Construction rehab stimulates Severstal's performance

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Russian flagship metals group Severstal has seen a boost in 3Q net profit, up 17% year-on-year to $429 million thanks to robust demand and high prices.

­The results were slightly better than analytical forecasts with 9 months profits spring up to $1,550 billion from net loss of $225 million a year earlier. Alexey Mordashov,CEO of Severstal says strong industrial activity contributed to groups’ performance.“Q3 2011 was another strong quarter for Severstal, allowing us to make further improvements in revenue and EBITDA. We took advantage of strong Q3 demand from the construction industry in Russia. That, together with continued high raw materials and gold prices enabled us to maintain a solid EBITDA margin of 23.7%.”

Mordashov added the economic turbulence is still causing concerns over the year end results but there is still a positive future outlook. “Though the global economic landscape remains uncertain and we expect lower orders from customers at the end of the year, in Q1 2012 the market is expecting some positive signs of recovery in the industry,”

Severstal has sold three of its five underperforming facilities in North America in 2011, which contributed to an improvement in the company's credit metrics. Alexei Fadyushin, a Director in Fitch's European Industrials team says Severstal benefits from better product diversification compared with its Russian peers: “the gold segment provided 24% of company's total 1H 2011 EBITDA, according to company reports, and supports the company's margins.”

According to Fitch the relatively strong credit metrics of Russian steel companies are explained by their self-sufficiency in key raw materials and access to cheap energy, natural gas and labour. "Fitch considers the high self-sufficiency of Russian steel companiesin key raw materials as one of their main competitive advantages compared with international peers. This allows Russian steel producers to be less exposed to volatile iron ore and coking coal prices," says Alexei Fadyushin.

Financial results for the 3Q and 9 months ended 30 September 2011 in million dollars