Russian metals producers pare back to lock in the longer term

Russia’s major metal giants have announced they roll back their investment plans for the next year and cut production as the demand falls worldwide.

If any proof is needed that the real economy is hurting we got it at the UBS conference of metals industrialists on Thursday, as major metals producers provided a chorus about cuts in spending and production.

From Severstal

“We’re pulling back on our projects, we have revised our Capex, we are reviewing our 2009 programme.”

Mechel,

“We are already cutting down hours at our operations – working hours.”

With Evraz continuing on the theme.

“We shall expect production cuts, compared to the average month in the first half of the year, at the level of about 25%.”

Several metal plants have halted operations over the past week.  One third of industry workers are doomed to loose their jobs.

However analysts believe the metal giants are taking the right steps to support prices as demand slows. Producers say they enjoyed high margins over recent years and are now ready to survive even without state help. Aleksey Morozov, Metals analyst at UBS says, some may even benefit from the crisis.

“If you have a problem period of low commodity prices then higher cost producers in different parts of the world have to be closed. So that supply will effectively go away from the market.  And of course this should drive a faster recovery in the future, and also some supplier rationalization.  So I think the low cost producers, namely the steel companies, Norilsk Nickel, they should all benefit in the longer term because the supply situation going forward will be more rational than now.”

Analyst say Russian producers have raw materials of their own and even who doesn’t can benefit from falling commodity prices.