Russian steel factories could shut due to low export profitability, says Severstal

ST PETERSBURG, Russia, June 19 (Reuters) - Russian steel factories could be forced to close due to low domestic demand and as the strong rouble reduces export profitability, Alexander Shevelev, head of major Russian steelmaker Severstal, said on Thursday.

Russia's high key rate, at 21% for several months until it was reduced to 20% earlier in June, has led steel producers to reduce loading volumes, a Russian Railways document seen by Reuters showed last month, highlighting subdued demand across Russia's slowing economy.

Shevelev said high rates may cause demand for steel to decrease by 10% this year to 39 million tons.

The industry, which has traditionally relied on exports, is also hampered by Russia's strong rouble, which has appreciated significantly this year, a rise analysts have attributed to the easing of geopolitical tensions, mainly with U.S. President Donald Trump's administration.

The overly strong rouble is making metals exports unprofitable for an industry that has traditionally relied on them, Shevelev said.

"The weakness of export markets and a strong rouble simply do not allow most metals producers to cover even variable costs," he added.

It could, therefore, be possible that production stops at some metallurgy plants, Shevelev said, as there is excess supply on the domestic market.

"I hope it won't come to that and in time we will be able to loosen the tight grip of monetary policy, so to speak, but for now everything is heading towards us being faced with the shutdown of some facilities that are not good at managing costs."

Severstal also has a hefty logistical burden due to being unable to sell to nearby markets in Europe.