Page 183 - RusRPTApr21

Target EBITDA gains reiterated. Despite higher production targets, Severstal reiterated its EBITDA gains target of USD 1.22bn/a in 2023 vs. the 2020 level (in line with its original 2023 vs. 2017 target). However, it notes that only USD 870mn of gains would be generated by capex projects, implying post-tax 29% IRR, on our numbers. The remaining USD 350mn (14% of mid-cycle EBITDA) would come from non-capex improvements (Figure 2).
Green steel might be a long-term strategy option. The company noted that it was considering deploying hydrogen-based steel technologies which, in our view, might be a part of the company’s strategy after 2023 (no final decision taken). This could signal a step change in the company’s ESG strategy in the medium term.
Novolipetsk Metallurgical Kombinat (NLMK) management sees strong steel price momentum in its key global areas of operation (Europe, US), which is driven by the recovery of ex-China demand amid restricted supply. Recent price hikes in Europe suggest an HRC price of USD 1,000/t in the coming months (almost 20% above the 2011 cyclical peak). The company believes that the domestic premium might reappear as the construction season continues, but the premium’s level would be largely dependent on the strength of local demand and export price dynamics. This is supportive for our forecast of a USD 40-50/t Russian domestic HRC premium in 2021F-2022F. At spot steel price conditions, and assuming no immediate costs rise, the company would generate more than USD 6bn EBITDA in 2021, according to our estimates. The company notes robust performance from its US division in 1Q21 (a major beat of company’s earnings expectations for 1Q21), thanks to higher prices and restored production after the strike at one of its assets ended. NLMK is in the middle of its 2022 strategy, with the remaining projects being focused on tactical downstream capacity expansion. Management does not see any rationale for streamlining capex, and is sticking to its USD 1.1bn capex guidance for 2021). The company is gradually preparing for the next strategic cycle after 2023, and might expand its strategic thinking horizon to 2030. There is no final decision on exact projects, or the scope of the new strategy; however, most likely, the company is likely to continue capitalising on its competitive advantage – a low-cost iron ore asset – and is to put more focus on the global trend of transition to low CO2 intensity steel. In addition, as during the current strategic cycle, the company will have no-regret (offering high returns) investment projects in the pipeline. The new strategy is to be finalised at the end of 2022, management said.
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Norilsk Nickel CEO Vladimir Potanin has said that the company is willing to invest RUB150bn ($2bn) into Norilsk’s development programme through 2035, writes Interfax. The company and Norilsk city have outlined a preliminary plan, which implies more intensive investments in 2021-24. This
183 RUSSIA Country Report April 2021 www.intellinews.com