Bloomberg News

Evraz Slows Steel Sales to Benefit From Higher Prices Next Year

December 12, 2011

Dec. 12 (Bloomberg) -- Evraz Plc, the Russian steelmaker that joins the U.K.’s benchmark FTSE 100 index on Dec. 19, is curbing sales this month in anticipation of improved prices next year, Chief Executive Officer Alexander Frolov said.

“We have slowed down our sales efforts in December” to benefit from expected higher prices in the first quarter next year, Frolov told reporters in London today. “We see the market difficult, we aren’t saying that it’s a disaster.”

Evraz, which started its business from steel mills in the Urals Mountains and Siberia, has spent $7.8 billion to expand in North America, Europe and South Africa since 2006 when Chelsea football club’s billionaire owner Roman Abramovich became the Moscow-based company’s largest shareholder.

Evraz intends to expand in Russia, Frolov said, shrugging off public discontent over this month’s parliamentary elections and Vladimir Putin’s plans to regain the presidency in March. Tens of thousands of people in Russia protested the results of the Dec. 4 vote on Dec. 10, alleging election fraud.

“Russia is a good place to make business,” he said. The country will account for about 90 percent of the company’s capital expenditure, he said.

Evraz will invest more than $1.2 billion next year, Frolov said. “Five hundred million of this will be for maintenance and the rest for growth,” he said. The company is also seeking merger and acquisitions in iron ore and coking coal assets mainly in Russia, he said.

Russia Remains Focus

“We are constantly looking at various opportunities outside Russia, but a number of good options on the Russian side are much bigger,” Frolov said. “We see a lot of opportunities in coking coal and iron ore, sizable options and strategic feed to our existing assets, so Russia remains our main focus for investment program in future.”

Evraz would expand its own steel mills should it require increased production, rather than buying any, he said.

Rising raw-material costs and falling steel consumption have hobbled producers’ efforts to emerge from the industry’s worst crisis in 60 years, after the global recession caused demand to collapse. ArcelorMittal, the world’s biggest steelmaker has shuttered plants in France, Germany, Luxembourg, Poland and Spain in the past three months and announced the permanent halt of furnaces in Liege, Belgium.

Evraz isn’t planning to cut output or capacity because it sees demand and prices recovering, Frolov said. “Prices were softening in the last months; at the same time, we see some stabilization. For example, in China the prices aren’t falling for raw materials and steel.”

Raspadskaya Options

The company may reconsider the options for its 40 percent stake in coal producer OAO Raspadskaya in 2013, Frolov said. “We believe that we should wait before Raspadskaya is fully recovered from the accident,” he said, referring to a deadly blast at a Siberian mine last year that halted output for half a year. “They need 12 to 18 months to recover fully.”

Evraz, Russia’s largest steelmaker by output, on Oct. 6 ended talks on the potential sale of its 40 percent stake in Raspadskaya, citing “high market volatility.”

The company is seeking to close talks on buying a 51 percent stake in the Timir iron ore project in Yakutia from OAO Alrosa by the end of the year, Frolov said.

“We are very convinced about this project, we believe it has a strategic importance for Evraz,” he said. “It’s just timing and some details of transactions schedules.”

The FTSE Group said Dec. 7 that Evraz will join the benchmark index with effect from the start of trading on Dec. 19.

--With assistance from Yuliya Fedorinova and Ilya Khrennikov in Moscow. Editors: John Viljoen, Stephen Cunningham

To contact the reporter on this story: Firat Kayakiran in London at fkayakiran@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net


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