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23 Jul, 2009 14:58

Steelmakers look for domestic boost

Russia's steel sector will seek Lower taxes, debt financing and a domestic demand boost from Prime Minister Putin at Friday's meeting in Magnitogorsk.

Russia’s steel majors have felt the ground firm up in the second quarter this year, after the freefall of the previous 6 months. That saw Mechel, Evraz and NLMK boost production compared to the start of the year, mainly on increased Chinese demand.

But Kirill Chuyko, Senior Analyst at Kit Finance warns against over reliance on China.

“The consumption of steel in China is export oriented. China is an export oriented country and 90% of its exports go to the developed world – U.S. and Europe. The demand for steel in those countries is declining. So I don’t think that the current huge steel consumption in China is sustainable in the long term.”

Until last year, domestic demand for steel was growing strongly, encouraging producers to focus locally. Vladimir Zhukov, Executive Director of Nomura International says full recovery in the sector is impossible without a recovery in domestic steel consumption, and that’s what steel makers are seeking from the meeting in Magnitogorsk.

“One of the main requests is to stimulate domestic demand, both in autos and residential construction – the main consuming industries for steel.”

Zhukov adds that financing issues also need to be addressed.

“Unless they can get access to cheaper financing or subsidies on interest or loans they are going to reduce their capex to the level of maintenance, and cease all the new construction.”

The meeting in Magnitogorsk will be more of an exchange of opinions, market watchers say and expect no major decisions. What they are sure about is there's unlikely to be a repeat of last year's criticism of Mechel – or the health of its chief executive.