Evraz hit by falling demand and prices

Russian steel giant Evraz suffered a tough first half after it was hit by falling steel sales and prices.

It is also eyeing the immediate future with caution and said second half revenues would be affected by the drop in steel prices as well as recent industrial action in South Africa.

Revenues for the six months to the end of June fell by 9.1% to $7.6bn, compared with $8.38bn the previous year.

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Profit from operations was cut in half from $859m in 2011, to $430m this year.

The firm put the fall down to the drop in falling demand - and hence steel prices - as well as an increase in selling and distribution costs.

Nonetheless the firm ramped up its interim dividend 64% to 11c per share.

It said this decision reflected cash flow generation in the first half and confidence in the longer-term outlook for the company, in spite of the current challenging operating environment.

Chief Executive Alexander Frolov said the global economy and, in turn, the steel industry, remained very volatile and his company continued to be cautious on the outlook for the remainder of 2012.

"The uncertain economic environment in Europe should not have a significant direct effect on the company as European operations account for less than 9.7% of total revenue," he said.

"However, the company's business as a whole will be affected if the repercussions of economic uncertainty in Europe were to impact the global economy substantially."

Evraz said its results in the second half would be affected by the delayed effect of the reduction in steel prices in the second quarter of 2012.

This was due to a lag of up to two months, particularly for export sales, between the fixing of a price in a sales contract and when revenue comes in, as well as the continuing softness in prices.

It added that industrial action at its Highveld Steel and Vanadium mine and a decrease in rail sales resulting from the project of modernisation of the rail mill at ZSMK would also hit second half performance.