Page 128 - RusRPTMay19

1Q19
Magnitogorsk Iron and Steel Works (MMK) has reported a 1Q19 modest trading update. While 1Q19 volumes and prices do not change the earnings expectations much, analysts note supportive Russian domestic demand momentum, which improves our 2Q19 outlook for the company, which holds the highest exposure to Russian market among peers. VTBC unchanged 12- month Target Price of $12 implies a 47% ETR: Buy reiterated. Lower volumes offset by better mix. The company managed to offset lower pig iron output (on the back of scheduled seasonal repairs) with higher EAF steel output. As a result, crude steel output was little changed q/q (although this would result in upward pressure on slab cash costs in 1Q19). While steel sales saw a 5% q/q decline to 2.78mnt as the company reduced exports due to repairs at its HRC mill, we note an improved product mix. In fact, the share of HVAs stood at 48.2%, which is above the normal level for 1Q, while domestic sales accounted for almost 90% of the total – the highest quarterly level since 2014 at least. The company indeed notes a positive domestic demand print, attributable to restocking by traders as well as a recovery in demand for LDPs from Gazprom.
● Other
Russian aluminium giant Rusal has resumed supplies to the US market
and aims to win back customers it lost due to sanctions by about September when the industry seals supply contracts for 2020, its chief executive said.“We fulfilled all our obligations even during the period of sanctions, we did not allow ourselves a single failure. Therefore, some of our former partners are already coming back, new partners are coming,” CEO Evgenii Nikitin said. “We hope that we will be able to bring back our clients toward September, the contracting period for 2020,” he added in an interview with Reuters. Rusal’s nine months of talks with Washington ended successfully in late 2018. In January, Washington excluded Rusal from the sanctions list but kept founder Oleg Deripaska, who had to give up his control of the firm as part of the deal.
Russian aluminium major Rusal had the Ba3 credit rating assigned by Moody's Investors Service on April 5, with B1 rating for its credit notes and stable outlook. The credit ratings of the company thus remained intact after almost a year of sanctions. In February, the US Treasury Department Office of Foreign Assets Control (OFAC) removed Rusal and other assets of Russian billionaire and Kremlin insider Oleg Deripaska from the US Specially Designated Nationals And Blocked Persons List (SDN List). As reported by bne IntelliNews, in March Fitch Ratings already assigned Rusal a long-term Issuer Default Rating (IDR) of 'BB-', with a stable outlook. "Rusal successfully managed its operations under the US sanctions with limited impact," Fitch commented on the rating action, noting that "due to several extensions granted to the company's grace period by the OFAC, Rusal did not bear the full impact of the sanctions."
Russia’s diamond monopoly and investors’ darling Alrosa reported slower than usual rough diamond sales of $369mn in March, down 33% y/y and also 32% below historical average for the month, VTB Capital (VTBC) said in a note. “This year, usual m/m pick-up in March sales was much less pronounced than usual due to weaker demand for melee rough diamonds as the result of slowing momentum in global downstream sales in 4Q18, VTBC said. “Nevertheless, the company notes recovery of demand for melee by the end of 1Q19, remaining cautiously positive for 2Q19 1Q19 rough sales of $988mn are down 38% y/y and VTBC says EBITDA for 1Q19 might be down
128 RUSSIA Country Report May 2019 www.intellinews.com