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UPDATE 2-Rautaruukki CEO sees more downward pressure on steel prices
September 13, 2012 / 4:46 PM / 5 years ago

UPDATE 2-Rautaruukki CEO sees more downward pressure on steel prices

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By Terhi Kinnunen

HELSINKI, Sept 13 (Reuters) - Steel prices are more likely to fall than rise this year as raw material prices have fallen from last year, Finnish steelmaker Rautaruukki Oyj’s chief executive said on Thursday.

The pricing “has been fairly stable, but maybe the pressure has been more on the downwards, because of the raw material development, than upwards,” Sakari Tamminen told Reuters.

He added that raw material prices had recently changed rapidly and some prices, such as those of iron ore, had started to increase again.

Steelmakers globally are struggling with the debt crisis in Europe, along with weak growth in Japan and a slower pace of expansion in China, the world’s largest producer and consumer.

Tamminen said it was impossible to predict when demand would pick up again. But Rautaruukki aims to boost sales of more profitable special steel and is building a sales network outside Europe in countries such as China, India, Australia, the United States and Brazil.

Special steels are those which can for instance have higher strength or special coatings and may be used in mining equipment or in construction.

“We have the target in special steel that it would be more than half of the sales of our steel business,” he said, noting the level is currently about a third.

In recent years, Rautaruukki has taken steps to diversify from steel making into construction and engineering. For example, it makes steel roofs, structures for bridges and shopping centres. It has also expanded in eastern Europe.

Tamminen said the eastern European market was the right way to go, as there was more need for new plants, shopping centres, homes and new infrastructure, compared with in western Europe.

“The biggest new potential is in Russia,” he said. “Industrial and commercial construction is the most interesting area.”

The firm was hit hard by recession in late 2008, forcing it to cut around 3,000 jobs. It reported operating losses in 2009 and 2010, but returned to profit in 2011.

But the European debt crisis is still denting Rautaruukki and squeezing demand for steel, as many investors put projects on hold.

The firm has launched a cost-cutting programme, including the reduction of around 100 jobs. Tamminen said there was “a lot to do in improving profitability and also cash flow generation”, and said the group may further increase its savings target.

Rautaruukki’s second-quarter comparable operating profit decreased to 8 million euros ($10 million) from 71 million a year earlier.

It cut its full-year guidance and said 2012 comparable operating profit would be at the same level as in 2011, while sales are seen growing around 5 percent. ($1 = 0.7759 euros) (Editing by David Holmes)

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