Severstal benefits from higher prices, weak rouble

Russian integrated steelmaker and mining firm Severstal benefited from high average steel sales prices and strong Chinese demand in the second quarter of this year.

It was boosted by stronger Russian sales volumes and prices, which had been under pressure in the first quarter. Russian steel demand rose by 5pc last year and should grow by another 2.6pc this year, supported by GDP growth amid a gradual economic recovery, the company said.

In the second quarter the company's overall steel sales volumes actually fell to 2.86mn t, from 2.87mn t in the preceding three months, but this was offset by stronger pricing. The domestic market accounted for a 64pc share of the company's steel sales in April-June, up by 12 percentage points from the previous quarter, because of the "more attractive pricing environment driven by the commencement of construction season in Russia," the company said. Sales of hot dip galvanized coil and colour-coated products grew in the second quarter as a result of this seasonally strong demand, eating into cold rolled coil sales. Thick plate sales were also high, meaning high value-added products represented 46pc of sales, up from 45pc in the first quarter.

Severstal has been able to continue selling hot rolled coil into Europe given the comparatively weak fixed per tonne duty it received last year.

"Russia remains Severstal's core market, and with the flexibility to redistribute shipments quickly between domestic and export markets, we are confident Severstal will benefit strongly from any local demand," Severstal Management chief executive Alex Shevelev said.

Earnings before interest, taxes, depreciation and amortization (ebitda) rose by 23.8pc on the back of strong steel pricing, and higher sales volumes from the resources division. The ebitda margin hit a record level of 39pc

Non-integrated slab-making costs at its Cherepovets Steel Mill fell by $13/t on the quarter in April-June, to $322/t on rouble depreciation. Integrated costs saw an even steeper $31/t fall to $233/t. The Argus weekly Black Sea slab assessment moved from $595/t at the beginning of the second quarter to $513.80/t by the end of June. Despite the slippage, this still showcases strong margins for the company.

On the resources side, coking coal concentrate sales from Severstal's Vokutaugol mine grew by 19pc in the second quarter, while iron ore pellet sales rose by 31pc to 3.12mn t, from 2.38mn t in the first quarter.

Iron ore concentrate sales increased to 1.36mn t driven by seasonal production growth at Olcon. The ebitda of the resources unit increased by 23.4pc to $232mn in April-June aided by weaker costs driven by a weaker rouble.