League of Outstanding Metallurgists // Steelworkers made good money in the second quarter

Russian metallurgists have started reporting their financial results for the second quarter. Severstal multiplied all indicators year-on-year, and compared to the also successful first quarter, increased EBITDA by 41.7%, revenue by 32.8%, and net profit by 58%. This became possible due to the high prices for steel on the world markets. Analysts predict record results for the not yet reported NLMK and MMK. But the industry will soon see increased government regulation, which will inevitably affect revenues and profitability.

Alexey Mordashov’s Severstal was the first in the Russian iron and steel sector to report its financial results for the second quarter, which improved both relative to the same quarter of 2020 and to a very successful first quarter of this year. Against the background of favorable conditions on world markets, the company’s EBITDA grew to $ 1.6 billion, which is more than three times more than a year earlier, and by 41.7% compared to the first quarter. Net profit increased 2.8 times and 58%, respectively, to $ 1.1 billion, revenue – 1.8 times and 32.8%, to $ 2.9 billion.

The company attributed the growth in EBITDA to higher revenues, especially in Russia and Europe, and widening price spreads between slabs and the commodity basket. EBITDA margin in the second quarter reached 55.9% – the highest indicator in the global steel industry, Severstal stressed.

In the second quarter, the company explained, export prices for steel again reached record levels.

Iron ore was also at multi-year highs on strong demand in China and a rebound in pig iron production elsewhere. The ban on the import of coking coal from Australia to China divided the market into two: China and other countries. As a result, Chinese import prices on CFR terms are already approaching $ 300 per tonne, while Australian export prices have been lower during the quarter and only recently started to rise to $ 190 per tonne on FOB terms.

NLMK of Vladimir Lisin and MMK of Viktor Rashnikov published only operating results this week. Evraz of Roman Abramovich, Alexander Frolov and Alexander Abramov will report on production at the end of July. NLMK increased steel production in the second quarter by 5% qoq and 19% yoy to 4.6 million tonnes. Sales in quarterly terms increased by 11% to 4.3 million tonnes, but declined by 1% year-on-year. MMK increased steel production by 3.1% qoq and by 44% yoy, to 3.4 million tonnes, sales of steel products – by 14.3% and 48%, to 3.3 million tonnes.

According to VTB Capital estimates, NLMK will show a record net profit in the second quarter due to improved product mix and higher steel prices.

“In addition to the increase in sales, significant support factors for NLMK, we believe, will be an increase in export prices by 32-34% and an increase in domestic prices for hot-rolled steel in the second quarter by 43%,” analysts believe, predicting the company’s revenue at $ 3 , 98 billion, the highest in the last ten years. They also expect a record EBITDA ($ 1.44 billion) for MMK – this will be the second highest indicator after the record EBITDA in the third quarter of 2008.

At the same time, the third quarter may be overshadowed by the effect of tightening state control over the metallurgical sector in different countries. China has begun to fight rising prices by curbing steel exports and tightening regulation in the futures market. The Russian government announced the introduction of export duties of 15% from August 1 until the end of the year and an additional component depending on the type of metal, processing depth, etc. The minimum export rate for copper is $ 1226, nickel – $ 2321, aluminum – $ 254. in the steel industry, they reach $ 150 per ton. As a result, according to Russian Steel’s calculations, the annual profit of the ferrous metallurgy sector may fall by 150-180 billion rubles.

Evgeny Zainullin

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