Steel Slowdown Leads to Output Cuts

Itar-TassShift workers at Magnitogorsk Iron & Steel Works producing cast iron in one of the mill's furnaces in February.
Steelmaker MMK said Tuesday that it was cutting production amid a drop in demand for steel and uncertainty in financial markets, while Novolipetsk, another top producer, said it was considering a similar reduction.

MMK, or Magnitogorsk Iron & Steel Works, the country's third-largest steelmaker, has cut its planned output for October to 850,000 tons, a reduction of at least 15 percent, and could lay off workers as construction firms freeze new projects and carmakers predict slowing sales.

"We've only got orders for 600,000 tons," MMK vice president Vladimir Shmakov wrote in the company's newsletter Tuesday.

MMK normally produces more than 1 million ton of rolling steel per month.

"We can't lend the rolling as we ourselves have to buy the raw materials," Shmakov said in the article. "We can't export either as the prices for both ferrous and nonferrous metals have dropped sharply."

Evraz, the country's top steel producer, said Tuesday that it was "optimizing" its production plans for October and November "because of the uneasy situation on the Russian and world markets."

Novolipetsk Steel said Tuesday that "the volumes of its production could be revised in connection with a drop in demand for the steel products."

MMK's human resources and social programs manager, Alexander Mastruyev, said the cut in production could lead to about 3,000 people at the plant "having nothing to do."

MMK is the most vulnerable of the big steelmakers to falling metals prices, as it has hardly any coking coal and iron ore assets, said Olga Mitrofanova, an analyst at Aton. "So [MMK] can't be that flexible in reducing prices or allowing delays in payments in a crisis situation."