Severstal CEO does not rule out halting metallurgical production in Russia to balance supply

"In my opinion, we cannot even rule out halting some metallurgical production facilities in the Russian Federation to balance supply," Shevelev said during an interview with the Rossiya-24 television channel. "I hope it won't come to that, and we'll manage to somewhat loosen the tight grip of monetary policy in time. But currently, all signs indicate we might face situations including even halting operations at some plants with unfavorable production costs," he said.

When asked whether Severstal itself might scale back projects under current conditions, Shevelev acknowledged that this risk exists. "You know, there is a possibility. This risk certainly exists. However, as of today, our priority is not to cut or postpone our major investment projects," he said. "Because, as I've said, they lay the foundation for our future competitiveness."

He said that the steel consumption forecast for this year was somewhat pessimistic. Demand in Russia could fall 10% to approximately 39 million tonnes, compared to 43-45 million tonnes in previous years. "So, this decrease by 4, 5 or even 6 million tonnes is a very large one - strictly speaking, it is equal to the consumption volume of one whole industry branch," Shevelev said.

"The current [steel] prices on the domestic market are at a historical low. Prices are always a balance between supply and demand. But costs are a very important factor driving them. And in the second quarter we saw prices timidly move upwards. The industry is trying to raise prices because costs are growing at such a rate," Shevelev said. "We expect the key rate situation to change and that will revive business activity in consumer industries and bring back demand for steel. Then, demand will bring prices down to what we see as a fairer level for the industry," he said.

The CEO of Severstal said that the ruble exchange rate was also among the factors exerting an influence on supply. "As it stands today, our estimations, and the estimations of most analysts, show the exchange rate to be over-strengthened," he said. "This means that industries which are traditionally export-oriented, such as the metallurgical industry, are now practically unable to export their products, because it isn't profitable and therefore cannot be justified."

"We believe that 90-100 rubles to a dollar is a comfortable exchange rate which allows the Russian economy to remain competitive by global standards," Shevelev said. "It means that metallurgical companies will be able to export."

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