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. Last Updated: 07/27/2016

High Demand Boosts Evraz in North America

Steelmaker Evraz's North American plants are benefiting from renewed energy and infrastructure demand one year after the crisis forced sharp output cuts, a senior official at the company said.

"For us, crisis meant basically changing two directions. We became increasingly careful about capital use, and that's both long-term capital and working capital," Pavel Tatyanin, head of Evraz's international operations, said last week.

"The second thing is that it created stronger incentives for us to phase out and shut down some of the obsolete or inefficient operations in Russia, which we had been planning to shut down anyway."

Since the North American assets are profitable with rolling mills at 70 percent to 90 percent capacity and steel mills at full capacity, the company's mood is considerably more optimistic than a year ago.

Demand for steel tubes has risen, partially fueled by the shale gas boom, and demand for steel used in infrastructure and wind energy is also up.

"We are starting to see accelerated infrastructure spending, and a significant part of the recovery in steel markets … is attributable to the stimulus money from the federal government," Tatyanin said in Evraz's office in central Moscow.

"There is a lot of bridge work being done, and our Claymont operation on the East Coast benefits."

He added that rail demand, a key product at Evraz Rocky Mountain Steel, will also increase should the U.S. government proceed with plans to create high-speed rail networks.

The company produces 5 million metric tons of rolled steel and 2.5 million metric tons of crude steel at eight locations annually at its Evraz Inc. N.A. operations in the United States and Canada.

It bought almost $5 billion of assets on the continent during the pre-crisis steel boom in 2007-08, which contributed to the total firm's $9.99 billion debt at the end of that year, leading many analysts to argue that Evraz paid too much to expand.

Though Evraz cut its debt level to $7.92 billion by the end of last year, it booked $1.05 billion in negative effects from the revaluation of plant, property and equipment last year.

Tatyanin, who perfected his English while attending high school in San Diego, shrugs off the criticism.

"We don't know what 'high price' means," he said. "We are happy about all the assets that we have, their quality and the way they compliment each other."

Evraz also benefits because its infrastructure and energy focus means that it is not affected by U.S. auto industry woes, unlike rival Severstal, which has suffered because its U.S. assets are exposed to the sector.

Analysts said Evraz's debt is no longer a major concern, particularly after the company renegotiated a number of covenants.

Tatyanin added that while no bond issues are planned at present, the company continues to monitor the market.

Evraz is likely to borrow about $200 million this year via a bank loan to fund its Canadian operations following a similar move in the United States last year.

"The deal we did in the U.S. was about $200 million. Because our Canadian operations are similar in size to our U.S. operations, I would assume that it would be similar," he said.

Evraz is also the world's leading producer of vanadium, used to strengthen steel, and it also has assets in the Czech Republic and South Africa.

Prices have recovered from the roughly $19 per kilogram level seen last May, and Tatyanin expects a further increase.

"Currently it is trading at about $34 [per kilogram], and the outlook is that prices could increase further in the next few quarters."

It cemented its position domestically with the purchase of Vanady-Tula in December, but it does not expect to make any major purchases in the sector this year.

"The goal is to ramp up the facilities we've got back to full capacity," the executive said.

The group sold 18,400 metric tons of vanadium last year, down from 26,400 in 2008.

Revenues were $363 million in 2009, compared with $1.206 billion in 2008.