Date: a week ago   Category: Economy

Severstal will sharply increase investments and expects weak increase in demand in Russia

The fourth on volumes of production of steel in Russia the company - Severstal, is going to increase sharply investments into development of capacities in the next five years, expecting delay of increase in demand in the key house market to 1% throughout all this time.

Severstal, controlled by the billionaire Alexey Mordashov, has reported that it plans to increase capital expenditure next year to $1,4 billion about about $0,8 billion which annually I invested from 2012 to 2018. From the total amount of 75% the rest will be aimed at the development, - at maintenance of capacities.

further - since 2022 - capital expenditures will decrease approximately to $900 million, and in 2023 will return to $750 million.

"As has been announced earlier, we begin the program of updating of capacities of the first repartition which will demand considerable investments... Severstal will continue to adhere to "a clever kapeks" that means that IRR (return of investments) on all our projects has to exceed 20%", - the company has reported.

as a result of investments in construction of the blast furnace number three in 2021 the power of production of cast iron can grow up to 12,1 million tons about present 9,2 million tons if the company keeps operation of two more furnaces, the decision on which management hasn't made yet.

have to lead New investments to increase in production, after 2023 Severstal plans to produce in addition about 1 million tons of steel, in 2023 the production of steel can make 12,7 million tons in comparison with 12,0 million tons in 2018.

at the same time Severstal has reduced expectations of demand in the house market, key for itself, predicting consumption growth in the current year and up to 2023 only for 1% annually up to 42,7 million tons about 40,8 million tons against the background of the slowing-down economy.

according to the company, Russia waits for a failure in demand from a construction segment - the main consumer of steel - for 2% this year and zero dynamics in the following. Automotive industry which will increase consumption by 9% this year and for 5% next year can give support to demand.

Demand in large diameter pipes production will grow by 15% and for 10% in 2018 and 2019.

Severstal promises that it won't change the dividend policy assuming the direction on dividends over 100% of a free cash flow. But during an active stage of investments dividends will be paid from the normalized free cash flow. It means that the investments exceeding the "basic" level of last years of $800 million will be excluded from calculation of dividend base.

of Investment into the steelmaking sector look risky, considering that prices of steel fall already and will continue decrease in connection with a surplus in branch, analysts of BKS consider.



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