Severstal reports Q1 2016 operational results

PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world’s leading vertically integrated steel and steel-related mining companies, today announces its operational results for Q1 2016.



·        Hot metal output remained largely unchanged q/q at 2.35 mln tonnes (Q4 2015: 2.34 mln tonnes).


·        As operations of converter #1, continuous casters #4 and #5 and the billet caster at Cherepovets Steel Mill were recommenced following maintenance works, crude steel production increased 6% q/q to    2.91 mln tonnes (Q4 2015: 2.75 mln tonnes). Improving production run-rates at Balakovo positively affected crude steel output as well.


·        Consolidated sales of steel products decreased 7% q/q to 2.45 mln tonnes (Q4 2015: 2.62 mln), which reflects further contraction in domestic consumption, partially on the back of seasonal factors.


·        Moreover, refurbishment of the four-stand cold rolling mill at Cherepovets Steel Mill started in January 2016, which resulted in lower output of high value-added products, which was somewhat offset by an increase in hot rolled coil. This refurbishment, which is expected to be completed in Q2 2016, will increase mill capacity to 200,000 tonnes per annum and significantly improve product quality, enabling the company to expand its product line and enter new markets.


·        In the meantime, share of high value-added (HVA) products in the sales portfolio temporarily decreased to 42% (Q4 2015: 47%).


·        The abovementioned factors resulted in lower availability of high value-added products for domestic deliveries. That said, the share of domestic steel products sales volumes in the sales mix declined to 60% (Q4 2015: 64%).


·        Coking coal concentrate output was negatively affected as a result of the tragic incident at Vorkutaugol’s Severnaya mine on 26 February 2016. Whilst the investigation continues, Government Committee has provisionally determined that the main reasons behind the rock burst and subsequent methane blast was geological factors. Mining operations at Severnaya remain suspended. All of Vorkutaugol's other four mines and one open pit are operating as usual. In 2015 the Severnaya mine produced approximately 1.5 mln tonnes of coking coal concentrate, which is approximately 26% of Vorkutaugol’s overall production of coking coal concentrate in 2015 (5.7 mln tonnes).


By the end of 2015 global steel prices had reached the lowest level in the last ten years. Ongoing concerns regarding the prospects of the Chinese economy as well as the lack of growth in steel demand globally continue to put pressure on the steel market. Nevertheless, this subdued picture changed significantly in March 2016 with global hot rolled coil prices rallying more than 40% compared with the previous month. In the domestic market, USD-denominated prices started to increase as well, reflecting both RUB appreciation and proactive initiatives by Russian steel producers to increase local prices in order to catch up with export USD-nominated parity. The domestic market, which usually offers higher sales margins, remains a priority for the Company.