The Russian steel producer Severstal has announced that due to the global financial crisis it has decided to reduce its 2009 capital expenditure program to $1 billion, including approximately $600 million of maintenance capital expenditure, down from the $3 billion originally foreseen. In addition, the company is not recommending the payment of a dividend for Q4 2008, and will not anticipate the payment of dividends in 2009, unless the economic conditions improve.
Accordingly, in order to mitigate the impact of the global economic downturn on the company, Severstal cut its production starting in October 2008, continued to align its production with market conditions and lowered its capacity utilization in December 2008 to 50 percent in Russia, 40 percent in the US and 60 percent in Europe. However, the capacity utilization rate rose sharply at the beginning of 2009, and the company says it is monitoring its markets closely and is able to adjust production to meet demand.
In February 2009, Severstal announced the temporary cessation of operations of the steel galvanizing line at Severstal Warren. Both the galvanizing line and the mill, which has been shut down since October, will remain idle while the company matches production volume to current demand.
According to the company's release, Severstal has a strong cash position and committed facilities in place to meet 2009 debt requirements. On December 31, 2008, Severstal had unused long-term credit lines of $951 million in total. In 2009, management also expects to release $1.2 billion of cash from working capital as a result of a reduction in inventories, lower sales and purchase prices, and better cash management. In addition, during Q4 2008, Severstal commenced a headcount reduction program across the group.
Meanwhile, Severstal's Russian long product lines were operating at full capacity in January and February of 2009 due to improved demand from the construction segment. Government-controlled banks have also provided financing to large construction companies to complete existing projects. In addition, the restocking and stimulus plans announced by many national governments are likely to support demand for steel in 2009.
Although it remains confident in the long-term prospects for the industry, Severstal believes it would be inappropriate to provide any guidance for 2009 until visibility and global economic conditions improve.