to see how we can improve our current facilities," Alexey Mordashov, chief executive officer of the Moscow-based steelmaker, told AMM during the World Steel Association’s annual conference in Sao Paulo. "We have to be very prudent about our investments and we aren’t planning on any big investments abroad. We need to be prudent, careful and preserve strength in our operations."

Russia’s second-largest steelmaker said earlier this year that it was withdrawing from the Amapa iron ore project in Brazil, in which it owned a 25-percent stake, due to unattractive market conditions, although Mordashov affirmed that mining will be a "long-term attractive segment."

While the Russian parent envisions little movement going forward, its Dearborn, Mich.-based Severstal North America LLC subsidiary has seen a major shuffling of its executive team in recent weeks (, Sept. 27) aimed at becoming more profitable in the U.S. market.

"I wouldn’t describe the changes which we introduced as fundamental, but we continue our efforts to make the company more effective in the future," Mordashov said. "We also want to do better in reducing costs and make the company more effective. We have a positive Ebitda (earnings before interest, tax, depreciation and amortization) in the United States, but we would like to see more, taking into account what we invested, which is a lot."

The new leadership will aim for better "engagement," encouraging better customer service, quality, product range and cost reduction, he said.

After several years of major investments and expansions at both Severstal NA’s Dearborn and Columbus, Miss., facilities, the company continues to contemplate building a continuous annealing line to produce advanced ultra-high-strength steel, a plan that had momentum a couple of years ago after a high-profile $730-million conditional loan from the Department of Energy (, July 13, 2011) that was subsequently rescinded (, Jan. 9).

"It’s demanded by the automotive sector and it’s key for us in the U.S. We applied for the (Department of Energy) loan, which we didn’t get. Now we’re contemplating the possibility of building it by ourselves," Mordashov said. "We’re not looking for any major expansions in the United States, that’s for sure. But we’re definitely committed to keeping our facilities in the United States in line with modern requirements for our customers. What will probably be more likely is that we’ll invest more downstream to achieve better product mix, quality improvement and better service for customers."

On the financial front, Severstal posted a net loss in the second quarter on the back of falling steel, iron ore and coking coal prices (, Aug. 29).

"We hope to see some price increases, which we’ve yet to see because of seasonality and year-end issues," Mordashov said. "We believe (iron ore) prices will probably be around this level, although others have predicted a softening because of additional capacity coming online and a slowdown in demand. For coking coal, demand is relatively weak but we’ll probably see some increases in coal prices, although nothing significant."

Finished steel has seen some "recovery of demand" in Russia, particularly due to stronger growth in the country’s automotive and construction sectors, he said.

Apparent steel usage in the Commonwealth of Independent States is projected to grow 3 percent to 58.9 million tonnes in 2013 due to a pickup in Russia, WorldSteel said in a short-range forecast released Oct. 7. Public nonresidential construction and the introduction of automotive stimulus measures in Russia will contribute to steel demand growth of 3.8 percent to 43.6 million tonnes in 2013 and a further 4.6 percent to 45.6 million tonnes in 2014.

"I would not be surprised if actual figures were higher this year because we see a recovery of the Russian economy and its economic growth, which is not huge but it’s quite strong," Mordashov said.

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