Mechel Says Q3 External Steel Demand Decreased Compared to Q2 – Commodity Commentary

By Mary de Wet

Mechel PAO’s steel segment saw lower demand from external customers in the third quarter compared to the second, although sales were up 62% year-over-year.

Its mining segment is working to restore production volumes, in particular by preparing to start the development of its Sivaglinskoye iron ore deposit.

On its steel segment:

Third-quarter revenue from external customers fell 8 percent from the second quarter to 67.18 billion rubles ($ 930 million), the mining and steel company said.

“The main reasons were reduced demand due to volatile market prices, the impact of export duties and negative price expectations from our customers. Under these conditions, we have reduced the share of exports, redirecting our sales partly to the domestic market and partly to replenish our sales network inventories which declined during the period of high demand in the second quarter, ”said Mechel.

Revenue increased from 41.35 billion rubles in the third quarter of 2020, according to the company’s website.

“Despite a weaker steel market, the average FCA-based prices the company used to sell long products rose 11% quarter over quarter, while the price of flat steel increased 10% quarter over quarter and hardware prices increased 19%.

“In October, the downward trend in prices continued, but in November the market rebounded as traders faced the need to replenish depleted stocks.

“The end of the third and the beginning of the fourth quarter also showed higher ferrosilicon prices as China tightened energy restrictions. Due to power shortages, a significant drop in the production of ferrosilicon and the increase in its production costs, market prices have more than doubled. Considering the fact that the increase occurred almost at the end of this reference period, the average selling price of the Group’s ferrosilicon increased by almost 30% quarter on quarter. After the Chinese authorities intervened in the electricity crisis and introduced additional ecological limitations in November-December ahead of the heating season and the preparation of the Olympics, the production of ferrosilicon will continue to decline, which will support prices.

“Despite limited sales opportunities, in Q3 2021, the division’s facilities increased their steel production by 2% and maintained stable finished product production levels compared to the previous quarter, replenishing our network inventory. sales for future sales volumes. “

On its mining segment:

Third-party sales revenue increased 2% quarter-on-quarter due to higher prices for all types of production in the division except iron ore concentrate. Sales volumes declined, the company said.

Third-quarter sales totaled 29.77 billion rubles, up from 17.19 billion rubles a year earlier.

“In 3Q 2021, extraction volumes at the division’s facilities remained broadly at the level of the previous quarter. trimester.

“In the third quarter, our ability to market stored coal was limited. Anthracite and PCI sales were flat quarter over quarter. With favorable market trends, this resulted in a 2% qoq increase in third party sales revenue, while the division’s EBITDA improved by 20%. The division’s EBITDA margin in Q3 2021 reached 52%.

“The division’s facilities continue to implement programs to restore production volumes. As a result, mining at Southern Kuzbass Coal Company increased 23% quarter on quarter. As the giant tires arrived at Yakutugol Holding Company, the facility restored its fleet of heavy trucks In Q3 2021, the Korshunov mining plant received six new trucks as well as pumps and hydrocyclone separators for its washing plant . In Q4 2021, the plant will receive an excavator, a drilling rig and a heavy-duty bulldozer.

“Also, in order to improve the group’s iron ore supply, the division is preparing to launch the development of the Sivaglinskoye iron ore deposit.

Write to Mary de Wet at [email protected]

Shirlene J. Manley