Page 201 - RusRPTApr23

Further trade limitations, slabs may be at risk of full closure. The company will have to find markets for 2.4 mt of slab after the EU restrictions comes into force. We think that the lack of the alternative destination could decrease TP by 10%.
Another beneficiary from the weakening. NLMK remains one of the key steel exporters mainly supplying semis to the global markets. As a result, it has quite high exposure to the FX rate, and its weakening should somehow support the profits.
TP jumped by 18% on depreciation. BCS increased NLMK’s target price by 18% to RUB200/sh from RUB170/sh based on our DCF approach.
BCS have increased MMK’s TP by 15% to RUB63/sh. as BCS is optimistic on the performance of Russian flat steel market that fared well in 2022 and will expect resilience in 2023 on stable demand from construction. MMK, historically most reliant on the domestic market, should also benefit from Russian steel prices shrinking its gap to high global steel benchmarks.
Local steel market is on the rise, backed up by strong global benchmarks. The high season in the Russian construction sector, Turkish post-earthquake recovery, and the anticipated acceleration of the Chinese economy act as strong support factors for MMK. It is worth noting that the company typically sells at least 80% of its steel products domestically, and as such, has yet to fully realize the benefits of the rising global benchmarks in terms of pricing. MMK may resume dividends in the medium-term.
Strong seasonal momentum in domestic demand. The prices of HRC and rebar have already increased by 8% and 24%, respectively, in the last three months. However, the discount to export parity remains at around 15-20%. The construction season is starting soon and is expected to further drive up prices for both flats and longs.
Chinese economy acceleration. In 2022, China's GDP grew by 3%, while the government has set a higher target of 5% for 2023, which may be bolstered by potential stimulus measures. This noteworthy expansion in the Chinese economy is expected to drive vigorous industrial and construction activity, and consequently, sustain steel prices at or above present levels.
MMK may resume dividends in the medium-term.
Ruble appreciation. A reversal in recent depreciation (+18% against USD in last 3 months) may hit export and partly domestic revenues and dilute margins as well.
Ruble depreciation, steel prices up. In addition to changing our depreciation estimates, we expect local steel rates would increase by 7% in 2023-24 versus
201 RUSSIA Country Report Russia April 2023 www.intellinews.com