Evraz Plc (EVR), the world’s largest rail producer, plans to start global track exports to expand beyond the Russian market, just as the Ukraine crisis brings the threat of wider sanctions against the Kremlin.
After spending $600 million upgrading a Russian plant, Evraz targets first exports this year to regions including the U.S., building on a 45 percent share of the American rails market, Ilya Shirokobrod, the company’s vice president for railway products, said in a Moscow interview.
South America and the Middle East “look like the most attractive points to enter the export markets” because of high demand for track and easier rules for product certification, with Europe sales planned for next year, Shirokobrod said.
Evraz, 32 percent owned by billionaire Roman Abramovich, is attempting to challenge the export dominance in rail tracks of Tokyo-based Nippon Steel & Sumitomo Metal Corp. (5401) and Austria’s Voestalpine AG. (VOE) Evraz forecasts that by 2017 it will ship about 250,000 metric tons of tracks worldwide from Russia, compared with none outside the former Soviet republics now. That’s about a sixth of estimated 2014 global exports.
“Exports will mark a new stage in the company’s development,” said Dmitry Kolomytsyn, a Morgan Stanley analyst in Moscow. “It will be profitable and good for Evraz’s image. We don’t see any sanctions that may hurt the strategy so far.”
Evraz, which has its primary listing in London, produces track for the U.S. market at its plant in Colorado. The rails for export will come from its site in Novokuznetsk, a Siberian city about 3,800 kilometers (2,360 miles) from Moscow that’s twinned with Pittsburgh.
Russia’s largest steelmaker targets annual capacity across all its factories of about 2 million tons, once the modernization at Novokuznetsk, completed in 2013, is completely online. The Siberian upgrade means Evraz now makes head-hardened rails as long as 100 meters (328 feet) that have improved durability and can handle higher speeds.
“Given the high quality of our rails, we think we may become a significant player on the export market,” Shirokobrod said. He declined to comment on the potential for events in Ukraine to influence the company’s plans. Evraz’s press service said the company’s business isn’t affected by the situation.
European Union foreign ministers this week froze the assets of companies for the first time in the Ukraine conflict, after saying they were expropriated during Russia’s Crimea’s annexation. They added 13 people to a list of individuals facing asset freezes and travel bans for destabilizing Ukraine and threatened more steps with the U.S., to target entire Russian industries.
Evraz is looking to benefit from increased U.S. rail demand, partly driven by the boom in shale-oil production, which contributed to a 3.7 percent increase in American railroad traffic this year, as of May 3.
Rail freight transport in Europe should grow at about 1.3 percent annually to 2020, SCI Verkehr, a German consultancy company said in a report this year. Traffic in Germany, Europe’s largest economy, fell about 5 percent last year, according to figures from the International Union of Railways.
Evraz is pursuing certification of its rails with Deutsche Bahn AG, with a successful application leading to exports starting in the first quarter of next year.
Evraz bought rail-manufacturing assets in the U.S. as a part of its Oregon Steel Mills Inc. acquisition in 2007. An expansion of the plant’s capacity that started in 2011 added 15 percent to capacity to about 500,000 tons by last year.
Evraz shares rose 0.5 percent to 104.1 pence at 11:53 a.m. in London. The stock is down 7 percent this year.
The company is turning to exports as Russian mining and steel company OAO Mechel considers competing with rail supplies to the domestic market. Even so, local sales remain important because the former Soviet Union consumes about 1.4 million tons of rails a year, mostly for repairs, Shirokobrod said.
Evraz plans to compete to supply the 770-kilometer Moscow-Kazan high-speed rail link, which may need more than 200,000 tons of rails in three to four years, Shirokobrod said.
“Russia is far behind the leading railway nations in terms of new speed tracks construction, and it is good that we are starting to catch up.”
To contact the reporter on this story: Yuliya Fedorinova in Moscow at firstname.lastname@example.org