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By John Helmer, Moscow

Struggling with a rising debt burden of more than $8.2 billion, the Evraz group, owned by Roman Abramovich (left), Alexander Abramov (centre) and Alexander Frolov (right), has suspended production at its Claymont steelmill in Delaware. The production halt is indefinite. A company announcement from Moscow on Monday says that “due to subdued market demand and the high volume of imports, it will suspend operations at its steel mill in Claymont, Delaware. Over the next two months, about 375 employees will complete processing and shipping of existing products and prepare the mill for idling. EVRAZ will consider restarting the operations as soon as the market conditions improve. Evraz doesn’t expect any adverse financial effect on its operations in North America as a result of this action, and customers of the Claymont mill will be served by other EVRAZ facilities in Portland, Oregon, and Regina, Saskatchewan.”

Dated October 14, this was a big surprise. If what Evraz says now is believable, why did the company say publicly on August 29 that it was planning to increase production at Claymont Steel? Less than seven weeks ago, in the Evraz half-yearly financial report this is what the company claimed: “The key focus of the flat product group, in the period, was enhancing capacity utilisation. To this end, EVRAZ North America is currently finalising works to increase the rolling speed at EVRAZ Claymont which should improve productivity and provide capacity for higher output levels when the order book is strong.” (page 17).

There can hardly be a point to accelerating the rolling speed of a production line that has been switched off. A local publication in Delaware, where the Evraz mill operates, quoted the state governor Jack Markell as saying he had learned of the closure “late last week”. A statement from Markell’s office claimed he was “disappointed that Evraz is idling the Claymont facility. The global steel industry remains very challenging and DEDO was told that the facility is losing money as it seeks to compete with unfairly traded imports.”

In March, the state government had arranged to film at the Claymont steelmill a speech by Collin O’Mara, Secretary for the Department of Natural Resources and Environmental Control, inaugurating a new air pollution control system at the mill. According to the official, “it was a multi-million dollar investment. It’s going to improve the quality of life for local residents, improve the quality of life for the workers, increase productivity and make this plant much more competitive for decades to come. It’s an example that we can have a strong manufacturing sector and at the same time have a very healthy economy.”

“Through these investments, Evraz is demonstrating that Delaware will have both a strong manufacturing sector and a healthy environment,” O’Mara said. “The dramatic improvement in air quality in Claymont that will be achieved through this state-of-the-art baghouse would not have been possible without the unwavering dedication and engagement of leaders from Evraz, state and local government, and local community residents.”

markellIn January Markell (right) told the state legislature that the Evraz plant at Claymont was an example of “the world we now live in… more global, more productive, more competitive. It is a new world of unprecedented opportunities to create new partnerships, to sell to new customers, to innovate and collaborate in ways previously unimaginable.”

There can hardly be a point to an air pollution system if nothing at all is coming out of the chimneys. And if Claymont Steel was as competitive as the governor believed in January, how credible is the reason he says he was given last Friday by Evraz executives – that the mill was being driven into closure by “unfairly traded imports”?

Just how unfair that trade in imported steel plate can’t have been guesswork or lobbying talk by the Evraz men. That’s because it was the target of an eight-month investigation by the US Government’s International Trade Administration (ITA). The government had been asked by domestic steelmaker Nucor to check whether Ukrainian exporters of plate — Metinvest Holding’s Azovstal Iron & Steel Works and Ilyich Iron and Steel Works – were sticking to the terms of an anti-dumping price agreement they had signed with ITA in 2008. Starting this past January, ITA investigators probed whether “each [Ukrainian] signatory producer/exporter individually agrees to make any necessary price revisions to eliminate completely any amount by which the normal value (NV) of the subject merchandise exceeds the U.S. price of its merchandise subject to the Agreement. See Agreement, 73 FR 57602, 57603.”

Here’s the August 1 report from ITA, concluding there was no unfair import trading. “Our review of the information submitted by the companies indicates that they have adhered to the terms of the Agreement and that the Agreement is functioning as intended.”

So how come Markell reversed himself this week in order to claim the reason for the Claymont closure “is a reflection of this industry right now. Some very cheap imports coming in from some other countries and just not enough demand, it’s a bad combination.”

The shutdown of the US Government, triggered by the US congress, has taken ITA’s website statistical service offline, and so import volumes for the type of product Claymont Steel makes and sells are temporarily unavailable.

Claymont makes steel plate and custom plate products for industrial customers. Total production volumes in H1 2013 and for the whole of 2012 were 171,500 tonnes and 348,000 tonnes, respectively. Comparing the two numbers suggests that the rate of production at Claymont until very recently hadn’t been changed from last year’s rate.

Even so, the Evraz group admits it is running at a loss at present; according to its first-half financial report, the net loss for the first six months of the year came to $122 million. Its gross debt amounted to $8.2 billion on June 30, up by almost 5% since December 31.

Evraz does not issue financial results for its North American division, but based on a goodwill valuation of $135 million in the annual report for 2012, Claymont Steel is worth significantly less to the group than its plants in Oregon, Colorado, OSM Tubular-Camrose, Calgary, or Regina-Steel and Regina-Tubular (Canada). According to Evraz’s financial report for the six months to June 30, sales revenues for North America came to $1.62 billion; that represents 22% of the group-wide total, and it was down 10.4% compared to the first half of 2012. Today, according to Evraz, “market conditions continue to be challenging and low market visibility makes it difficult to foresee when positive changes will occur.”

Can a claim as vague as that be the real reason for the plant closure, or for the dissembling of Evraz executives in their reports to the London Stock Exchange, and to the office of Governor Markell?

The governor’s spokesman Catherine Rossi carefully distinguishes between what the governor was told by Evraz and what the US government has found regarding steel plate imports. “Governor Markell was told by Evraz that the mill closure was due to competition from imports. He was relating Evraz’s comment to him, not specifically commenting on the USDOC/ITA, its investigation, or Ukrainian steel imports.”

Is it conceivable that the closure is a tactic for persuading the ITA to reintroduce anti-dumping penalties against imported Ukrainian plate, allowing Evraz to restart the Claymont production lines, and start charging higher prices?

Evraz was asked three questions: Why was the shutdown of Claymont decided so suddenly and despite announcements indicating there was no such intention a few weeks ago? Why tell shareholders Evraz is enhancing capacity utilization at Claymont and then shut the plant down? What were the revenue, operating profit, Ebitda, and net profit (loss) for Evraz’s North American division in H1 2013? There has been no reply.

For more fibs in this series, try this. For the whopper Evraz has been telling about the attempted sale of its South African steel and vanadium business, read here. According to chief executive Frolov on August 29, “we also continue to work with the potential buyer of EVRAZ Highveld Steel and Vanadium and the due diligence process is currently in progress. An update on the sale of EVRAZ Highveld Steel and Vanadium is expected in Q4 2013.”

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