* Ukraine's DEMZ shut down due to rising production costs
* Romanian plants halted amid high ferrous scrap prices,
* Ukrainian plant problems reflect Ukraine's wider economic
(Updates with company confirmation, adds details)
By Lina Kushch and Alexei Anishchuk
DONETSK, Ukraine/MOSCOW, Nov 23 Debt-laden
Russian group Mechel has closed a steel plant in
Ukrainian President Viktor Yanukovich's home town, weeks after
he made the country's overall stability a key issue in an
Mechel said production had been temporarily suspended due to
higher costs and reduced profitability following a steady rise
in prices for the plant's key raw material - ferrous scrap.
Russian steelmakers invested heavily to expand until the
2008 global financial crisis hit steel demand and forced them to
borrow to support their operations and are struggling to service
debts they piled up for acquisitions and growth projects.
An industry source told Reuters earlier on Friday the
Donetsk Electrometallurgical steelmaking plant (DEMZ), whose
annual capacity is 1 million tonnes, had no orders and would
shut down until April.
Analysts said production halts were delayed ahead of the
parliamentary election as Yanukovich's ruling Party of the
Regions sought to rally support in its eastern Ukraine
heartland. Ukraine's economy relies heavily on steel exports.
DEMZ has been idle for a week with 2,000 out of 2,700
workers sent home with reduced pay, said Nikolai Yushkin, deputy
head of a local trade union committee.
Ukrainian steelmakers, whose output fell 7 percent in the
first 10 months of the year, have an extra disadvantage in an
oversupplied global market, say economists who consider the
Mechel, battling net debt of $9.4 billion, bought DEMZ from
Estar in 2011 for $537 million.
Mechel put it up for sale earlier this year as part of a bid
to raise around $4 billion through the disposal of non-core
assets. It has yet to make any major sales.
"The shutdown will unlikely affect Mechel's financial
results, which are largely driven by its key coal segment and
its Chelyabinsk metallurgical mill," Nomos Bank analyst Yuri
The company said the temporary suspension of production
facilities will not affect sales volumes as all contractual
supplies will be made from warehouses.
It also said that it temporarily halted Romanian steelmaking
facilities due to unfavourable prices in European steel markets
linked to rising ferrous scrap prices and weak demand for
"The company is closely monitoring market conditions, so
that once they normalise, production could promptly resume,"
Mechel said in a statement.
Mechel posted a second-quarter net loss of $823 million,
compared with a $192 million profit in the same period in 2011.
(Writing by Olzhas Auyezov and Maria Kiselyova; Additional
reporting by Natalia Zinets in Kiev; Editing by Douglas Busvine
and David Cowell)