Annual Report & Accounts 2013
Severstal Annual Report 2013 Home > Governance > Risk report > Economic risks
 

Economic risks

The global GDP in 2013 grew by three per cent which is 0.1 per cent lower than in 2012, according to the International Monetary Fund. Activity is expected to improve further in 2014–15, largely on account of recovery in economically advanced economies. Global growth is now projected to be slightly higher in 2014, at around 3.7 per cent, rising to 3.9 per cent in 2015. But downward revisions to growth forecasts in some economies highlight continued fragilities, and downside risks remain.

Across the 28-strong European Union, GDP stagnated in 2013 (after falling by 0.5 per cent in 2012) and may expand by 1.4 per cent in 2014, according to new forecasts from the European Commission on November 5th 2013. Across the euro area a recovery is underway following a double-dip recession lasting 18 months, but it is a feeble one. For the full year of 2013 GDP is expected to have fallen by 0.4 per cent (after declining by 0.7 per cent in 2012). It will then rise by 1.1 per cent in 2014. The European PMI is also on a strong path to recovery.

As was the case in 2013, growth in 2014 will be strongest in Latvia (4.1 per cent), which joined the euro area on January 1st 2014. The three Baltic states – including Lithuania outside the eurozone and Estonia within it – will be the three fastest-growing countries in the EU, experts say. Severstal has a solid presence in Latvia via its direct subsidiary – the steel processor and trader Severstallat.

The U.S. economy expanded by 1.9% in 2013 as healthy consumer spending more than offset weaker government spending and slower inventory building. In 2014 U.S. GDP is expected to accelerate to 2.8 per cent (according to IMF forecasts at of January 2014). Fiscal drag in the U.S. economy is coming to an end which creates good growth opportunities. Non-residential construction is ready for a long-awaited recovery.

China’s GDP grew by 7.6 per cent in 2013, according to the Chinese Government. That figure has exceeded previous estimates of GDP growth of 7.5 per cent, while being lower than the country’s GDP expansion in 2012 of 7.7 per cent.
 
The global economy faces a number of risks. The U.S. Federal reserve system is exiting from QE3 which creates strong capital outflows from emerging markets and increased currency volatility. At the same time the Chinese economy has a long and bumpy road ahead as it transitions from an investment-oriented economy to a consumer-oriented one. Shadow banking represents a major risk for Chinese financial stability.

Global economic risks can impact the Russian economy. Significant global recession results in reduced demand for oil and gas, metals and other exported raw materials; destabilizes the ruble; and sparks capital outflow from Russia, as well as creating increased inflation, production decline, increased unemployment and increased social risks.

Russia’s GDP growth slowed down in 2013, expanding by 1.3 per cent, compared to 3.4 per cent in 2012.

Given the large share of oil and oil products in the Russian export structure, the Russian economy is significantly dependent on price fluctuations for these commodities. In 2013, the average price of Urals oil blend, the main Russian export commodity, was US$107.9/ bbl, which is 2.4 per cent lower than in 2012.

After the weak expansion of the country’s GDP in 2013, the Russian Ministry of Economic Development hopes that GDP growth in 2014 will reach 2.5 per cent.

Mitigating factors:

  • The geographic diversification of our sales helps to minimise the negative impact of economic risks. Severstal’s Russian steel assets are located quite close to export routes meaning that we always have an export alternative for the sale of our products. That enables us to have a higher average steel product selling price than some of our local peers. Though the domestic market is our primary focus, our ability to quickly redirect shipments provides more flexibility in reacting to external factors, and helps us to insure against sudden regional crises.
  • Possible weakening of the Russian ruble might have a positive effect on our operations, as our cost structure is predominantly ruble-denominated.
  • We monitor the most important advanced indicators of economic slowdown.
  • We are working to develop economic scenarios that will help us to prepare our management team for possible negative changes to the external environment.
Share |
Select language: Русский