Page 128 - RusRPTMay20

normalisation of epidemiological and business activity in Russia. In this case, the company would pay 1H20 dividends in autumn. Lower volumes in 2Q20. Given the planned maintenance of HRC Mill 2500 and BF #2 until June, a potential slowdown in Russian demand due to COVID-19 lockdowns might coincide with lower production for MMK. The company expects its shipments to decline 15-17% q/q, while in the worst case scenario, EBITDA might decline 30- 35% q/q, it said.
Novolipetsk Metallurgical Kombinat​ (NLMK) 1Q20 sales volumes up, mildly above consensus​. The results showed a rebound in steel output and sales q/q – mostly expected, as 4Q19 was negatively affected by major repairs at NLMK Lipetsk.As expected, steel output grew q/q by 11% to 4.2mt with the biggest contribution coming from NLMK Russia Flat due to the completion of the first stage of capital repairs at NLMK Lipetsk BF and BOF operations in 4Q19. Sales to home markets were up 4% q/q to 3mt, driven by growth in the sale of semis used for manufacturing O&G pipes in Russia. Group sales to home markets accounted for 68% of total sales (-1ppt q/q). Sales on export markets were up 7% q/q to 1.4mt, given higher sales volume of finished HVA products to Turkey and the EU. Net steel sales rose 4% q/q to 4.04mt – slightly BCSe due on the increase in slab sales and the increase of flat steel sales due to low stock levels in Europe and an uptick in demand in the US at beg-1Q20In the long steel segment, sales fell 16% q/q to 600kt, amid high levels of long product stocks at trading companies. Regional restrictions associated with the COVID-19 outbreak and the overall economic slowdown prevented the full effect of the seasonal recovery in demand from being observed, the company said. Iron ore products sales rose 1% q/q to 4.6mt, with sales of concentrate to 3rd parties down to 75kt. The update bodes well for the 1Q IFRS release, but in part due to 4Q19’s low base. Going forward, sales volumes may be negatively affected in 2Q20 due to global quarantines, but we expect demand to start restoring from 3Q20.
● Fertilisers
The coronavirus outbreak cut 25% of Chinese phosphate capacities (1.5mnt), pushed DAP/MAP prices up 10% (YTD), brought uncertainty for nitrogens due to logistics issues and pressured potash prices down 16% YTD, delaying the contract signing with China. Now, though, with the fertilizer industry considered essential by most authorities, currency depreciation and cheap gas have become more important than the direct effect of COVID-19. We recently downgraded Acron to Hold (8.3x 2020F EV/EBITDA) and are now upgrading PhosAgro to Buy (5.1x) while reiterating a Buy for Israel Chemicals (6.0x).
Nitrogen. The main threat is low gas prices in Europe (they touched a historical seasonal low of $90.30/kcm) as 25-40% of costs are gas-linked. We cut 2020F avg. Urea fob Baltic 4% to $231/t.
Phosphates. In 1Q20, pricing was supported (+10% YTD) by shutdowns in China, but further growth is limited as the Chinese government’s measures lower export costs. DAP/MAP export volumes are to increase once domestic needs are satisfied. We reiterate 2020F avg. DAP fob Baltic of $310/t.
Potash. Coronavirus has delayed the application season and agricultural activity in China, so stockpiles remain massive. The potash contract has shifted to 2Q20 amid declining spot prices (-16% YTD). We now expect a Chinese contract price of $250/t (-7% to our previous forecast) and 2020F avg.
128​ RUSSIA Country Report​ May 2020 ​ ​www.intellinews.com