Page 182 - RusRPTApr21

Capex guidance for 2021 was unchanged at $1.35 bln, and Severstal provided capex figures for 2022-24 for the first time. The guidance for 2022-23 was slightly above what we had in our model at $1.3 bln in 2022 (versus $1.1 bln) and $0.9 bln in 2023 (versus $0.8 bln). Severstal then expects capex to decline to $800 mln in 2024, after it passes the peak of its investment cycle, as previously guided.
Severstal had a fire at Yakovlevsky mine – operations suspended for an indefinite period but not likely to be long-term. According to Belnovosti, a conveyor belt at a roadheader in a mine at the Yakovlevsky mine has caught fire. Operations at the mine have been suspended for an indefinite period. No injuries or fatalities have been reported among the workers. It is unclear when operations at the mine are going to restart. We estimate that the Yakovlevsky mine is going to account for 17% of the company’s 2021F iron ore output and 5% of 2021F EBITDA.
Severstal’s Capital Markets Day reiterated the company’s 2023 strategy targets in terms of expected EBITDA gains and planned capex, although management specified the structure of the gains:
increasing output of steel and coking coal. The higher volume targets are in line with our expectations, but suggest a slight upside risk to our forecasts if the company delivers on time (2023). Our unchanged 12- month Target Price of USD 20/DR suggests a 21% ETR: Buy reiterated.
Global market outlook supportive, Russian HRC to return to premium. Severstal estimates world steel demand growing 5.5% YoY in 2021: 2% YoY in China and 11% in ex-China. However, the company sees a tight market balance in 2021 on lagging supply globally. As such, it expects steel prices to remain above mid-cycle averages in the next 2- 3 years. As Russian demand is to recover in 2021 (+3% YoY), the company expects the reestablishment of the historical domestic HRC premium in 2021 (USD 50/t).
Production targets increased 9-11%. Severstal raised its 2023 steel production target 11% to 13mnt, as the company plans to produce an additional 1.3mnt of EAF slabs for export (instead of adding another 1.1mnt blast furnace, per the 2019 plans).
The coking coal output target for 2023 was increased 9% to 5.9mnt (9% above us) (Figure 1).
Capex guidance for 2021-24 is in line with consensus. The company reiterated its capex guidance for 2021-23 at USD 1.35bn, USD 1.3bn and USD 0.9bn levels, which is in line with our forecast for 2021F and 20-25% above us in 2022-23F, but broadly in line with the consensus estimates (Bloomberg, as of 11 March 2021).
182 RUSSIA Country Report April 2021 www.intellinews.com