Novolipetsk Steel: Q3 & 9M 2022 NLMK Group Trading Update

NLMK Group's Q3 2022 operating performance

Steel output decreased by 11% qoq to 3.9 m t (+1% yoy), following reduced production at NLMK Lipetsk due to decrease in steel demand in Europe and sanction restrictions.

Sales increased to 4.3 m t (+8% qoq; +5% yoy) due to recovery of demand for rolled products in Russia and Turkey, as well as normalization of stocks accumulated in Q2 2022.

Sales mix: the share of semi-finished products was 34% (-11 p.p. qoq; flat yoy) amid declining demand for finished products and, consequently, for semi-finished steel in Europe. Sales of finished products increased by 29% qoq to 2.9 m t (+4% yoy).

NLMK Group's 9M 2022 operating performance

Steel output stood at 12.8 m t (flat yoy).

Sales increased by 4% yoy to 12.9 m t, including, among other, due to selling off of stocks accumulated at 2021 year-end.

Sales mix: the share of semi-finished goods in sales reached 41% (+7 p.p. yoy). Sales of finished products totalled 7.6 m t (-7% yoy) amid declining demand in key markets.

Q3 2022 raw materials market

• Price reduction in the steel and raw materials markets continued in Q3 2022. Economic activity in the EU and US was declining amid record-high inflation, supply chain disruptions, and interest rate hikes. High energy prices put additional pressure on industrial production in Europe. Slow construction rates in China contributed to the decrease in demand for steel and raw materials in the region.
• Following narrowing margins of steelmaking companies Australian coking coal prices decreased by 46% qoq (+1% yoy) amid normalization of weather conditions, growing coal supplies from Russia, and weak demand from key consumers of Australian coal (India, Japan, and South Korea).
• Coking coal import prices in China declined by 31% qoq (-18% yoy) due to reduced steel output amid negative margins of steelmaking companies and increased coal imports from Mongolia and Russia.
• Iron ore prices decreased by 25% qoq (-38% yoy) on lower steel output and high inventories in China. The decrease in Iron Ore prices was driven by low demand for steel in construction amid financial problems in the sector.
• Scrap prices in the US and EU decreased by 26% qoq (-18% yoy) following price decline and lower demand for finished products. In Russia, ruble-denominated scrap prices went down by 15% qoq (-22% yoy), following the introduction of export duties.

Q3 2022 steel products market

• Steel prices in China decreased by 22% qoq amid stalling demand, increased domestic supply due to lower export profitability, cheaper raw materials, and renminbi depreciation.
• Average steel prices in the US and EU fell by 33% qoq. The price drop was observed from April to August, driven by weak demand from automotive companies following semiconductor supply disruptions, high stock levels, and cheaper raw materials. In September, steel prices stabilized due to the seasonal restocking and high energy prices. Prices were also driven by shutdowns of steelmaking facilities in the EU of around 28 m t of annualized capacity (18% of the 2021 steel output).
• In Russia, dollar-denominated steel product prices declined by 21% qoq amid high domestic competition. The price trend was reversed in September due to consumer restocking in the pipe manufacturing and metal fabrication sectors; partial recovery in housing construction also supported prices.
• Global steel output decreased by 11% qoq due to lower end-demand and higher costs. Steel output in China was 14% lower than in the previous quarter. Steel production in the US and EU reduced by 1% and 11% qoq, respectively.

SEGMENTAL PERFORMANCE

NLMK RUSSIA FLAT PRODUCTS[1]

Q3 2022 performance

Steel output totalled 3.1 m t (-12% qoq; +7% yoy) amid lower demand for finished products in Europe and sanction restrictions.

Sales in the Segment increased by 9% qoq up to 3.4 m t (+15% yoy) due to the recovery of demand for rolled steel in Russia and Turkey, and the selling off of finished product stocks accumulated in Q2 2022.

9M 2022 performance

Steel output increased by 3% yoy to 10.0 m t. Steel capacity utilization was 93%.

Sales in the Segment totalled 10.1 m t (+6% yoy).

NLMK RUSSIA LONG PRODUCTS[2]

Q3 2022 performance

Steel output totalled 0.7 m t (-1% qoq; -12% yoy). Steel capacity utilization in the Segment stood at 80%.

Sales reduced to 0.7 m t (-6% qoq; -10% yoy) due to lower export shipments of billets. This was partially offset by growing demand for rebar in the Russian market. In Q3 2022, only finished products were sold due to low demand for billets in export markets and ruble appreciation.

Scrap: scrap sales decreased by 5% qoq to 1.2 m t (-12% yoy) due to a decline in billet output at NLMK Kaluga. The share of scrap sales to the Group companies was 99%.

9M 2022 performance

Steel output declined by 5% yoy to 2.2 m t, driven by lower export sales amid trade restrictions.

Sales decreased by 8% yoy to 2.1 m t due to lower export shipments of billets. Finished product shipments stood at 2.0 m t (+1% yoy). The share of finished products in sales was 93% (+7 p.p. yoy).

Scrap: scrap sales reduced by 11% yoy to 3.3 m t following the decline in output. The share of scrap sales to the Group companies was 99%.

NLMK USA

Q3 2022 performance

Sales in the Segment reduced by 9% qoq to 0.3 m t (-42% yoy) amid high stocks and a slowdown in customer activity driven by expectations of a further decline in steel prices.

9M 2022 performance

Sales in the Segment reduced to 1.1 m t (-27% yoy) due to the demand reduction against the high-base of 2021.

NLMK DANSTEEL

Q3 2022 performance

Sales dropped by 19% qoq to 0.13 m t (-3% yoy) due to the slowdown in industrial production activities amid record-high energy prices in Europe.

9M 2022 performance

Sales reduced by 4% yoy to 0.45 m t amid the decline in demand and high stock levels in Europe.  

JOINT VENTURE NLMK Belgium Holdings (NBH)[3]

Q3 2022 performance

Steel product output reduced by 36% qoq to 0.4 m t (-11% yoy) against the backdrop of a declining demand in Europe.

Sales dropped by 27% qoq to 0.4 m t (+1% yoy) lower than production decrease supported by the selling off of stocks accumulated in Q2 2022.

9M 2022 performance

Steel product output increased by 31% yoy to 1.4 m t due to the HSM upgrade at NLMK La Louvière completed in May 2021.

Sales increased by 10% yoy to 1.3 m t amid output growth in 2022. Selling off of finished product stocks in H1 2021 created the high-base effect.

Sales, m t

Q3 2022

Q2 2022

QoQ

Q3 2021

YoY

9M 2022

9M 2021

YoY

Semi-finished

1.48

1.80

-18%

1.40

5%

5.29

4.23

25%

Pig iron

0.03

0.11

-72%

0.25

-87%

0.31

0.41

-23%

Slabs

1.45

1.60

-10%

1.07

35%

4.84

3.49

39%

Billet

0.00

0.08

-100%

0.09

-100%

0.14

0.33

-58%

Flat steel

2.19

1.58

39%

2.09

5%

5.64

6.18

-9%

Plate

0.13

0.16

-19%

0.13

-2%

0.45

0.47

-4%

Hot-rolled steel

1.13

0.69

65%

1.02

11%

2.52

2.88

-13%

Cold-rolled steel

0.38

0.28

36%

0.39

-3%

1.08

1.23

-12%

Galvanized steel

0.32

0.27

17%

0.32

0%

0.94

0.93

0%

Pre-painted steel

0.13

0.06

96%

0.07

85%

0.29

0.25

18%

Transformer steel

0.07

0.06

9%

0.07

-5%

0.20

0.21

-6%

Dynamo steel

0.04

0.05

-31%

0.06

-34%

0.15

0.18

-17%

Other metal products*

0.002

0.005

-58%

0.03

-92%

0.02

0.03

-43%

Long products

0.67

0.64

5%

0.66

3%

1.98

1.97

1%

Long

0.60

0.58

2%

0.60

0%

1.78

1.77

0%

Metalware

0.08

0.05

37%

0.06

32%

0.20

0.20

2%

Total steel products

4.34

4.01

8%

4.15

5%

12.91

12.38

4%