Steelmaker Severstal to fight aluminium substitution in U.S. autos

Reuters

* Sees U.S. EBITDA, sales slightly higher in 2014

* Spike in natural gas prices weighs on costs

* Targets more sales to car industry in Southern U.S.

By Maytaal Angel and Silvia Antonioli

LONDON, Feb 27 (Reuters) - Steelmaker Severstal, Russia's second-biggest producer, said its North American unit plans to move into new high-strength steel products to counter the growing threat of aluminium substitution in carmaking.

Aluminium use in cars has increased sharply, tripling in North America and Europe over the past two to three decades.

Steel is much cheaper but three times heavier than aluminium and carmakers are under pressure to produce lighter vehicles to comply with environmental standards and offer fuel efficiency.

This year, U.S. carmaker Ford unveiled a new pick-up truck made almost entirely of aluminium, dealing a blow to the companies such as Severstal and sharpening their focus on rival products like high-strength steel.

"There's a whole bunch of grades we're working on to counter the infiltration of aluminium," Saikat Dey, recently appointed Chief Executive of Severstal North America, told Reuters.

"We want to make sure we can steer the boat rather than wait for the currents to take us," he said by telephone.

Last year was the best year for U.S. car sales since the boom times before 2008, with 15.6 million vehicles sold, up 7.6 percent from 2012.

This helped Severstal realise a 4.2 percent increase in annual steel product shipments to 4.5 million tonnes last year, and Dey expects this year's will top that number by 200,000-300,000 tonnes.

"Cars are getting lighter and steel is getting replaced with aluminium (but) in spite of those two factors, the sales level of the automotive sector has helped us overall, its becoming the fastest growing sector," he said.

The auto sector accounts for about 30 percent of Severstal North America steel sales, mostly from the company's Dearborn plant in Michigan.

To capitalise on growing car sales, Severstal plans to increase penetration in the south of the country by expanding the product offering of its Columbus mini-mill in Mississippi, which mainly produces tubes and pipes, to include more auto-grade products.

The company's international division, which includes the North American assets, posted its highest earnings before interest, tax, depreciation and amortisation (EBITDA) for 3 years at $244 million despite falling steel prices, thanks to higher sales volumes.

It now expects EBITDA for 2014 to be in line with, or slightly higher than in 2013.

Dey pointed out that although the shale gas boom in the U.S. is creating a positive environment for the manufacturing sector in the long term, in the short term, higher natural gas prices were hurting his and other companies.

This month natural gas prices in the United States spiked to their highest since 2008 as unusually cold weather was blamed for cutting production.

The Severstal group tumbled to a fourth-quarter net loss on Thursday after taking a large impairment charge due to falling coking coal prices and foreign exchange losses.

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