PJSC Magnitogorsk Iron and Steel Works: MMK Group Trading Update for Q4 and 12M 2020

MMK Group trading update for q4 and 12M 2020

26 january 2021

Magnitogorsk, Russia

PJSC Magnitogorsk Iron & Steel Works ("MMK", or the "Group") (MICEX-RTS: MAGN; LSE: MMK), one of the world's largest steel producers, is pleased to announce its Trading Update for Q4 and 12M 2020.

HIGHLIGHTS

Q4 2020

VS Q3 2020

• Pig iron output increased by 6.0% quarter-on-quarter (q-o-q) to 2,521 thousand tonnes, driven by increased steel demand and increased production volumes.

• Steel output was up 14.9% q-o-q at 3,312 thousand tonnes due to stronger demand and production ramp-up of Hot-Rolling Mill 2500 after its scheduled reconstruction in Q3.

• MMK Group's total sales of finished products amounted to 3,045 thousand tonnes, up 11.1% q-o-q.

• MMK Group's sales of premium products stayed flat q-o-q at 1,343 thousand tonnes (44.1% of total sales).

• MMK Coal's coal concentrate production totalled 837 thousand tonnes, up 16.0% q-o-q due to the decommissioning of an underperforming coal face and the launch of a new one.

HIGHLIGHTS

12M 2020

VS 12M 2019

• Pig iron output decreased by 6.7% year-on-year (y-o-y) to 9,344 thousand tonnes, due to a longer period of scheduled maintenance at blast furnace facilities and lower demand amid the coronavirus pandemic.

• Steel output in 12M 2020 was down 7.1% y-o-y to 11,574 thousand tonnes, affected by the scheduled reconstruction of Hot-Rolling Mill 2500 and the slowdown in business activity due to the pandemic.

• MMK Group's total sales of finished products fell by 5.0% y-o-y to 10,755 thousand tonnes.

• Premium product sales dropped by 6.1% y-o-y to 5,143 thousand tonnes. The share of premium products in total sales decreased to 47.8%.

• Coal concentrate output in 12M 2020 amounted to 3,059 thousand tonnes, up by 17.0% y-o-y, due to the completion of a beneficiation plant upgrade, which took place throughout 2019, as well as the increased processing of purchased coals.

MARKET OVERVIEW

Global steel products market: In Q4 2020, global prices reached their multi-year highs, fuelled by shortages in key markets. Spurred by continuing infrastructure investment, China's economic recovery supported high domestic demand and prices for rolled steel throughout 2020. In Q4, strong pent-up demand for rolled steel built up in the US and Europe, due to low inventories and an import supply gap. Turkish steelmakers were able to put a significant premium on their products amid growing demand in the domestic and international markets.

Russian steel products market: In late Q4 2020, the Russian warehousing market saw a surge in prices for rolled steel, spurred on by frantic demand from end consumers and increased global prices for metal products. An unexpectedly strong growth in feedstock prices also had a substantial impact on the growth in prices for rolled products.

Global iron ore market: In Q4 2020, iron ore prices soared driven by persistently high demand for feedstock in China and improved demand in other regions. In late 2020, iron ore exports were somewhat lower compared to late 2019, which also supported price growth. In Q1 2021, it is expected that the volume of supply and demand in the iron ore market will decline due to seasonal factors, which may lead to a correction in iron ore prices.

Russian iron ore market: Demand for iron ore in Russia and in the EU grew in late 2020 along with an increase in steelmaking capacity utilisation. As a result, exports of Russian iron ore to China dwindled, with suppliers returning to their traditional consumers. Base prices in Russia are following Chinese indices, adjusted for changes in the USD/RUB rate, with discounts offered to domestic consumers in late 2020 remaining stable overall. In roubles, however, Russian prices for iron ore hit record high levels.

Global coking coal market: In Q4, the global market found itself in a unique position as China suspended imports of coking coals from Australia, its key feedstock supplier. As a result, prices for alternative supplies to China grew to USD 200 per tonne, while Australian prices stayed slightly above USD 100 per tonne, reflecting the supply-side pressure. The further trend will depend on when China will lift its suspension and on weather in Australia.

Russian coking coal market: Russian prices grew slightly in Q4 2020, but at a much lower rate than for other types of feedstock and metal products. Russian coal companies have everything they need to raise their contract prices for Q1 2021, although price growth rates will vary across product grades as usual.

Russian metal scrap market: In Q4 2020, scrap prices in Russia significantly grew, by 35%-40%, while the demand from Russian steelmakers for scrap was not fully covered. An increased duty for scrap exports from Russia will come into force in late January. However, no considerable decline in prices is expected in Q1 2021, given the low availability of scrap in winter.

thousand tonnes

Q4 2020

Q3 2020

%

12M 2020

12M 2019

%

Crude steel production

3,312

2,882

14.9

11,574

12,463

- 7.1

Pig iron production

2,521

2,379

6.0

9,344

10,013

- 6.7

Coal concentrate production

837

721

16.0

3,059

2,614

17.0

Iron ore production

638

811

- 21.3

2,893

2,769

4.5

Finished products sales,
including:

3,045

2,742

11.1

10,755

11,316

- 5.0

Semi-finished products

0

0

-

20

0

-

Long products

297

349

- 14.7

1,275

1,352

- 5.7

Flat hot-rolled products

1,404

1,052

33.4

4,317

4,486

- 3.8

Premium products, including:

1,343

1,341

0.2

5,143

5,477

- 6.1

Thick plate (Mill 5000)

202

195

3.2

841

1,036

- 18.8

Flat cold-rolled products

226

226

- 0.1

889

1,006

- 11.7

Downstream products, including:

916

919

- 0.3

3,414

3,435

- 0.6

Tinplate

38

44

- 15.2

168

141

19.7

Galvanised steel

460

454

1.3

1,735

1,813

- 4.3

Polymer-coated steel

200

220

- 9.2

717

666

7.7

Band

42

29

42.6

130

120

9.0

Formed section

36

20

77.8

122

167

- 26.7

Pipe

24

28

- 14.4

83

57

47.1

Metalware

111

109

1.9

418

416

0.4

Other metal products

6

14

- 56.3

39

56

- 30.9

Share of premium products

44.1%

48.9%

47.8%

48.4%

USD/tonne

Q4 2020

Q3 2020

%

12M 2020

12M 2019

%

Average price per tonne:

575

535

7.5

558

628

- 11.1

Semi-finished products

-

-

-

255

0

-

Long products

493

453

8.8

472

530

- 10.9

Flat hot-rolled products

514

439

17.1

479

530

- 9.6

Premium products, including:

657

633

2.4

646

733

- 11.9

Thick plate (Mill 5000)

593

554

3.8

595

730

- 18.5

Flat cold-rolled products

573

517

10.8

558

626

- 10.9

Downstream products, including:

691

678

1.9

682

765

- 10.9

Tinplate

672

696

- 3.4

711

813

- 12.6

Galvanised steel

659

679

2.9

656

728

- 9.9

Polymer-coated steel

852

760

12.1

804

899

- 10.6

Band

600

567

5.8

607

693

- 12.4

Formed section

621

571

8.8

659

781

- 15.6

Pipe

538

494

8.9

521

577

- 9.7

Metalware

627

593

5.7

629

728

- 13.6

Other metal products

777

713

9.0

708

803

- 11.8

+ 7.5% Q-o-Q

AVERAGE SELLING PRICE

The average selling price in US dollars grew by 7.5% q-o-q in Q4 2020 to USD 575 per tonne, driven by the increase in global prices for metal products and iron ore. The 11.1% y-o-y fall in the average selling price in 12M 2020 was caused by a drop in global steel prices due to the COVID-19 pandemic.

thousand tonnes

Q4 2020

Q3 2020

%

12M 2020

12M 2019

%

Crude steel production

3,312

2,882

14.9

11,574

12,463

- 7.1

Pig iron production

2,521

2,379

6.0

9,344

10,013

- 6.7

Finished products sales,
including:

2,933

2,617

12.1

10,268

11,001

- 6.7

Semi-finished products

0

0

-

20

0

-

Long products

297

349

- 14.7

1,275

1,352

- 5.7

Flat hot-rolled products

1,505

1,112

35.4

4,542

4,876

- 6.8

Premium products, including:

1,131

1,156

- 2.2

4,431

4,773

- 7.2

Thick plate (Mill 5000)

202

195

3.2

841

1,036

- 18.8

Flat cold-rolled products

226

237

- 4.5

899

1,003

- 10.4

Downstream products, including:

703

725

- 3.0

2,692

2,735

- 1.6

Tinplate

38

44

- 15.2

168

141

19.7

Galvanised steel

298

321

- 7.3

1,195

1,257

- 4.9

Polymer-coated steel

150

159

- 5.9

536

522

2.7

Band

42

29

42.6

130

120

9.0

Formed section

36

20

77.8

122

167

- 26.7

Pipe

24

28

- 14.4

83

57

47.1

Metalware

111

109

1.9

418

416

0.4

Other metal products

6

14

- 56.8

38

56

- 31.3

Share of premium products

38.5%

44.2%

43.2%

43.4%

+ 12.1% Q-o-Q

sales of finished products





 

- 14.7% Q-o-Q

sales of long products



 

+ 35.4% Q-o-Q

sales of hot-rolled products

- 2.2% Q-o-Q

sales of premium products

+ 3.2% Q-o-Q

sales of Mill 5000 products

- 4.5% Q-o-Q

sales of cold-rolled products

 

- 15.2% Q-o-Q

sales of tinplate

 

- 7.3% Q-o-Q

sales of galvanised steel

- 5.9% Q-o-Q

sales of polymer-coated steel

The increase in the sales volume of finished products in Q4 2020 by 12.1% q-o-q to 2,933 thousand tonnes was due to the production ramp-up of Hot-Rolling Mill 2500 after its scheduled reconstruction and a high demand for steel in global markets. The 6.7% decrease in product sales y-o-y to 10,268 thousand tonnes was driven by long scheduled reconstruction of Hot-Rolling Mill 2500 and a worsening market environment on the back of the coronavirus pandemic.

Sales of long products in Q4 2020 were down by 14.7% q-o-q to 297 thousand tonnes due to a high base in the previous quarter and the seasonal decline in demand. Year-on-year, sales were down 5.7% to 1,275 thousand tonnes in Q4 2020, reflecting the slowdown in business activity.

The volume of sales of hot-rolled products in Q4 2020 increased by 35.4% q-o-q to 1,505 thousand tonnes. This was due to the production ramp-up of Hot-Rolling Mill 2500 after its scheduled reconstruction, combined with a growing demand for steel in global markets. Year-on-year, sales of hot-rolled products dropped by 6.8% to 4,542 thousand tonnes in 12M 2020, affected by scheduled reconstruction of Hot-Rolling Mill 2500.

In Q4 2020, sales of premium products were down by 2.2% to 1,131 thousand tonnes, and their share of total sales reached 38.5%, reflecting the growing share of hot-rolled products. Year-on-year, sales of premium products were down 7.2% to 4,431 thousand tonnes in 2020, while their share of total sales slipped slightly to 43.2%. The major drivers of the change were a decline in sales of Mill 5000 thick plate and the slowdown in business activity.

The 3.2% increase in sales volumes of Mill 5000 products q-o-q to 202 thousand tonnes was due to the growth in orders from pipe manufacturers. The 18.8% y-o-y decline in Mill 5000 thick plate sales to 841 thousand tonnes in 12M 2020 was due to changes in order mix amid a 100% capacity utilisation rate.

Sales of cold-rolled products in Q4 2020 were down by 4.5% q-o-q to 226 thousand tonnes, due to a more complex product mix. Year-on-year, sales were down 10.4% to 899 thousand tonnes in 12M 2020, due to the slowdown in business activity along with an accident at the reverse Cold-Rolling Mill 1700 in February 2020.

In Q4 2020, tinplate sales decreased by 15.2% to 38 thousand tonnes due to an equipment overhaul. The 19.7% y-o-y growth in tinplate sales in 2020 to 168 thousand tonnes reflects a higher demand from the food industry.

The decrease in the sales of galvanised steel in Q4 2020 by 7.3% q-o-q to 298 thousand tonnes was due to a higher base in Q3 and a more complex product mix. Year-on-year, sales declined by 4.9% to 1,195 thousand tonnes in 12M 2020.

In Q4 2020, sales of polymer-coated steel reduced by 5.9% q-o-q to 150 thousand tonnes, driven by an equipment overhaul. Year-on-year, sales of polymer-coated steel grew by 2.7% to 536 thousand tonnes in 2020, driven by a year-on-year growth in pent-up demand in Q4 2020.

thousand tonnes

Q4 2020

Q3 2020

%

12M 2020

12M 2019

%

Finished products sales, including:
 

220

200

10.1

741

721

2.8

Flat hot-rolled products

7

5

34.1

19

16

23.8

Premium products, including:
 

213

194

9.4

721

705

2,4

Flat cold-rolled products

-

-

-

-

4

-

Downstream products, including:

213

194

9.4

721

701

3.0

Galvanised steel

163

133

21.8

540

556

- 2.9

Polymer-coated steel

50

61

- 17.9

181

144

25.5

Share of premium products

96.8%

97.4%

97.4%

97.8%

Intersegment sales from Steel segment Russia

108

75

43.8

255

406

- 37.3

+ 10.1% Q-o-Q

sales of finished products

The Turkish steel segment's sales of finished products in Q4 2020 were up 10.1% q-o-q at 220 thousand tonnes, reflecting a growing demand from Turkish and European consumers, driven by a limited supply in the market and the replenishment of inventories. In Q4 2020, the Turkish steel segment continued its sales diversification strategy and almost doubled its galvanised steel exports to 97 thousand tonnes.

The increase in 2020 sales by 2.8% y-o-y to 741 thousand tonnes reflects the product portfolio diversification strategy of the Turkish steel segment and is linked to the significant growth in polymer-coated steel sales volumes by 25.5% y-o-y to 181 thousand tonnes.

thousand tonnes

Q4 2020

Q3 2020

%

12M 2020

12M 2019

%

Coking coal mining

1,246

965

29.1

4,354

4,811

- 9.5

Coking coal processing

1,404

1,242

13.1

5,291

4,710

12.3

Mined

1,208

1,149

5.2

4,777

4,438

7.6

Purchased

159

93

69.9

477

258

85.1

Toll

37

-

-

37

14

166.2

Coking coal concentrate

837

721

16.0

3,059

2,614

17.0

+ 29.1% Q-o-Q

coking coal production

+ 16.0% Q-o-Q

COKING COAL CONCENTRATE PRODUCTION

Coking coal production in Q4 2020 amounted to 1,246 thousand tonnes, an increase of 29.1% q-o-q, after the decommissioning of an underperforming coal face and the launch of a new one. Year-on-year, coking coal production was down 9.5% to 4,354 thousand tonnes in 2020, due to the challenging geological conditions at the Chertinskaya-Koksovaya mine and the suspension of mine operations following an accident in September.

Coking coal concentrate production in Q4 2020 grew by 16.0% q-o-q to 837 thousand tonnes, driven by higher coking coal production. The 17.0% y-o-y growth in coal concentrate output to 3,059 thousand tonnes in 2020 was driven by the completion of a beneficiation plant upgrade, which took place throughout 2019, as well as the increased processing of purchased coals.

HIGHLIGHTS

• In Q3, MMK Group established its ESG department. The department is responsible for all stakeholder communications as well as the development and execution of the Group's sustainability strategy.

• On 8 July 2020, MMK published a corporate Sustainability Report prepared under Global Reporting Initiative (GRI) standards. The publication of this Report reflects MMK's commitment to its mission and core principles of sustainable development, including the achievement of the UN's Sustainable Development Goals.

• The newly-reconstructed Blast Furnace No. 2, with its advanced dust exhausting units at cast and stock houses, was put into operation, which will significantly reduce future dust emissions.

• In February 2020, an appraisal audit was successfully conducted for compliance with the international standard ISO 45001:2018.

Q4 2020

Q3 2020

%

12M 2020

12M 2019

%

LTIFR

0.53

0.68

- 22.1

0.66

0.89

- 25.8

Gross air emissions, thousand tonnes

54.6

45.4

20.3

177.4

197.0

- 9.9

Specific air emissions, kg/tonne

17.40

17.68

- 1.6

17.15

17.98

- 4.6

- 25.8% Y-o-Y

ltifr

In 2020, lost-time-injury frequency rate (LTIFR) decreased year-on-year by 25.8% to 0.66, reflecting a decrease in the number of accidents due to the implementation of measures aimed at improving the production safety culture and eliminating the root causes of accidents.

- 4.6% Y-o-Y

SPECIFIC AIR EMISSIONS

Specific air emissions in 12M 2020 were down 4.6% y-o-y to 17.15 kg per tonne, driven by the construction and launch of Sinter Plant No. 5 in mid-2019, which boasts an advanced gas-cleaning system, coupled with the subsequent decommissioning of Sinter Plant No. 4.

In Q4 2020, specific air emissions decreased by 1.6% q-o-q to 17.4 kg/tonne on the back of higher share of EAF steel in the total steel output.

COVID-19 RESPONSE

• The COVID-19 response centre established at MMK and led by the CEO has continued to operate. In line with all the measures introduced in spring, office employees work remotely, the number of personnel at production sites is reduced, and shifts are separated by pauses.

• The Group continuously monitors the situation and takes all necessary steps to prevent the spread and reduce the risk of coronavirus infection.

OUTLOOK

• The stable demand in the domestic and international markets will support sales in Q1 2021. The premium product capacity utilisation rate will remain at 100%.

• The major increase in metallurgical raw material prices and positive dynamics of global prices for metal products will support the growth of prices for MMK Group's metal products in Q1 2021.

• CAPEX for Q1 2021 is expected to grow q-o-q, in line with the implementation schedule for projects pursued under the Group's strategy.

• Operational excellence initiatives under the updated strategic initiatives will further boost the Group's profitability in Q1 2021.

ABOUT MMK

MMK is one of the world's largest steel producers and a leading Russian metals company. The Group's operations in Russia include a large steel-producing unit encompassing the entire production chain, from the preparation of iron ore to downstream processing of rolled steel. MMK turns out a broad range of steel products, with a predominant share of high-value-added products. In 2019, MMK produced 12.5 mln tonnes of crude steel and 11.3 mln tonnes of commercial steel products.

MMK is an industry leader in terms of production costs and margins. Group revenue in 2019 totalled USD 7,566 mln, with an EBITDA of USD 1,797 mln. MMK boasts the industry's lowest debt burden. Net debt/EBITDA ratio was -0.13х at the end of 2019. The Group's investment-grade rating is confirmed by the leading global rating agencies Fitch, Moody's and S&P.

MMK's ordinary shares are traded on the Moscow Exchange, while its depositary receipts are traded on the London Stock Exchange. Free float amounts to 15.7%.

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