By Alex MacDonald
LONDON--The Chief Executive of Russia's second largest
steelmaker, Severstal OAO (CHMF.RS), plans to reduce its capital
expenditure to less than $1 billion next year from $1.3 billion
this year and has no plans expand its crude steel production beyond
the commissioning of a new steel plant by the end of the year.
Severstal is completing the construction of its Balakovo
mini-mill in Russia with a view to begin processing steel products
in December and produce its first ton of crude steel from the
plant's electric arc furnace in April, the company said in its
investor day presentation on Thursday. The plant will be able to
produce 1 million tons of crude steel annually.
Russian billionaire businessman Alexey Mordashov, the Chief
Executive and majority shareholder of Severstal, told the Wall
Street Journal on the same day that the company's priority will now
be to cut costs even further and improve efficiency rather than
invest in additional steel production capacity.
"For us in the current circumstances...we believe it is more
important to demonstrate the resilience of our company," said Mr.
Mordashov. "We would like to grow [our] businesses, but not through
big greenfields, but through optimization and organization which we
have been doing."
The company plans to spend $600 million in sustaining capital
expenditure on an annual basis with the remainder spent on capital
projects that earn an internal rate of return of more than 20%,
said Mr. Mordashov and the company's Chief Operating Officer Vadim
Larin.
Severstal is also working on a feasibility study to develop an
iron ore project in the Putu Range of Liberia but will only go
ahead with the project if it's economically attractive, Mr. Larin
said. He added that the project may cost about $1 billion to
develop but the company only intends to use cashflow from its
existing operations to fund the project. As a result it will seek a
partner to help fund the remainder of the project if it decides to
go ahead with its development.
Mr. Mordashov said that he expects steel demand in both Russia
and the U.S. to continue growing in the year ahead. Russian steel
demand is forecast to grow at an annual compounded growth rate of
4.1% from this year until 2017 while U.S. steel demand is forecast
to grow 2.5% annually on average over the same period.
Write to Alex MacDonald at alex.macdonald@wsj.com
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