Metal has found a place for itself – Newspaper Kommersant No. 193 (7394) dated 10/18/2022

Russia’s largest steelmakers NLMK and Severstal were able to increase sales in the third quarter thanks to growing demand in the domestic market, despite sanctions and problems with exports. The margins of the metallurgists’ business fell sharply, also due to the decline in world steel prices. But the companies were able to avoid a sharp cut in production.

NLMK Vladimir Lisin for the first nine months of this year kept steel production at the level of last year at 12.8 million tons. Sales grew by 4% year-on-year to 12.9 million tons due to the sale of stocks accumulated at the end of 2021. “Active work to increase our presence in the Russian market and redirect part of our products to the markets of the Middle East and Asia allowed us to keep the load on the group’s steel capacities at a high level,” an NLMK representative commented on the results to Kommersant.

The company has avoided direct sanctions, but is facing a gradual closure of the European market for Russian supplies. The EU has already banned the import of rolled products, and in October introduced a ban on the supply of slabs from 2024, which will primarily affect NLMK, which has its own rolling assets in Europe.

Alexey Mordashov’s Severstal, which is under US blocking sanctions, also reported about surprisingly positive results.

In nine months, steel production fell by 8% yoy to 8 million tons due to converter repairs and low utilization of electric arc furnaces amid rising scrap prices. Steel sales during this period rose by 2% to 8.1 million tonnes, driven by strong third-quarter results as domestic demand recovered. Sinara investment bank commentary says that the market expected Severstal’s sales to decline by about 10-15% yoy. MMK and Evraz have not disclosed operating results yet.

However, the relatively stable output and sales are likely to have come at the cost of reduced business margins. Severstal said that the change in the product structure of the sales portfolio, with the increase in the share of semi-finished products against the backdrop of lower steel prices and higher transport tariffs, is putting pressure on financial performance. The company will not disclose financial statements for January-September.

The NLMK report speaks of a decline in economic activity in the markets of Europe and the United States amid record inflation levels, supply chain disruption and key rate hikes.

“High energy prices put additional pressure on industrial production in Europe. The slow pace of construction in China contributed to lower demand for steel and raw materials in the region,” the report said. Steel prices in the third quarter compared to the second fell in dollar terms in China by 22%, in the US and the EU – by 33%, in Russia – by 21%.

The fall in steel prices is partly offset by lower raw material prices. NLMK notes that the cost of Australian coking coal fell by 46%, and iron ore – by 25%. “Despite the fall in steel prices, NLMK, having one of the lowest costs in the world, retains a high-margin European market and benefits from a sharp decline in coal prices, in which the company has no vertical integration,” says Vasily Danilov from Veles Capital .

The results of Russian steel companies in the third quarter were better than market expectations, says Boris Krasnozhenov from Alfa-Bank. The analyst notes the growth in sales of galvanized steel and pre-painted rolled products, which indicates good demand in the domestic market, where this range is mainly consumed. He also notes the gradual solution of logistical problems in the restructuring of export directions.

Evgeny Zainullin