Summit News

Russia's Severstal expects to beat 2017 earnings target

MOSCOW (Reuters) - Severstal CHMF.MM, one of Russia's largest steelmakers, told Reuters it expects to exceed its 2017 earnings target as it benefits from rising prices for its products.

Slideshow ( 4 images )

Russian steelmakers such as Severstal and market leader NLMK NLMK.MM struggled over the last two years as world steel prices plumbed 11-year lows and Russia's economic crisis sapped domestic demand.

Their have prospects improved this year due to higher metals prices and a nascent recovery in the Russian economy. Severstal’s core earnings, or earnings before interest, taxation, depreciation and amortization (EBITDA), jumped 20 percent in the second quarter to $629 million.

“Of course, we are directly dependent on prices. More so in the fourth quarter, but the third quarter will be strong because of the good market,” Chief Financial Officer Alexei Kulichenko said at the Reuters Russia Investment Summit on Tuesday.

“The current consensus is for our 2017 EBITDA at the level of $2.2 billion to $2.3 billion. Given the favorable market situation, we can assume that we will exceed these estimates,” he said.

Severstal, controlled by billionaire Alexei Mordashov, had previously forecast 1.5 percent to 2 percent growth in Russian steel demand this year.

Kulichenko said he now saw Russian demand increasing by up to 5 percent this year and around 3 percent in 2018, on the back of growth in the country’s car and oil and gas industries.

The company’s capital expenditure will also increase next year, and include some of the funds originally earmarked for this year, Kulichenko said at the Summit, held at the Reuters office in Moscow.

Reuters reported in July that the European Union was planning to impose duties on hot-rolled steel imports from Russia and other countries, to counter what it sees as unfairly low prices.

Severstal faces duties of up to 5.3 percent and a final ruling from the European Commission is due in October. NLMK and competitor MMK MAGN.MM face tariffs of 15 percent and 33 percent respectively.

Kulichenko said the duties would not drive Severstal away from the European market.

“Provisionally, we have seen 5.3 percent. And that duty we have seen ... will definitely not be prohibitive,” he said.

“Given the logistical proximity and maturity of the European market, I believe that Europe will remain one of our main markets.”

Follow Reuters Summits on Twitter @Reuters_Summits

Writing by Jack Stubbs; Editing by Susan Fenton