Sector

Corporates

Activities

Metals & Mining

Type

Analytical commentary

Aggregate capital expenditures remained at the 2019 level amid lower financial indicators of steel companies included in the sample and lower dividend payments.

The Russian steel industry was affected by the restrictions imposed in 2020 to fight against the COVID-19 pandemic to a lesser extent and consequently the operating results of the sector’s companies did not demonstrate the decline observed in the global steel production. Last year Russia produced 73.4 mln tons of steel (a 2.6% increase on 2019), while global steel production declined by 0.9% year-on-year.

Although total production volume increased last year, from the point of view of internal consumption of steel in Russia, 2020 was a challenging year as it fell by 2.5% (to 41 mln tons). The quarantine restrictions impacted industries that consume products of the metallurgy sector, such as transport, construction, machine building, and pipe manufacturing. Due to this, vertically integrated Russian steel companies that are flexible in terms of their choice of sales markets were able to instead export part of their products in order to maintain capacity utilization and their share in export markets.

On the whole, last year was not an easy one for steel companies, despite higher production. The main reason for this is low prices for steel products in the global market.

Aggregate revenue posted by the three companies of the sector analyzed as part of this research (MMK, NLMK and Severstal) fell by 14% year-on-year in 2020, while the average annual selling price for a ton of products declined by 15% to USD 546 (in 2019, the average price was 4% lower than the 2018 price). 

Figure 1. Aggregate revenue and average price for steel products of the three analyzed companies

Source: companies’ data

At the same time, the average volume of capital expenditures for the companies of the analyzed sample in 2020 not only did not decrease, but even increased for NLMK and Severstal by 4% and 9%, respectively, compared to the 2019 indicators.

Figure 2. Consolidated indicators for the three analyzed companies, USD mln

Source: companies’ data

Russian steel companies were forced to cut dividend payments to shareholders due to the fall in operating profit. The volume of annual dividends in 2020 decreased by 24% on average for the three analyzed companies.

The results of MMK, NLMK and Severstal for the period from January to March 2021 allow us to be moderately optimistic with regard to the possible recovery of the financial indicators of these companies to the pre-crisis level. This is mainly due to the recovery of global steel prices — in Q1 2021, the average selling price grew by 18% quarter-on-quarter and 20% year-on-year.

Can we say that this recovery is sustainable? Unfortunately, no. There are risks of new waves of the COVID-19 pandemic in the world, as well as the likelihood of a seasonal decrease in demand and prices for steel products as the construction season ends. In addition, the average prices for metal products in 2021 may still turn out to be lower than in 2019, and there is no signs of their recovery to the price level of 2018.

And what about dividends and capital expenditures? The Q1 2021 performance indicators of the companies under review show a significant decrease in dividends. At the same time, the volume of capital expenditures did not decrease as significantly. The aggregate dividend payments of MMK, NLMK and Severstal for the period from January to March this year declined by 65% quarter-on-quarter and 24% year-on-year. However, capital expenditures dropped 20% quarter-on-quarter and 14% year-on-year.

According to the quarterly operating and financial results of the leading Russian steel companies, market volatility has persisted both domestically and globally. The recovery in steel prices in Q1 2021 does not indicate the sustainability of this trend. Consequently, an increase in dividend payments announced by some companies in the industry amid growing financial performance in the first quarter (for example, Severstal approved quarterly dividends of RUB 46.77 per share, which is 71% higher than the dividend for Q1 2020 and to be paid in Q2 2021) speaks of the recovery of financial indicators to pre-crisis levels. In addition, it is important to note that the recovery in steel prices is contributing to an increase in taxes paid to the national budget: the growth of the aggregate income tax for the three analyzed companies in Q1 2021 amounted to 68% quarter-on-quarter and 196% year-on-year.

Table 1. Operating and financial performance of the three analyzed companies

MMK

2018

2019

2020

%,
y-o-y

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

%,
q-o-q

%,
y-o-y

Steel products sold, thousand tons

11,664

11,316

10,755

-5%

2,745

2,223

2,742

3,045

2,904

-5%

6%

Revenue, USD mln

8,214

7,566

6,395

-15%

1,710

1,268

1,565

1,852

2,185

18%

28%

EBITDA, USD mln

2,418

1,797

1,492

-17%

442

226

350

474

726

53%

64%

Dividends*, USD mln

833

907

623

-31%

297

238

1

87

357

310%

20%

Profit tax, USD mln

392

271

156

-42%

39

37

28

52

93

79%

138%

CAPEX, USD mln

871

857

694

-19%

130

176

159

229

142

-38%

9%

Average selling price for metal products, USD/ton

659

627

556

-11%

591

522

535

575

713

24%

21%

NLMK

2018

2019

2020

%,
y-o-y

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

%,
q-o-q

%,
y-o-y

Steel products sold, thousand tons

17,591

17,069

17,520

3%

4,505

4,352

4,443

4,220

3,908

-7%

-13%

Revenue, USD mln

12,046

10,554

9,245

-12%

2,457

2,174

2,229

2,385

2,867

20%

17%

EBITDA, USD mln

3,589

2,564

2,645

3%

594

582

579

890

1,166

31%

96%

Dividends*, USD mln

1,888

2,120

1,637

-23%

308

271

266

792

100

-87%

-68%

Profit tax, USD mln

577

381

285

-25%

53

63

72

97

177

82%

234%

CAPEX, USD mln

680

1,080

1,124

4%

288

219

344

273

232

-15%

-19%

Average selling price of metal products, USD/ton

697

680

592

-13%

589

571

583

624

666

7%

13%

Severstal

2018

2019

2020

%,
y-o-y

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

%,
q-o-q

%,
y-o-y

Steel products sold, thousand tons

10,480

10,667

10,028

-6%

2,371

2,406

2,877

2,229

2,371

6%

0%

Revenue, USD mln

8,580

8,157

6,870

-16%

1,740

1,555

1,852

1,723

2,219

29%

28%

EBITDA**, USD mln

3,112

2,791

2,390

-14%

543

492

651

704

1,021

45%

88%

Dividends*, USD mln

1,971

1,574

1,228

-22%

 

641

166

421

     

Profit tax, USD mln

464

401

229

-43%

41

35

68

85

124

46%

202%

CAPEX, USD mln

688

1,218

1,327

9%

344

331

341

311

278

-11%

-19%

Average selling price of metal products, USD/ton

648

613

491

-20%

496

481

480

506

630

24%

27%

Consolidated data for the three companies

2018

2019

2020

%,
y-o-y

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

%,
q-o-q

%,
y-o-y

Steel products sold, thousand tons

39,735

39,052

38,303

-2%

9,621

8,981

10,062

9,494

9,182

-3%

-5%

Revenue, USD mln

28,840

26,277

22,510

-14%

5,907

4,997

5,646

5,960

7,271

22%

23%

EBITDA, USD mln

9,119

7,152

6,527

-9%

1,579

1,300

1,580

2,068

2,913

41%

84%

Dividends*, USD mln

4,692

4,601

3,488

-24%

605

1,150

433

1,300

457

-65%

-24%

Profit tax, USD mln

1,433

1,053

670

-36%

133

135

168

234

394

68%

196%

CAPEX, USD mln

2,239

3,155

3,145

0%

762

726

844

813

652

-20%

-14%

Average selling price of metal products, USD/ton

668

640

546

-15%

559

525

533

568

669

18%

20%

* According to the cash flow statement.
** ACRA’s calculations.
Source: companies’ data

Figure 3. Average prices for steel products

Source: companies’ data

Print version
Download PDF

Analysts

Ilya Makarov
Director, Corporate Ratings Group
+7 (495) 139 04 80, доб. 220
We protect the personal data of users and process cookies only to personalize services. You can prevent the processing of cookies in your browser settings. Please read the terms of use of cookies on this website by clicking on more information.