Severstal cuts steel output as crisis hits demand

Mon Oct 13, 2008 6:08am BST

Quotes

   

*Slashes Oct production at U.S, Italian mills by 30 pct

*Cuts production at flagship Russian plant by 25 pct

*Reviewing full-year guidance

*Considering whether job cuts are needed

(Updates with jobs, adds quotes, background)

By Alfred Kueppers

MOSCOW (Reuters) - Severstal (CHMF.MM), Russia's largest steel maker, is this month slashing production by 25-30 percent at plants in Russia, Italy and the United States as the global financial crisis hits demand for its products.

Severstal, majority owned by billionaire Alexei Mordashov, is also considering whether job cuts are needed as it joins the ranks of international steel makers battling a sharp reduction in orders from the construction and automotive sectors.

"We will need to balance the workforce with production. We have not yet finalised this assessment," Olga Antonova, head of Severstal's press service, said on Friday.

Russia's steel giants, which have spent record profits snapping up assets all over the world, have lost over three quarters of their value since peaking in May and are coming under more pressure as consumers tighten their belts.

The cuts are not confined to Russia. ArcelorMittal (ISPA.AS), the world's largest steel maker, last month signalled its readiness to reduce output by up to 15 percent as prices fall and demand falls faster than expected.

Severstal said in a statement it would cut October output at its U.S. and Italian mills by around 30 percent. Its flagship plant in the Russian city of Cherepovets will reduce crude steel production by 25 percent this month.

The company, which this year posted a record first-half profit of $1.94 billion, also said it was reviewing its full-year guidance. In September, it forecast full-year 2008 crude steel output of 23 million tonnes, which would be a 31 percent rise.

"We consider these measures to be prudent management in a time of rapidly changing market conditions," Severstal Chief Financial Officer Sergei Kuznetsov said in the statement.

"We are maintaining close discussions with our customers to support their near-term requirements."

Severstal follows rival Magnitogorsk Iron and Steel Works (MAGN.MM) in cutting production. Magnitogorsk has said it will reduce October rolled steel output by at least 15 percent and could shed 3,000 jobs at Russia's biggest steel plant.

Severstal stopped short of announcing job cuts.

The Moscow Times, citing a United Steelworkers union contract coordinator, reported on Friday that 800 workers at two plants in Ohio would be put on part-time shifts until further notice. Severstal declined to comment on the story.

To see an ANALYSIS on the Russian steel sector, please double-click on [nL974052]

(Editing by Robin Paxton and Victoria Bryan)