Metallurgical companies began to disclose results for the half year of 2023

MMK was the first among Russian steel companies to report on production for the first half of the year, which grew by 7.5% to 6.5 million tons. Analysts expect similar dynamics from other large companies in the industry, which in the second quarter are favored by strong demand in the domestic market and the weakening of the ruble. Analysts are hopeful of a return to paying dividends, although some of them note that production figures have only recovered to the average level of 2019-2020, and it is not yet known how much companies’ costs have risen against the backdrop of sanctions.

Metallurgical companies have begun to publish production results for the first half of the year, which, as analysts expect, will be much stronger than a year ago, and will give hope for the return of dividend payments at least in some companies in the industry. First reported Victor Rashnikov’s MMK: a company that has historically focused on the domestic market, in the first half of the year increased steel production by 7.5%, to 6.5 million tons, due to increased domestic demand in the second quarter. Over the quarter, steel production increased by 13% compared to the first quarter, to 3.5 million tons. Sales in the first half of the year increased by 11.1% to 5.8 million tons.

The market expects good results from other companies as well due to the high production load and the weak ruble.

According to Metals & Mining Intelligence (MMI), occupancy reached 90% in June, which is explained by good conditions in the domestic rolled metal market. The export markets for pig iron, semi-finished products and finished products are deteriorating, the agency writes in its report. Thus, the growth of prices for slabs is observed in Asia, while in other major sales markets (Turkey, Europe) demand is low. Prices for square blanks are also falling due to the weakening of the Turkish market. According to MMI, billet fell by 9% over the month to $470 per tonne on an FOB Black Sea basis. Prices continue to fall on flat-rolled markets: hot-rolled coil on FOB Black Sea fell by 2% to $550 per ton.

According to analysts of the My Investments Telegram channel, shipments of hot-rolled steel to Russian consumers in the second quarter may grow by 15–20% in annual terms. In the first quarter, growth was 11%.

Metallurgists have not published financial statements since the end of 2021, but it is expected that their publication will resume in August. Analysts of the Telegram channel “My Investments” believe that MMK, NLMK and Severstal will show strong numbers. “We also believe that steelmakers may return to the discussion of dividends for the first half of 2023, given the favorable market situation. According to our estimates, the potential payouts of Severstal, MMK and NLMK may amount to about 5-6% of the dividend yield,” they believe. Sinara Investment Bank considers it likely that MMK will pay dividends in 2023.

Production and sales dynamics look quite strong, given the low base in the second quarter of 2022 and the traditionally weaker activity in the steel sector in the winter, when compared with the first quarter of this year, says Alfa Bank’s Boris Krasnozhenov. In fact, Russian companies have returned to the normalized production level of 2019-2020. The situation on the Russian rolled steel market has been relatively stable for two or three months, the analyst notes.

At the same time, prices in the Russian market in dollar terms fell to the lowest level since the end of 2020, and the level of costs is difficult to assess, since the reporting has not been disclosed for a long time, Boris Krasnozhenov notes. “According to our estimates, the cost of production of hot-rolled steel from the largest Russian producers is about $300-400 per ton, depending on the level of vertical integration, and the EBITDA margin is 20-30%, which is comparable to the indicators of 2018-2020 in the current perimeter of the companies” concludes the analyst.

Evgeny Zainullin