Russian steel giant Severstal post $1.2 billion loss; to axe jobs

Russia's biggest steel producer, Severstal reported a fourth-quarter loss after prices and demand for the metal went plunged due to the global economic slowdown and, resulting in the Russian steel maker planning to axe 9,000-9,500 jobs at its facilities in Russia.

The Cherepovets, Russia-based steel maker reported a net loss of $1.21 billion, compared to a third-quarter net income of $1.27 billion with sales plunging by 47 per cent to $4.02 billion.

The Russian steel maker with plants plants in the US and EU and plants and mines in Russia, said its net profit rose to $2.03 billion from $1.85 billion in 2007, this was in spite of a net loss of $1.21 billion in the fourth quarter. Revenue rose by 44 per cent at $22.39 billion from $15.5 billion.

The fourth-quarter loss, the company said was due to deteriorating economic conditions, inventory adjustments of $411 million, as well as a $1.54 billion impairment of non-current assets, mainly from acquisitions made in the US last year.

The company had $3.47 billion in cash as of December, more than its $1.98 billion of debt maturing in 2009.

Alexei Mordashov, the company's chief executive and majority stock holder, said in a statement that "The unprecedented slump across all our markets in the last quarter has resulted in weakening demand for steel and subsequent falling prices."

Severstal said that it will not pay dividends for 2009 and the fourth quarter of 2008 unless market condition improves and in a conference call on Wednesday, Mordashov said that the company is planning to reduce its workforce by 9,000-9,500 at Cherepovets Iron & Steel Works, its premier plant in Russia, and added that this figure also included the ones that were laid off last year.

The steel maker is also planning to cut production costs at its plants in the US and the EU, where it may resort to cutting jobs even as it continues with temporary layoffs, which started in December at its plants in West Virginia, Ohio, Maryland and Michigan.

Severstal is now the fourth largest steel maker in the US due to the acquisitions made prior to the global economic crash. The acquisitions were Wheeling Holding Co, bought for $621.8 million, Warren Inc for $382.6 million and PBS Coals Ltd. was paid a goodwill amount of $361 million.

It also acquired ArcelorMittal's Sparrows Point plant near Baltimore last year for $810 million, Ohio-based WCI Steel Inc for $327 million and Esmark Inc.based in West Virginia, for $1.2 billion.

In the US, it has already idled the Mingo Junction plant, Ohio electic arc furnace as well as Severstal Warren Inc while it shut down the Ohio galvanizing line last month.

In line with other steel makers globally, Severstal has cut production in Russia by 50 per cent, 40 per cent in the US and 60 per cent in Europe, as well as pruned its planned spending budget for 2009 by $1 billion.

According to the Steel Business Briefing, global prices for hot-rolled steel coil, plunged by 42 per cent in the fourth quarter after reaching a record in July but steel prices stabilized in January and showed a slight increase last month.