Equity Analysis /
Russia

Magnitogorsk Iron & Steel Works: 1Q21 trading update: Seasonal steel sales decline amid stable crude steel output

  • MMK reported its 1Q21 trading update with quarterly steel output landing at the guided level of around 3.3 mn t.

  • MMK’s average price realised grew 24% q/q and 21% y/y to $713/t

  • MMMMK shared a positive outlook towards 2Q21, which is supported by favourable global market conditions

Boris Krasnozhenov
Boris Krasnozhenov

Head of Research (Managing Director)

Yulia Tolstykh
Yulia Tolstykh

Analyst, Metals & Mining

Alfa
14 April 2021
Published by

MMK (MMK: LI; E/W; TP $9.3/GDR) reported its 1Q21 trading update with quarterly steel output landing at the guided level of around 3.3 mn t. Finished steel sales decreased by 141 kt (down 4.6% q/q) reflecting seasonal developments as well as scheduled repairs which affected long product output, an increase in exports of thick plates and a higher share of intragroup sales of cold-rolled products. Sales of HRC products grew 4.3% q/q as a result of robust demand on the export markets. The steel segment in Turkey reported 196 kt of sales which is down 11% q/q yet broadly in line with expected level of sales for 2021. MMK noted the challenging weather conditions in Russia and in Turkey in the first quarter, and unscheduled repairs at third-party contractors affected the segment’s performance.

MMK’s average price realised grew 24% q/q and 21% y/y to $713/t. Premium product prices grew 27% q/q and 23% y/y to $832/t. The quarterly average realized price increase is lower versus recorded on exports markets and reflects MMK’s broader exposure to domestic market. Commenting on the iron ore market in Russia in 1Q21, MMK had seen domestic prices soaring in response to robust demand for iron ore across the globe. According to Metal Expert, domestic iron ore prices almost doubled in 1Q21 over last year reaching an average of $113/t. Prices for coking coal in Russia were seen up by 50% in 1Q21. As MMK’s self-sufficiency in coal is around 50%, and iron ore self-sufficiency remains around 17-18%, the rising cost base largely offsets positive impact from steel price growth.

MMK shared a positive outlook towards 2Q21 which is supported by favorable global market conditions and a seasonal pick-up in construction demand. It is expected that the reverse Cold-Rolling Mill 1700 commissioning in May 2021 will further support MMK’s 100% utilization of premium products. We view the results as NEUTRAL. The company appears on track to deliver on its quarterly EBITDA guidance, i.e. flat or slightly higher q/q.