June 16, 2020 / 3:13 PM / 16 days ago

Russia's Severstal says steel exports offset domestic demand drop

MOSCOW (Reuters) - Russian steel producer Severstal expects domestic demand to fall by 5%-7% in 2020 compared to 2019 as a result of the coronavirus outbreak, but says increased exports have allowed it to keep producing to capacity.

FILE PHOTO: Severstal Chief Financial Officer Alexey Kulichenko attends an interview at the Reuters Russia Investment summit in Moscow, Russia September 19, 2017. Picture taken September 19, 2017. REUTERS/Grigory Dukor/File Photo

Chief Financial Officer Alexey Kulichenko said in an interview the second quarter would be the toughest as the coronavirus impact was most severe, ahead of a second-half recovery.

Already, he said business was improving in June although domestic steel demand is 17% weaker than a year ago.

“The second quarter will be the most difficult for us, as it will be for the whole market,” Kulichenko said.

While second-quarter deliveries may only fall by “a few percent” compared to the previous quarter, he expected lower prices would shrink revenues. He did not give figures.

Severstal, controlled by billionaire Alexei Mordashov, is Russia’s fourth-largest steel producer and, like other major Russian groups, is protected by low costs because it has its own supplies of coal and iron ore - the raw materials for making steel.

Kulichenko estimated global steel capacity has fallen by 74 million tonnes as the coronavirus outbreak led to a collapse in economic activity.

But he said Severstal expected the share of its output directed to export to reach 48%-50% in the second quarter, versus 45% in the first as some producers abroad reduced capacity.

He also said the company’s biggest customers were in the construction sector, which has been less hit by the pandemic than the auto industry.

Severstal’s sales to Europe in 2020 were expected to remain comparable to the historic average of 2-2.5 million tonnes, he said.

The company entered the coronavirus crisis with strong liquidity and low debts and will not seek government support or new debt this year, Kulichenko said.

He also said it would only consider not paying a dividend if it sees a threat to its financial stability.

Reporting by Anastasia Lyrchikova; Writing by Polina Ivanova; Editing by Barbara Lewis

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