MMK Driven Abroad by Competitors

Magnitogorsk Iron & Steel Works will sell 60 percent to 65 percent of its products abroad in December, the company's chief financial officer Oleg Fedonin said on a conference callThursday in what appears to be achange in the firm's marketing strategy.

The company had been selling more than 60 percent of its output on the domestic market until recently.

Exports are expected to stay on the same level through January and February, Fedonin said, adding that export prices had fallen by 50 percent in the fourth quarter, while domesticprices had only dropped by 20 percent.

MMK produces steel slabs at the cost of $450 a ton, while the product's price on foreign markets stands at $350 a ton.

Magnitogorsk Iron & Steel Works, or MMK, has been squeezed out of the domestic market by stronger competitors such as Severstal and Novolipetsk Steel and had no choice but to begin selling more abroad even at loss-making prices, said Dmitry Smolin, a metals analyst at UralSib.

Unlike other Russian steelmakers, MMK has almost none of its own coal and iron ore resources and therefore cannot compete, Smolin said.

"The last two months have seen some of the most difficult trading conditions in the steel sector in many years," MMK board chairman and majority shareholder Viktor Rashnikov said in a statement posted Thursday on the company's web site.

The company has axed its production level by 62 percent since September, with the December output figures standing at 420,000 tons, Fedonin said.

MMK has been hit hard by delinquent payments from customers, primarily pipe companies and automakers, which have left the steelmaker with accounts receivable totaling 23 billion rubles, deputy chief executive Boris Semyonov said on a conference call.

The firm expects sales revenue this year of $10.4 billion, a 27 percent increase to the last year, Fedonin said, and analysts estimate this year's earnings before interest, taxes, depreciation and amortization at $2.7 billion.

EBITDA for the first nine months of the year stood at $2.67 billion, the company said on its web site Thursday.

"MMK, like other major Russian steelmakers, will be loss-making in the fourth quarter," said Smolin of UralSib.