Novolipetsk Steel Slashes '08 Outlook

MTA Novolipetsk Steel processing plant. The steel sector has been hit by lower demand for goods like housing and cars.
Novolipetsk Steel, controlled by billionaire Vladimir Lisin, on Friday joined the growing list of the country's steel majors to cut full-year guidance in response to plummeting fourth-quarter demand.

NLMK, the country's fourth-largest steelmaker by volume, expects 2008 sales of roughly $11.6 billion and core earnings of about $4.8 billion, respectively 7 percent and 4 percent below the already-reduced guidance issued in October.

NLMK, which reported higher third-quarter profits year-on-year, is also preserving cash by scaling back investment.

"Due to the substantial worsening of the market caused by the global financial crisis and deteriorating prospects for the steel industry in the medium term, NLMK has substantially reduced capital expenditures for the fourth quarter of 2008 and put its capex program under review," the company said in a statement.

Russia's steel sector has come under pressure as the global financial crisis leads mills to cut output and halt investments in the face of evaporating consumer demand for housing, new cars and other durable goods.

Though all steel producers have suffered globally, the country's mills have been especially hard hit because clients are not paying for products, sucking cash out of the entire production chain from raw materials to finished products.

But analysts forecast NLMK, unlike rivals Severstal and Magnitogorsk, is likely to stay in the black this quarter.

"It is not a very complicated enterprise, unlike Severstal, which has many international assets that are not doing well," said Semyon Mironov, steel analyst with Credit Suisse.

"Novolipetsk owns a low-cost coal operation, so unlike Magnitogorsk, they don't need to buy," he said.

Vertical integration helped NLMK's nine-month net profit rise 66 percent year-on-year to $2.76 billion, slightly ahead of the $2.73 billion Reuters consensus.

Nine-month revenues totaled $9.64 billion, up 74 percent, but below the $9.67 billion consensus. Earnings before interest, taxes, depreciation and amortization in the period was $4.05 billion, up 65 percent but below the $4.06 billion consensus.