The Russian steel producer Severstal has announced its financial figures for the first half of 2009.
Accordingly, as a result of lower sales volumes and a drop in average prices, Severstal's revenue in H1 2009 decreased by 47.3 percent year on year to $5.65 billion, while its cost of sales in H1 amounted to $5.42 billion - down 27.5 percent year on year, mainly due to the lower volumes and a decrease in raw material prices. During the period in question, the company's loss from operations totaled $623 million compared to a H1 2008 profit of $2.33 billion, as a result of lower capacity utilization rates and a 29.6 percent drop in average prices for rolled products. Meanwhile, Severstal's H1 EBITDA decreased to negative $161 million from $2.81 billion in H1 2008, while its net loss for the period amounted to $944 million, including a $214 million pre-tax foreign exchange loss, compared to a H1 2008 net profit of $1.97 billion, which included an $8 million pre-tax foreign exchange gain.
In addition, Severstal registered an increase in its net debts to $4.93 billion at the end of the second quarter this year, up from $4.78 billion on December 31, 2008.
During the first half of this year, Severstal's Russian division was one of the group's most cost efficient producers, with production costs going down quarter on quarter despite the appreciation of the ruble in April and May. H1 production costs were reduced by 38.8 percent year on year largely as a result of the depreciation of the ruble. Due to weak demand in the domestic market, Severstal Russian Steel increased its export sales, which accounted for 48.9 percent of its H1 revenue, thereby allowing it to increase its capacity utilization.
Severstal's North American sales volumes and prices reached their lowest levels during Q2, leading to lower revenue quarter on quarter. Production of rolled products in Q2 was 9.7 percent lower quarter on quarter and the average selling price for rolled products was down 11.9 percent. Severstal said that it is committed to operating in North America and will retain its most efficient units with a view to making them even more flexible and efficient. During the first half, the management of Severstal's North American business focused on operational restructuring and conserving cash through the use of existing inventories of raw materials and limiting capital expenditure. The Warren and Wheeling mills are currently idle and restructuring in North America will continue in H2.
"The first six months of 2009 was the most challenging period in the last 20 years for both Severstal and the global steel industry," Severstal CEO Alexey Mordashov stated. However, he added, "Since June, there have been indications of some improvements in our markets, with production volumes and prices increasing so far in Q3 across the group."
"Although the signs of improvement in the operating environment are encouraging, the positive developments we have seen so far in Q3 remain fragile. We remain confident of the long-term prospects for the industry and believe that re-stocking in the US and Russia, as well as stimulus plans announced by many national governments will support demand for the remainder of the year. Further improvements, will, however, depend on the pace of global economic recovery and on production and pricing discipline in the industry," reads the company's release.