Severstal call for global steel agreement - FT.

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Last updated: November 14, 2013 12:03 am

By Courtney Weaver in Moscow

The billionaire owner of Russias second-largest steelmaker has called for a massive restructuring of the global steel industry in some of the most pessimistic recent comments on the sector by an industry insider. In an interview with the Financial Times, Alexei Mordashov, chief executive and majority owner of London-listed Severstal, called for the industrys leading players and their respective governments to hammer out a global agreement dramatically to slash output and to reduce excess capacity.

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Alexei Mordashov: 'Severstal's prosperity depends on the prosperity of the industry as a whole'

Mr Mordashov said: Without solving the problem of supply and demand, without optimising the industry, we are doomed to be in a struggle for survival in the best-case scenario. That is, if there arent mass cases of bankruptcies and industry enterprises shutting down. Excess capacity is a serious problem for the whole global sector and without a solution the industry risks falling into a deep crisis like it was 10 to 15 years ago when one in four US steelmakers went into bankruptcy. In contrast to steelmakers in the US and Europe, which are by and large lossmaking, Severstal has managed to remain profitable thanks to self-sufficiency in iron ore and coking coal allowing it to produce steel more cheaply and also the companys decision to sell lossmaking assets in the US and Europe in the years immediately following the 2008-2009 global financial crisis. This year the group became the most profitable steel company in Russia, surpassing rival Novolipetsk Steel (NLMK). Analysts forecast the company would report an increase in earnings and earnings margins in its third-quarter results due to be published on November 14, despite a drop in revenue during the same period. Severstal is profitable. We are completely able to survive...But we are looking not just to survive but to prosper, Mr Mordashov said. And Severstals prosperity depends on the prosperity of the industry as a whole. The businessman said he believed the industry leaders and their respective governments ought to come to an agreement about cutting output, much in the way that the aluminium industry did in 1994. In that instance, the EU, US, Russia, Canada, Australia and Norway all agreed to reduce capacity; a decision that pushed down global aluminium output 6 per cent. If the steel industry were not to take similar measures, it could mean further lay-offs and plant closures in the sector, Mr Mordashov said, a trend that was picking up steam. The worlds biggest steelmaker ArcelorMittal has been shutting down factories and cutting jobs in France and Belgium, while ThyssenKrupp and Salzgitter have also announced lay-offs. Mr Mordashov said: We have the very serious risk that there will be high volatility and big losses in the steel industry, which would be much more damaging for our budgets and for the customers than if the industry is restructured in a predictable and orderly way with the least-efficient plants being restructured. Oleg Petropavlovskiy, an analyst at BCS Financial Group, said Mr Mordashovs proposal for a global steel agreement, while a good idea, was likely to be totally impossible to execute. Even if North America, Europe and Russian steelmakers agree to reduce excess capacity, China will still be the key problem. Chinas leading iron ore and steel association forecasts annual steel output to rise from 709m tonnes to 780m tonnes this year, while next year annual output is forecasted to go up to 800m tonnes. Meanwhile, Chinas net steel exports are forecast at 60m tonnes this year or 11m tonnes short of Russias total 2012 steel output. China is flooding global markets with steel, and Chinas government is unlikely to agree to any capacity cuts, Mr Petropavlovskiy said. With its excess capacity, China is simply not allowing steel prices to rise.
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Severstal call for global steel agreement - FT.com

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