Page 203 - RusRPTMay21

structure starting from 2Q21, mainly due to the pickling shop reopening (it finished upgrading the pickling shop in 1Q21 and planned to ramp it up gradually to full capacity of 0.25mnt/a of HRC and 0.23mnt of CRC in 2022).
· Severstal expects the Russian market supply to remain relatively stable, as Russian steel producers are currently experiencing high capacity utilisation.
· Severstal is operating at full capacity now and does not expect to increase stocks in 2Q21.
· The capex programme of USD 1.35bn for 2021F remains on track to reach the annual guidance.
· The company is trying to make its order book as short as possible and not to sell significant volumes in advance since it is more attractive to go along with the market and benefit from the trend of growing prices.
· Severstal is confident that it can deliver 3mnt or more of ore from Yakovlevsky in 2021, as the ramp-up works remain on track. Coal production at Vorkuta is also going to catch up with the 2021 plan in the coming quarters, despite the prolonged long-wall repositioning in 1Q21.
Severstal has received permission from the FAS to acquire a 20% stake in small pipe producer Nizhne-Volzhsky Pipe Plant (NVTZ). The valuation has not yet been disclosed. The acquisition might slightly support an increase in the HVA share in the company’s sales mix (some 1pp upside risk from the 1Q21 level of 48%) as well as a secure flat steel customer, as flat steel is necessary for pipe rolling. We note that 100% capacity of NVTZ accounts for 600kt/a, while the annual production plan for 2021 is 500kt; therefore, the acquisition of the 20% stake creates some 17% upside risk to Severstal’s 2022F long steel products saleable output, 1% to total steel product sales and 1% to revenue. The valuation of NVTZ is unclear; however, we estimate that the value of 20% stake in NVTZ would not exceed USD 10mn, or less than 0.5% of our forecast of 2021F of Severstal FCFE. Therefore, we treat the news as neutral.
EVRAZ released 1Q21 operating results showing weakness in steel products sales, but a material increase in realized steel price.
· Total crude steel production in Russia fell 4% q/q and 6% y/y to 2.9mt– in line with the decline of pig iron production volumes
· Steel products sales fell 15% q/q and 4% y/y to 2.8mt, due to lower sales of semi-finished products, given reduced steel
203 RUSSIA Country Report May 2021 www.intellinews.com