Severstal Halves Production

Severstal has cut its production by half and applied for a $244 million loan from Vneshekonombank, chief financial officer Sergei Kuznetsov said Tuesday.

"Severstal is preparing for a new lower level of demand," Kuznetsov said during a conference call.

The company, Russia's largest steel producer, will reduce its capital expenditures by 20 percent this year and will postpone its $8 billion investment program for 2009 to 2011 "until market visibility and conditions improve," the company said in a statement announcing third-quarter results.

The company's shares fell 5.5 percent on the MICEX, which posted a 3 percent gain for the day.

Kuznetsov said mills in North America and Russia were working at half their levels from August and September.

The request to VEB, the state-controlled Development Bank, for $244 million represents 75 percent of a $325 million, five-year eurobond that comes due in February, Kuznetsov said, dismissing the borrowing as a "cushion." The steelmaker's debt has grown 140 percent to $3.6 billion since December.

The steelmaker posted a nine-month net profit of $3.3 billion, up 112.5 percent from last year. Sales soared 61 percent to $18.2 billion.

"The company's third-quarter results showed no signs of the financial crisis, as steel prices started to depreciate only in September due to weakening global demand for steel products," UralSib metals analyst Michael Kavanagh said in a research note Tuesday.

Kuznetsov, however, was optimistic about the future of the industry. "We have seen the bottom, and we expect the market to start growing," Kuznetsov said.

Severstal also reduced its forecast for 2008 earnings before interest, tax, depreciation and amortization to between $5.1 billion and $5.3 billion, CEO Alexei Mordashov said Tuesday in a statement on the company's web site.

Mordashov said in September that EBITDA would be between $5.8 billion and $6.1 billion.