Bloomberg News

Severstal Says 2005 Profit Dropped as Steel Weakened (Update2)

January 23, 2006

OAO Severstal, Russia's third-biggest steelmaker, said 2005 profit declined from a year earlier as steel prices weakened.

The Cherepovets, Russia-based company reported net income of $1.4 billion in 2004. Export prices for benchmark hot-rolled coil from former Soviet states averaged $449 a metric ton last year, from $516 in 2004, according to data from Metal Bulletin Plc.

``Steel prices were very high in the first four months but profit was affected by declining prices in the second half,'' Severstal Chief Executive Officer Alexei Mordashov said in an interview in Milan today. 2006 profit will be ``slightly less'' than in 2005, the CEO said, without giving details.

Global steel prices declined last year after a 25 percent expansion in steel production in China, the world's biggest producer of the metal, made the Asian nation a net steel exporter for the first time. That also increased costs for raw materials such as iron ore and coking coal to a record.

Shares of Severstal closed 0.9 percent lower at $11.20 in Moscow. They have gained 10 percent this year, compared with a 7.1 percent gain in the 16-member Bloomberg Europe Iron/Steel Index.

Severstal in October said profit in the first nine months of the year fell 8 percent as steel prices weakened. Evraz Group SA and OAO Magnitogorsky Metallurgichesky Kombinat, Russia's two biggest steelmakers, have also warned investors that their profit last year declined.

Severstal accounts for about 18 percent of all steel made in Russia, the world's fourth-biggest producer of the metal. The company expects to produce 12 million tons of steel this year, from an estimated 10.5 million tons last year.

Severstal's head of strategy, Andrey Laptev, in November said the company may sell shares in London in 2007.

To contact the reporter on this story: Samantha Shields in Moscow at sshields2@bloomberg.net

To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net


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