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NLMK’s Russia Steel Output Tops Rivals After Adding Capacity

OAO Novolipetsk Steel (NLMK), controlled by billionaire Vladimir Lisin, became the largest steelmaker in Russia after boosting domestic production by 27 percent.

Novolipetsk, or NLMK, produced 11.2 million metric tons globally in the first nine months, while Russian output rose to 10.5 million tons, Anton Bazulev, head of external relations, said by phone. This beats Evraz Plc (EVR)’s 2 percent drop to 8.9 million tons domestically, according to company statements.

NLMK started up the first new blast furnace in post-Soviet Russia late last year, with low-cost operations allowing it to expand as rivals in Europe shrink. Russian producers have benefited from owning iron ore and coal production at current prices compared with competitors that don’t have their own raw materials.

“Russian steelmakers, and NLMK in particular, have the lowest cost of production globally for a ton of slabs, even beating China,” Boris Krasnojenov, an analyst at Renaissance Capital Ltd., said by telephone from Moscow.

NLMK is able to make slabs, a basic steel product that’s rolled into plate, pipes and tubes, for $375 a metric ton. That compares with $550 for Chinese steelmakers and about $600 for ArcelorMittal (MT), the world’s biggest producer, Krasnojenov said.

The Lipetsk-based company’s new Rossiyanka furnace, already running at full output, has allowed NLMK to raise capacity 35 percent to 12.4 million tons a year. The producer contributes about 20 percent of Russia’s crude-steel volumes and accounts for 12 percent to 14 percent of the world slabs market, it said.

Second-Largest

The new furnace, costing 43 billion rubles ($1.4 billion) including infrastructure, gave NLMK the world’s second-largest sales growth in the past year, Bloomberg Industries data show. Sales rose 40.45 percent. Hyundai Steel Co. (004020) grew 49.63 percent.

European competitors have sold or idled plants to reduce a supply glut as slower economic growth erodes demand. Luxembourg- based ArcelorMittal suspended plants in France, Germany, Poland and Spain last year and permanently shut furnaces in Belgium.

OAO Magnitogorsk Iron & Steel, Russian billionaire Victor Rashnikov’s producer, will post third-quarter output tomorrow and Cherepovets-based OAO Severstal (SVST) is set to report next week.

Neither is likely to top NLMK’s local crude-steel output because of the new furnace, Societe Generale SA analyst Sergey Donskoy said.

Magnitogorsk produced 6.13 million tons of crude steel in Russia in the first half, while Severstal’s domestic output totaled 5.36 million tons, according to company statements.

Kirill Golubkov, a Magnitogorsk spokesman, and Severstal spokeswoman Natalia Ivanova declined to comment on production.

To contact the reporter on this story: Yuliya Fedorinova in Moscow at yfedorinova@bloomberg.net

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

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