Zelezara Smederevo d.o.o., Serbia’s sole steel plant, will be shut in the first week of July for at least three months as officials of the unprofitable company and the government consider how to rescue it.
The decision was made due to a need “to change the system of financing,” Zelezara’s management said in an e-mail today, adding that it is difficult to anticipate when the plant can obtain sufficient raw materials for a “continuous work of the furnaces.”
The management expects the situation to improve toward the end of September, they said. By that time, Zelezara should know if it finds a strategic partner or a long-term buyer of its products. Yesterday, Economy Minister Nebojsa Ciric said the government “won’t let production come to a standstill,” even though the Smederevo-based plant is still posting a loss “month after month.”
The government, which has twice extended the deadline in a tender for the sale of Zelezara, giving potential investors until Sept. 10 to make an offer, is looking for a partner who would acquire a stake, prop up sales and provide raw materials at lower cost, Ciric said.
Ciric’s comments yesterday were in response to June 25 media reports that the government plans to switch off the last of the two furnaces at Zelezara on July 5. Former owner U.S. Steel Corp. (X:US) halted one of the two furnaces last year before selling the plant back to Serbia in January for $1.
The plant, which makes hot- and cold-rolled steel products, has a capacity to produce 2.2 million tons a year, according to the company’s website.
Current output is about 60,000 tons a month and the government spent at least 30 million euros ($37.5 million) over the first four months to maintain production, Mileta Gujanicic, union leader at Zelezara, said in a phone interview. The unions are against a shutdown because “there are more than 6,000 businesses in the country that depend on Zelezara. Shutting the plant would have terrible impact on the economy.”
The government has offered to pay employees 60 percent of their wages while the furnace is idled, which would cost less than covering production losses, “but workers want to work, we will organize protests against closure if need be,” Gujanicic said.
Zelezara’s operating loss widened to 12.53 billion dinars ($136.6 million) in 2011 from 11.04 billion dinars in 2010. Its accumulated losses exceeded its capital by 34.8 billion dinars, according to financial reports submitted to the Serbian Business Registers Agency.
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