NLMK Group's Q3 2020 operating performance

Steel output grew by 3% yoy to 3.9 m t, driven by higher steel output at NLMK's Russian facilities (flat qoq). The qoq decline in steel output in the Russia Flat Products segment, related to the start of the second stage of BF and BOF overhauls at NLMK Lipetsk, was offset by the recovery in utilization rates in the Russia Long Products and NLMK USA segments. NLMK Lipetsk continues running at 100% capacity utilization; the Long Products segment was running at 96% capacity utilization in September. Towards the end of the quarter, utilization rates at NLMK's European companies recovered to 85% (against 66% in June). The rolling capacity utilization at the US plants remains low.

Sales grew by 11% yoy to 4.4 m t, due mainly to increased demand for pig iron. Higher productivity of Blast Furnace No. 6, achieved through the first stage of the overhauls in Q4 2019, supported the increase in pig iron sales, despite the Group carrying out a similar overhaul of Blast Furnace No. 4 this year. Quarter-on-quarter, sales increased by 2%, and the share of finished products in the sales portfolio increased due to the start of the second stage of BF and BOF overhauls at NLMK Lipetsk.

Sales mix: year-on-year, the share of semi-finished products in the consolidated sales mix increased, supported by a 31% yoy increase in the sales of pig iron, slabs, and billet, that reached 1.7 m t. Sales of semi-finished products to third parties increased by 61% yoy. Slab shipments to NBH decreased by 28% yoy. Sales of finished products grew by 1% yoy due to higher demand for long and hot-rolled products from the construction sector in Russia.

Quarter-on-quarter, sales of semi-finished products to third parties decreased by 5% to 1.4 m t with the start of the second stage of overhauls at NLMK Lipetsk. Slab deliveries to NBH decreased by 35% qoq. Sales of finished products grew by 14% qoq to 2.8 m t, driven by a recovery in demand for steel products on the Russian market. (Appendix 2).

Sales on export markets grew by 42% yoy to 1.8 m t with increased sales of pig iron and slabs to third parties. Quarter-on-quarter, export sales declined by 10%.

Sales on 'home' markets reduced by 2% yoy to 2.8 m t, amid declining demand in the US and EU markets. Sales in Russia increased by 10% yoy to 1.9 m t. Quarter-on-quarter, sales increased by 19% due to a gradual recovery in demand on the markets where NLMK Group operates (Appendix 14).

*with NBH; ** without NBH

NLMK Group's 9M 2020 operating performance

Steel output remained flat year-on-year. Lower steel output at the Russia Long Products facilities, and at NLMK's US and EU companies, impacted by the COVID-19 pandemic, was offset by higher steel output at the Lipetsk site.

Sales increased by 3% yoy to 13.3 m t with increased demand for pig iron.  

Sales mix: sales of semis to third parties increased by 28% yoy to 3.9 m t, due to increased export sales of pig iron. Slab sales to NBH decreased by 4% yoy to 1.5 m t due to the segment's lower semis requirements (Appendix 2). Sales of finished products decreased by 5% yoy to 7.9 m t amid weak demand in April-May 2020 and sales redistribution to semi-finished products.

Sales on export markets grew by 16% yoy to 5.2 m t due to increased exports of pig iron (4x growth yoy) and slabs (+11% yoy). The US, Chinese, and Turkish markets were the main export destinations for pig iron.

Sales on 'home' markets reduced by 4% yoy to 8.1 m t, due to the slowdown in the US and EU sales during the economic crisis amid the COVID-19 pandemic (Appendix14). Sales in Russia grew by 5% yoy to 5 m t.

*with NBH; ** without NBH

Global prices in Q3 2020:

Average raw material prices:

·      Global coal prices fell by an average of 5% qoq (-30% yoy), due to low demand from key consumer regions (Japan, India, and Europe) during the COVID-19 pandemic and import restrictions in China. Towards the end of the quarter, prices started to grow, driven by a gradual increase in steelmaking capacity utilization in key regions and expectations of worsening weather conditions in Australia at the end of 2020. Dollar-denominated coal prices in Russia fell by 34% qoq (-48% yoy), a delayed reflection of the Q2 2020 global benchmark trends.

·      Iron ore prices grew by 26% qoq (+15% yoy), driven by an all-time-high steel output in China, attributable to state support for infrastructure projects. Uncertainty regarding the volume of supplies from the leading exporting countries served as an additional factor supporting the prices.

·      Scrap prices in the US increased by 10% qoq (+3% yoy) with a gradual recovery in the utilization of steelmaking capacities in the region, and an increase in demand from Turkey. In Russia, dollar-denominated prices recovered by 13% qoq (-9% yoy) ahead of the winter season and intensified competition from scrap exporters.

Average steel product prices:

·      Reduced demand amid the COVID-19 pandemic put pressure on steel product prices, despite the high cost of the commodity basket on the global market. Towards the end of the reporting period, the price environment began to improve following the uptick in business activity.

·      In Russia, dollar-denominated prices for uncoated flat steel declined by 3% qoq (-21% yoy). Dollar-denominated rebar prices climbed 1% qoq (-21% yoy).

·      Export slab prices (FOB Black Sea) were up by 22% qoq (+2% yoy) amid limited supply and a recovery in demand on export markets.

·      Average flat steel prices in the US declined by 1% qoq (-11% yoy). During September, prices grew by 15% against the previous month.

·      In the EU countries, dollar-denominated prices for flat steel grew by an average of 5% qoq (-4% yoy), driven by the weakening of the US dollar against the euro; euro-denominated prices were 1-2% lower qoq. Towards the end of Q3, prices recovered to pre-crisis levels.

SEGMENTAL PERFORMANCE

NLMK RUSSIA FLAT PRODUCTS*

Q3 2020 performance

Steel output in Q3 2020 grew by 2% yoy to 2.9 m t. Quarter-on-quarter, steel output was down by 9% as the second stage of capital repairs began at NLMK Lipetsk's BOF operations. (Appendix 9).

Sales in the Segment grew by 18% year-on-year to 3.3 m t due to the sale of additional pig iron volumes and an increase in BF equipment productivity. Quarter-on-quarter, sales dropped by 4%, following the drop in production (Appendix 2).

Sales mix: sales of semis to third parties were down by 4% qoq to 1.3 m t (+63 yoy), amid lower slab sales due to routine repairs and the recovery of demand for finished products in Russia. Sales of semis to NLMK Group companies and NBH decreased to 0.4 m t (-31% qoq; -25% yoy) due to sufficient stocks of semis at the Group's European facilities.

Finished steel sales grew by 6% qoq to 1.6 m t (+10% yoy) amid a recovery in demand in Russia. (Appendix 3).

Sales markets: sales in Russia grew by 18% qoq to 1.3 m t (+7% yoy) as demand recovered after the COVID-19 restrictions were lifted (Appendix 3).

Product exports were down by 14% qoq to 2 m t due to lower slab sales and a redirection of a part of hot-rolled steel sales to the internal market. The main export destinations in Q3 2020 were China, Turkey, and the US.

* NLMK Russia Flat companies include NLMK Lipetsk, VIZ-Steel, and Altai-Koks. Export sales are calculated including the corresponding share of trading companies.

9M 2020 performance

Steel output grew by 3% yoy to 9.3 m t (Appendix 9).

Sales in the Segment grew by 10% yoy to 10.2 m t, supported by a strong Q1 2020 performance and a quick recovery of demand in Russia in Q3 2020 (Appendix 2).

Sales mix: sales of finished steel reached 4.6 m t (+6% yoy) amid the completion of repair works on the Hot Strip Mill (Appendix 3).

Sales of semis to third parties went up by 35% yoy to 3.6 m t, driven mainly by higher export pig iron sales. Sales of semis to NLMK Group and NBH companies totalled 2 m t (-11% yoy) due to a lower demand for slabs from NLMK's European companies and suspended slab supplies to NLMK USA.

Sales markets: steel product sales in Russia grew by 10% to 3.7 m t, due mainly to increased sales of HRC and HDG (Appendix 3). Export sales went up by 10% yoy to 6.5 m t due to higher pig iron sales.

NLMK RUSSIA LONG PRODUCTS*

Q3 2020 performance

Steel output grew to 0.8 m t (+29% qoq; +9% yoy) (Appendix 9) as capacity utilization rates recovered due to the delayed demand effect and the construction season. In September, capacity utilization rates stood at 96%.

Sales grew by 16% yoy to 0.8 m t. Quarter-on-quarter, sales grew by 35%, supported by the significant growth of the Russian long products market, associated with the previous quarter's low base effect amid the COVID-19 pandemic, and the shift in the start of the construction season (Appendix 4). Finished product sales went up by 50% qoq to 0.7 m t (+7% yoy). The share of finished products in total sales was 89% (+8 p.p. qoq, -2 p.p. yoy).

Sales markets: sales on the Russian market grew by 49% qoq (+11% yoy) due to the delayed demand effect. The share of sales in Russia reached 68% (+6 p.p. qoq, -3 p.p. yoy). Export sales stood at 0.3 m t, which is 13% more than last quarter. Year-on-year, exports increased by 28%.

Scrap: scrap sales grew by 29% qoq to 1.4 m t due to the seasonal increase in scrap stocks at NLMK Group sites. Year-on-year, scrap sales remained flat. The share of scrap sales to NLMK Group companies was 99% (Appendix 4).

9M 2020 performance

Steel output went down by 7% yoy to 2 m t, due to lower Segment load amid weaker Q2 2020 demand.

Sales decreased by 10% yoy to 2 m t, due to lower demand for long products in 2020 (Appendix 9, Appendix 4). The share of finished products in total sales grew by 2 p.p. to 78%.

Sales markets: the share of the Russian market was 67% (flat yoy). Sales of long products in Russia went down by 10% yoy to 1.3 m t due to the two-month shift in the construction sector seasonal demand amid the COVID-19 pandemic.

Export sales also decreased by 10% yoy to 0.6 m t, due mainly to lower billet sales to Egypt.

Scrap: scrap sales were down by 6% yoy to 3.2 m t amid lower output in the NLMK Russia Long Products division and a corresponding decrease in demand for scrap (Appendix 4).

* NLMK Russia Long companies include NLMK Ural, NLMK Metalware, NLMK Kaluga, and scrap collecting facilities. Export sales of long products are calculated taking into account the corresponding share of trading companies sales.

MINING AND PROCESSING OF RAW MATERIALS

Q3 2020 performance

Iron ore production decreased by 15% qoq and yoy to 4.1 m t due to an incident that led to a collapse of an ore supply conveyor gallery on September 7, 2020. On September 22, 2020 Stoilensky resumed production of iron ore products (Appendix 12).

Iron ore sales decreased by 16% qoq to 4.1 m t (-14% yoy), following the decrease in production. Sales of iron ore to independent buyers went down by 65% qoq to 158 k t (-57% yoy). (Appendix 5).

9M 2020 performance

Iron ore output and sales went down by 2% yoy to 13.6 m t due to the conveyor gallery incident, which was partially offset by the growth of equipment productivity in H1 2020 (Appendix 12).

Sales of iron ore to third parties totalled 0.68 m t (+44% yoy) (Appendix 5).

NLMK USA

Q3 2020 performance

Sales in the Segment increased by 11% qoq to 0.37 m t due to the completion of planned repairs at the NLMK Indiana plant and the gradual recovery of business activity on the US market after the slump in demand in Q2 2020. Year-on-year, sales were 33% lower due to low NLMK Pennsylvania capacity utilization following a strike (Appendix 6).

9M 2020 performance

Sales stood at 1.2 m t (-29% yoy) as steel consumption decreased in the US, pressured by the consequences of the COVID-19 pandemic. The share of high value-added products in the Segment portfolio increased by 3 p.p. to 49% (Appendix 6).

NLMK DANSTEEL

Q3 2020 performance

Sales decreased by 21% qoq to 0.1 m t (-18% yoy) due to weak demand across almost all sectors, with the exception of wind energy, amid the COVID-19 pandemic. (Appendix 7).

9M 2020 performance

Sales went down by 4% yoy to 0.38 m t as plate consumption decreased in Q2-3 2020 due to the pandemic (Appendix 7).

JOINT VENTURE - NLMK Belgium Holdings (NBH)*

Q3 2020 performance

Sales remained almost flat at 0.5 m t (-1% qoq). Year-on-year, sales were 14% lower (Appendix 8).

9M 2020 performance

Sales decreased by 8% yoy to 1.5 m t due to weaker demand for steel products in Q2 2020 amid the coronavirus pandemic (Appendix 8).

*NBH assets include producers of plate NLMK Clabecq (Belgium), NLMK Verona (Italy) and producers of strip products NLMK La Louvière (Belgium) and NLMK Strasbourg (France).