Evraz Group, Russia's largest domestic steel maker, will invest $1.8 billion by 2011 to boost capacity at its Russian mills and build two new plants in Siberia and Kazakhstan, a senior executive said on Wednesday. Evraz, part-owned by Russian billionaire Roman Abramovich, expects to supply 40 percent more steel to the domestic market by 2012 and will be able to finance most of the investment itself, Senior Vice-President Pavel Tatyanin told Reuters.
Russian steel demand will remain robust. It's a function of GDP growth, Tatyanin said in an interview on the sidelines of the Metal Bulletin Russian Steel Summit.
Russia's gross domestic product grew 8.1 percent last year and is forecast to increase by 7.6 percent in 2008, driving demand for steel products used in construction, machinery, cars and transport infrastructure.
Evraz, like other Russian steel makers buoyed by record profits, has embarked on an acquisition spree giving it control of assets in North America, China, South Africa and Ukraine.
Tatyanin, while not ruling out further acquisitions, said Evraz would now focus on consolidating its recent purchases and expanding its existing operations in Russia and abroad.
We can't go into a shutdown period. That's not in our vocabulary, he said. But we will be focused on the integration of what we've bought and will be focused on new greenfield and brownfield projects.
Tatyanin, who is also chief financial officer at Evraz, added: We will finance our expansion with a combination of existing cash flow and additional debt. The $1.8 billion will come primarily from our own resources.
Evraz will spend $80 million building a greenfield plant in the eastern Siberian city of Bratsk -- also home to the world's largest aluminium smelter -- with capacity to produce 400,000 tonnes a year of reinforcing bar after its launch in April 2009.
The company will spend a further $160 million on a new plant in the northern Kazakh city of Kostanai. Due to launch in June 2010, the plant will have capacity to produce up to 600,000 tonnes a year of reinforcing bars and channels.
Evraz will invest the rest of the $1.8 billion at its three Russian mills. At Nizhny Tagil, it will spend $215 million boosting steel wheel capacity and 375 million euros ($589.6 million) by 2011 raising rail output to 950,000 tonnes a year.
Evraz, the world's largest rail producer, will spend another 125 million euros ($196.5 million) boosting rail capacity at its Novokuznetsk mill to 750,000 tonnes a year, also by 2011.
Also at Novokuznetsk, Evraz will invest $80 million raising reinforcing bar capacity to 400,000 tonnes a year by mid-2009, while its West Siberian (Zapsib) mill will spend $500 million taking annual heavy plate capacity up to 1.0-1.2 million tonnes.
NO LIQUIDITY SQUEEZE
Evraz, which posted a record $2.1 billion net profit last year, is aiming to get a foothold in the booming Chinese market after agreeing in February to buy a stake in Delong Holdings Ltd , a Singapore-listed firm with a mill in China.
Tatyanin said the current owners had already increased capacity to 3 million tonnes of crude steel from 2.4 million tonnes, so no additional investment would immediately be needed.
It's important to understand how the market works and what is driving supply and demand in China from the point of view of a producer, and not just a trader, Tatyanin said.
He added that Evraz had not experienced any reluctance among banks to lend as a result of the global liquidity crunch triggered by the U.S. subprime mortgage meltdown.
We raised our biggest ever syndicated loan, $3.2 billion, in November 2007 -- right in the middle of the crisis, Tatyanin said.
This provides grounds to believe that, if there is a liquidity crunch, it doesn't affect us in terms of availability of finance.
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