* Red October steel output a quarter of last year's level * Defence sector demand will sustain production
* Avoiding mass lay-offs
* General director backs creation of Russian steel giant
(Adds details, quotes, background)
By Robin Paxton
MOSCOW, June 8 (Reuters) - State firm Russian Technologies is counting on defence sector demand to sustain its Red October steel mill through an economic slowdown that has slashed output to a quarter of last year's levels, a company official said.
RusSpetsStal, set up by Russian Technologies to manage its special steel assets, wants to acquire other plants when the economy emerges from crisis, but is concentrating now on avoiding mass redundancies, General Director Sergei Nosov said.
"We have not laid anybody off. We are trying not to repeat the experience of Pikalyovo," Nosov said, referring to the town where Prime Minister Vladimir Putin publicy rebuked billionaire Oleg Deripaska last week over unpaid salaries.
"Red October has a chance. The defence sector, one way or another, will spend money. Our support will come from the defence sector," he told reporters on the sidelines of the Metal Bulletin Russian Steel Summit.
Steel makers in Russia, the world's fourth-largest producer, have cut output as orders dry up from the crisis-hit automotive and construction sectors. Production fell almost 30 percent in April, year-on-year, official data showed.
The Red October, or Krasny Oktyabr, plant in the southern city of Volgograd -- RusSpetsStal's main production unit -- is producing a monthly average 10,000 tonnes of finished steel this year, compared with 40,000 tonnes last year, Nosov said.
RusSpetsStal was founded in 2006 with the aim of grouping some of Russia's main producers of special steel for the defence, machine-building and aerospace sectors. It acquired Red October in January 2007 but has yet to buy another major plant.
Parent company Russian Technologies, run by businessman Sergei Chemezov, is a state-owned empire that spans titanium producer VSMPO-Avisma, leading Russian car maker AvtoVAZ and one of the world's biggest arms exporters.
NATIONAL CHAMPION
Nosov, a former Evraz Group executive, said Russia should follow the example of ArcelorMittal and create a steel giant to challenge the world's largest producers.
"The Russian steel industry would be so much stronger if it worked together," he said. "A company that could produce 20, 30 or 40 million tonnes a year would be a serious player on the market. And if it were vertically integrated, all the better."
Russia produced 68.5 million tonnes of steel last year, 5.2 percent of global output. Four firms, Severstal, Evraz Group, Magnitogorsk Iron & Steel Works and Novolipetsk Steel, each melted over 10 million tonnes.
Nosov said he supported a merger between steel makers, not the ambitious mega-merger proposed by some Russian billionaires that might also have included Norilsk Nickel.
"I'm not prepared to say that Russian Technologies is playing a role, or will play a role. It's too early to say."
He added: "It would be interesting to make acquisitions for pennies, but on the other hand where are the market prospects?
"Whoever comes through this period -- and it might be an extended period -- will be successful in the future."