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Russia

Novolipetsk Steel: 1Q21 trading update: Incredible steel prices surge fully offsets sales structure

  • NLMK (NLMK: LI; E/W; TP $27.7/GDR) reported its 1Q21 trading update

  • The sales structure switched to NLMK’s “home” markets with sales in Russia (+4% q/q) and the US (+16% q/q)

  • The supply of iron ore products remained broadly stable with external sales decreasing

Boris Krasnozhenov
Boris Krasnozhenov

Head of Research (Managing Director)

Yulia Tolstykh
Yulia Tolstykh

Analyst, Metals & Mining

Alfa
12 April 2021
Published by

NLMK (NLMK: LI; E/W; TP $27.7/GDR) reported its 1Q21 trading update. On a group level, we note a 4% y/y recovery in crude steel production due to a post-overhaul increase in productivity and the completion of maintenance at the Long products segment. However, overall steel product sales decreased 13% y/y to 3.9 mn t in response to the decrease of semi-finished product sales (mainly pig iron) and on the back of the increase in intragroup slab sales.

The sales structure switched to NLMK’s “home” markets with sales in Russia (+4% q/q) and the US (+16% q/q) offsetting the 4% decrease in sales in Europe. The 21% q/q decrease in export sales at the Group level was partly attributable to stocks having piled up in the Black Sea ports due to unfavorable weather conditions, with stockpiles planned to be sold further in 2Q21. We expect divisional support from the Long and the US divisions. Large traders in Russia were seen restocking amid expectations of further growth in demand. The US segment reported higher sales of hot-rolled and galvanized steel driven by higher demand across all key consuming sectors.

The supply of iron ore products remained broadly stable with external sales decreasing due to rising steel output at the Lipetsk site. Intragroup pellet sales grew 13% q/q, contributing to higher utilization rates on BF capacities. Also in the raw materials universe, dollar-denominated coal prices in Russia increased by 41% q/q (-19% y/y), following the global price trend and fueled by the interest of Chinese consumers in Russian grades of coking coal. We expect the negative effect of the raw material price increase to be fully offset by substantial steel price growth, strong demand and supply shortages due to the slow restart of capacities, particularly in the EU. NLMK reported a 39% and 52% y/y increase in dollar-denominated prices for uncoated flat steel and rebar in Russia, respectively, while the average flat prices in the US grew 89% y/y with HRC reaching an all-time high of $1,500/t at the end of March. In the EU, dollar-denominated flat steel prices increased by an average of 34% q/q (+58% y/y), reaching the highest level since 2008. We expect a solid set of 1Q21e financials, which are due to be published on 22 April.