Russian steel demand in 2009 to fall by 25%

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Dow Jones citing Mr Andrey Laptev the company's head of strategic planning as saying that Russia's largest steelmaker, Severstal JSC expects domestic steel demand in 2009 to fall by 25% on the year.

He said that domestic steel demand has been reeling because key customers in the automotive, construction, oil and gas sectors' sales have plummeted due to the economic downturn.

Mr Laptev said Russian steelmakers have been able shift a greater percentage of their production to export because the ruble depreciated 50% from its peak last year and many large Russian steelmakers have their own raw materials, meaning they weren't exposed to last year's surge in annual raw material prices for the fiscal year ending March 31st 2009. He said that Russian steel exports now account for 65% of total Russian steel production, up from less than 50% of total Russian output in 2008.

Mr Laptev expects Russian exports will decline once the world's largest miners and steelmakers agree on this year's prices for coking coal and iron ore, key ingredients in steelmaking. Analysts say iron ore prices could fall from between 30% 40%, although the negotiations haven't yet been concluded despite the new fiscal year having started. He said that "Russia's cost competitiveness will be diminished slightly but will remain cost leaders, along with Brazil, globally."

Mr Laptev said he remains optimistic about a recovery in Russian steel demand, partly due to the fact that Russia has announced a USD 250 billion economic stimulus package that will be used to provide loans to banks and finance infrastructure projects. He said that the package is tantamount to 14% of Russia's gross domestic product. He added that nevertheless, Russian steelmakers are still suffering from the economic downturn. Russian steel production fell 50% on the year in January and 30% on the year in February.

Mr Laptev said he expects the economic downturn will reshape the structure of the Russian steel industry with many of Russia's open-hearth steel plants will closing due to their inefficiency and relatively high pollution levels. Open hearths account for 20% of Russia's production capacity and 40% of Ukraine's steel production. He also said that virtually all mini-mill projects planned for 2010 will not materialize."