Severstal shifting to high-strength steel products to counter aluminum threat

LONDON (Reuters) -- Severstal, Russia's second-biggest steel producer, said its North American unit plans to move into new high-strength steel products to counter the growing threat from aluminum in light-vehicle manufacturing.

Aluminum 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 aluminum and carmakers are under pressure to produce lighter vehicles to comply with environmental standards and offer fuel efficiency.

Ford Motor Co. plans a new F-series pickup truck made almost entirely of aluminum, 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 aluminum," Saikat Dey, recently appointed CEO 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.

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.

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

"Cars are getting lighter and steel is getting replaced with aluminum (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 plant in Dearborn, Mich.

To capitalize 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 amortization for 3 years at $244 million despite falling steel prices, thanks to higher sales volumes.

It now expects earnings before interest, tax, depreciation and amortization for 2014 to be in line with, or slightly higher than in 2013.

Dey pointed out that although the shale gas boom in the United States is creating a positive environment for the manufacturing sector in the long term, in the short term, higher natural gas prices are hurting Severstal North America 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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