Severstal reports Q3 & 9M 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 Q3 & 9M 2016.

Q3 2016 GROUP HIGHLIGHTS

 

  • Hot metal output increased 8% to 2.39 mln tonnes (Q2 2016: 2.21 mln tonnes) against the previous quarter, during which steel production was impacted by short-term maintenance work at BF#5 at Cherepovets Steel Mill (CherMK).
  • Reflecting the above, crude steel production increased 6% to 2.98 mln tonnes (Q2 2016: 2.81 mln tonnes). Meanwhile, Balakovo mini-mill maintained relatively high production run rates during the period despite weaker domestic demand in Q3.
  • Despite increased crude steel output, consolidated steel product sales decreased 5% q/q to 2.65 mln tonnes compared to Q2 when the Company reached record level of sales volume (Q2 2016: 2.79 mln tonnes). Sales in Q3 were mainly impacted by reduced activity of local traders and domestic steel demand softening after a seasonal improvement in previous periods. Additionally, the Company increased its stock levels and built up steel inventories to standard levels (after minimisation by the end of Q2 during BOF#3 maintenance) and also to underpin rolling capacity utilisation rates during planned maintenance works.
  • As a result, the share of domestic steel products sales volumes in the sales mix decreased to 60% (Q2 2016: 64%).
  • The Company completed the refurbishment of the four-stand cold rolling mill at CherMK in May 2016. This resulted in mill capacity increase by 200,000 tonnes per annum. In the meantime cold-rolled coil sales volumes increased by 5% q/q.
  • Despite improved sales of cold rolled coil, the share of high value-added (HVA) products in the sales portfolio decreased marginally to 42% (Q2 2016: 43%).
  • The Severnaya mine, where operations remain suspended following the accident in February 2016, will be sealed off to avoid the risk of airflow causing further underground fire and explosions in the mine. The decision was made by the Technical Commission, comprising representatives of AO Vorkutaugol and the Russian authorities. Experts are now considering a safe method for sealing off the mine for the foreseeable future as well as the extraction of its resources through the adjacent Komsomolskaya mine, which is currently expected to start in 2020.
  • Chinese steel prices were supported by a number of production restrictions in China and relatively high raw material prices. Ongoing capacity cuts in China, consolidation plans and continued investment in infrastructure have improved the outlook for the steel supply-demand balance in China. Spot hard coking coal prices have increased more than two times on the back of Chinese output restrictions and temporary supply disruptions. Russian HRC export prices remain firm reflecting stable Chinese export prices and increasing European prices in September due to seasonal demand growth. Russian HRC domestic prices in ruble terms have decreased from peak levels in June, however, the domestic market, which typically offers higher sales margins, remains the priority for the Company.