Russian Steelmaker Severstal reports first-half profit plunge

Russian steelmaker OAO Severstal reported a 54 percent drop in net profit for the first half of 2006 on Thursday, blaming lower steel prices and higher operating costs.

Net profit under International Financial Reporting Standards fell to $405 million in the six months ended June 30, from $877.2 million in the same period a year earlier. Revenue dropped 3.9 percent to $3.99 billion.

Shares in Severstal were down about 1.3 percent on the RTS exchange.

The company said operating profit at its home mill in Cherepovets fell to $536 million from $955 million, which it said was due to higher costs for scrap, fuel, energy and labor. Performance at the group's North American operations improved, with operating profit rising to $62 million, from $54.1 million a year earlier.

Dmitri Kolomitsyn, an analyst with Aton Capital in Moscow, said the results showed problems with energy, transportation and labor costs that could hurt Severstal's planned initial public offering in London, scheduled for later this year.

Severstal earlier this year attempted to merge with Arcelor SA before losing out to rival Mittal Steel Co.

Arcelor shareholders voted down the merger on June 30, clearing away a major hurdle to Mittal Steel's bid to form a steel titan with nearly 10 percent of global production. Still, Arcelor was obliged to pay Severstal a breakup fee of about $179 million.

The Russian company said at the time it was "looking at new opportunities for development in line with the previously announced aim of world leadership in steelmaking."

Also Thursday, Severstal said it will increase its stake in Italian steelmaker Lucchini SPA to 70.82 percent by purchasing a 50.82 percent stake from a company controlled by its chairman, Alexei Mordashov.

Severstal said it will acquire the new stake for a total of 550 million euros ($700 million) – a cash component of 182 million euros ($232 million) and the assumption of 368 million euros ($469 million) in debt. The transaction is expected to close in October.