Severstal’s Mordashov Caps Spending Amid Call to End Oversupply

OAO Severstal (SVST), the Russian steelmaker controlled by billionaire Alexey Mordashov, will curb investment on expansion as producers grapple with global oversupply and excess capacity.

The global steel industry should start talks to discuss how to reduce capacity or risk a “serious challenge,” Mordashov, who is Severstal’s chief executive officer, said in an interview with Bloomberg Television today in London, where the company held a capital markets day.

Severstal intends to limit capital expenditure to $1 billion a year, starting 2014, for the “medium term,” it said in a presentation posted on its website. Severstal plans to add no further plants once it starts a mill in Russia’s Saratov region this year, Mordashov said. About a quarter of global capacity is surplus, the company said in the presentation.

ArcelorMittal targets a $3 billion reduction in costs by the end of 2015 to counter excess European capacity and weak demand. Severstal’s 2013 investments are planned at $1.3 billion, down from $1.4 billion in 2012 and $1.7 billion in 2011, the Cherepovets, Russia-based company said.

Severstal foresees domestic customers accounting for 80 percent of sales by its its Russian division in 2017, up from 61 percent in the first half of this year. Russian steel demand will rise by an average 4.1 percent a year until 2017, compared with annual growth of 2.5 percent in the U.S., according to forecasts by Severstal.

Severstal, which in 2004 became among the first Russian steelmakers to start international expansion, sold three mills in the U.S. in 2011 after idling capacity as slowing demand dragged down prices. Last month, Severstal said it will withdraw from the Amapa iron-ore project in Brazil, where it owns a 25 percent stake, citing unattractive market conditions for raw material.

Severstal advanced 3.4 percent to 278 rubles by the close in Moscow after reporting third-quarter profit that beat estimates. Earnings before interest, taxation, depreciation and amortization was $543 million, beating the $490 million projected by analysts.

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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