Mechel OAO (NYSE: MTL), one of the leading Russian mining and metals companies, reports temporary halting of production facilities at Donetsk Electrometallurgical Plant (DEMZ), which is part of Mechel’s steel division, and the schedule for temporary suspension of production at the group’s Romanian steelmaking facilities that are part of Mechel’s Eastern European Steel Division, in both cases due to unfavorable conditions on markets of raw materials and finished steel products.
Due to unfavorable prices in European steel markets linked to rising ferrous scrap prices and weak demand for finished products, production at Mechel’s Romanian steelmaking facilities is being temporarily halted. The decision was made in order to cut costs and synchronize production with market demands. The decision was partly helped by the fact that Romanian plants have already completed their production plans for the year.
Starting on November 21 and 22, electric smelting facilities at Mechel Targoviste and Ductil Steel Otelu Rosu respectively were temporarily halted. Rolling production at Mechel Targoviste will also be temporarily suspended starting November 27 once production plans are met, and starting December 15, rolling and hardware production is planned to be temporarily halted at Ductil Steel Buzau, Laminorul Braila and Mechel Campia Turzii.
Production at Donetsk Electrometallurgical Plant has been temporarily suspended due to rising production costs and reduced profitability linked to a steady increase in prices for the plant’s primary raw material — ferrous scrap — as Ukraine’s steelmakers are making seasonal stock pile-ups.
While production at these steelmaking facilities is temporarily suspended, all necessary measures will be undertaken to retain the affected facilities’ operational capability and to conduct maintenance works in winter. All employees involved in those works will be paid their full salary. In order to preserve jobs, the remaining personnel that are not involved in the scheduled works will be either paid for idle time or placed on leave, according to labor law.
Temporary suspension of production facilities will not affect sales volumes. All contractual supplies will be made from warehouses as normal.
The company is closely monitoring market conditions, so that once they normalize, production could promptly resume.
The expected economic effect from the temporary suspension of production will enable the plants to use their financial resources more efficiently while demand for finished products is low and scrap prices are high. It will enable them to minimize financial risks and ensure protection for the company’s long-term interests in the steelmaking sphere.