Page 124 - RusRPTDec22

World Steel Association. Crude steel production in Russia amounted to 5.8mt (c60mt over 10M22, down 6.6% y/y) last month, though global steel output was flat y/y and settled at c147mt. Note, production in China climbed 11% y/y to c80mt.
LME will not ban Russian metal from its system, the exchange said on November 12. The London Metal Exchange would not prohibit Russian metal in trading and storing in its system as the purchaser will still buy a substantial portion of the Russian metals next year, the agency states. Note that LME earlier considered three options towards metals from Russia: maintaining the status quo; a complete ban on the storage of Russian aluminium, nickel and copper in certified warehouses around the world; introduction of thresholds or similar restrictions on the storage of Russian aluminium, nickel and copper in certified warehouses around the world, RBC said.
Domestic HRC steel prices in Russia are still at high levels, reaching Rb45,000/t, despite the fact that large volumes of steel were redirected to the local market due to the trade restrictions. Demand-wise, construction activity has remained robust through 2022 mainly thanks to state support. Steel import volumes slump in spring 2022 has made local market more detached now than before. Although domestic premia remain elevated for now, this may not last long.
Domestic prices are poised to fall as demand cools down as winter sets in. Imports to Russia from neighbouring countries have almost fully rebounded. Furthermore, average monthly steel consumption in the rest of the year could drop by 12% vs average January levels, as winter is approaching and construction activity slows down. We see downside risks to local prices and the mills’ margins in the coming months. To remind, only NLMK enjoys positive export profitability, by our estimates. At first glance, 3-6x M2M P/E for Russian steel stocks may look attractive, but the aforementioned factors can lead to cuts to our and consensus earnings forecasts.
Russian steel universe is one of the most affected sectors after the spring events – probably, all negative scenarios have materialized: trade restrictions, strong ruble, logistics issues, sluggish domestic demand, etc. resulted in severe changes in the companies’ business. Most companies have stopped publishing financial results to minimize potential new risks. Yet, we decided to estimate their current state via margin analysis. As we can see on the top left chart, domestic margin across all products and raw materials is on a positive trajectory, reaching more than 30%. However, export in steel and iron ore spaces is outright loss-making, on our numbers, as stronger ruble and transportation costs (among other things) weigh on companies’ financials. Only NLMK earns a positive integrated export margin thanks
124 RUSSIA Country Report December 2022 www.intellinews.com