Evraz of Roman Abramovich and his partners are working out major investments in rail business in the USA, where she owns the largest producer in this segment, Evraz Rocky Mountain Steel. It is not clear yet whether the estimated $ 500 million will be invested in the construction of a new plant or the modernization of the existing one, but the company intends to increase the market share in this segment by 50% by 2022. Analysts say that plans are real if protectionist measures are implemented in the country, while Rocky Mountain is working at half capacity.
Evraz Rocky Mountain Steel (Pueblo, Southern Colorado), part of the Evraz North American division (ENA), can invest $ 500 million in the construction of new rail production, local media reported. The company's project appears in the documents of the Commission for Economic Development of the State (Colorado Economic Development Commission, EDC), code-named Project 5000, they indicate. According to the data of the EDC and The Denver Post, he was considered among the candidates for state subsidies on November 16, he was approved a tax credit of $ 14.25 million. This is a recently introduced type of transferable benefit that can be applied outside the state. Jeff Kraft, the head of the business finance department of the state, said that this is the first experience of using a transferable incentive and the company would not consider Colorado without providing it. Project production capacity and its future location are not disclosed, the US union The United Steelworkers in late September reported that Evraz is considering various sites, not just the plant in Pueblo.
In Evraz yesterday refused to comment. Kommersant sources familiar with the situation say that the final decision on investments has not yet been made, and there is no clear understanding as to whether a separate production outside of Pueblo will be built or new facilities will be built on the basis of Rocky Mountain Steel.
The capacity of the Evraz Rocky Mountain Steel is 600 thousand tons of rails per year, and the plant produces seamless pipes for the oil and gas industry, wire rod and reinforcement. But in recent years, the loading of its rail capacity is only 50-60%: in 2016, shipments amounted to 328 thousand tons, in 2017 are planned at 380 thousand tons. The low activity in the oil and coal industries in North America led to a decrease in cargo transportation and investment in the railway infrastructure, so rail sales fell (by 35% yoy), according to the Evraz report for 2016. At the same time, the company is the largest player there.
ENA Chairman Konrad Winkler said in mid-October that from Union Pacific, BNSF and other railway companies, excess rail stocks had formed since the fall in capex, but although their investment programs remain modest enough, these reserves have already been spent, and Evraz "sees a constructive demand in the west (region .- "b"). " In the presentation of the company's strategy it is stated that the sales of ENA rails by 2022 should grow to 600 thousand per year, and the share of the division in this segment in the market of North America - to increase by half, to 45%. Based on the company's data, the rail market in the region is over 1.2 million tons per year.
If investments in the modernization and expansion of the rail production of Evraz North America remain at the level of the mentioned $ 500 million, then Evraz will be able to afford these investments, not greatly increasing CAPEX until 2022, believes Irina Alizarovskaya from Raiffeisenbank. In the past ten years, the company generates an annual operating cash flow of at least $ 1.5 billion, and the capex for the coming years will not exceed $ 700-800 million, the analyst said. Andrei Lobazov of Aton notes that while the price environment for rails in the US remains weak due to high stocks and competition with Asian imports. But the situation may change if new protectionist measures are introduced, which are now being actively discussed in the US - in this case Evraz can count on the growth of sales and market share, he argues. Possible investments of $ 500 million on the horizon of four to five years do not look like a large sum, the expert adds.