Evraz Posts $999M H1 Loss, Sees Hope

Evraz Group, the country’s second-largest steelmaker by output, posted a first-half net loss of $999 million, compared with profit of $2 billion a year earlier, after revaluating assets, the company said Tuesday.

The loss was higher than analysts expected. Alfa Bank forecast a net loss of $300 million, while UralSib expected a net loss of $446 million. First-half sales were $4.6 billion, down 57 percent year on year.

Russian steelmakers have suffered from weak domestic demand, particularly from builders and carmakers, since last September, prompting steel prices to fall more than 50 percent.

But global steel prices began to grow in April, which gave grounds for an optimistic outlook for the rest of the year.

“In view of the positive pricing trends in recent months in our key export markets … and the growing volumes of our Russian steel production from July, we expect better results in the second half,” Evraz CEO Alexander Frolov said Tuesday in an e-mailed statement.

Evraz’s steel sales outside Russia accounted for 72 percent of first-half revenue, versus 58 percent for the same period of 2008.

“Our Russian operations were among the first to be hit by the global economic crisis during the second half of 2008, whereas our operations in North America displayed greater resistance,” Frolov said in the statement.

“Later, as the prices and volumes in North America started to deteriorate, we achieved certain improvements in our other business units,” the statement said. “From April we witnessed the onset of improved demand for steel products from Southeast Asia, the Middle East and North Africa,” allowing Evraz to restart an idled Siberian blast furnace and reach full capacity in Russia on July 1.

The company’s U.S. and European plants are now only operating at half capacity, Frolov said on a conference call.

“Russian demand will probably pick up, but it’s going to be a slow process,” he said, adding that construction for the 2012 Asia-Pacific Economic Cooperation summit in Vladivostok and the 2014 Sochi Olympic Games was helping.

To streamline operations, Evraz cut production costs by 35 percent in Russia and labor costs by 32 percent around the group. The company has reduced its debt burden by 15 percent since December to $8.5 billion as of the end of June.

The measures didn’t seem to be very much of a help, though, as earnings before interest, taxation, depreciation and amortization dropped to $468 million in the first half, down 87 percent from a year earlier.

“The second quarter wasn’t as successful as the first, as the EBITDA dropped from $305 million to $163 million quarter on quarter because of destocking on the U.S. market, which provided for most of the group’s profitability in the beginning of the year,” said Maxim Semenovykh, a metals analyst at Alfa Bank. “Evraz is now highly unlikely to reach our forecast EBITDA of $1.8 billion for the year.”