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Russia

Magnitogorsk Iron & Steel Works: 2Q21 trading update – sales volumes up amid 32% q/q surge in prices – POSITIVE

  • MMK reported its 2Q21 trading update which revealed robust sales results

  • The 14% q/q steel sales growth was also supported by a 20% q/q increase in premium product sales

  • MMK communicated a positive outlook for 3Q21, justified by sustainable demand and continuing steel price increase

Boris Krasnozhenov
Boris Krasnozhenov

Head of Research (Managing Director)

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Yulia Tolstykh
Yulia Tolstykh

Analyst, Metals & Mining

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Alfa
14 July 2021
Published byAlfa

MMK (MMK:LI; E/W) reported its 2Q21 trading update which revealed robust sales results with volumes of finished steel sales reaching 3.3 mn t supported by crude steel output growth and steel demand. The 14% q/q steel sales growth was also supported by a 20% q/q increase in premium product sales whose share reached 42% in 2Q21. That came amid a 32% q/q and 49% y/y increase in average realized prices. The average HRC price per ton at MMK was recorded at $880/t last quarter. Finished steel sales in Turkey have also demonstrated positive dynamics reaching a total of 221kt. In the mining division, coking coal concentrate output increased by 7% q/q, with a major increase of external coal purchases reported due to a decrease in mining operations as a result of the transfer of operations at the Kostromskaya mine. We expect that to place additional pressure on the cash cost of production along with increased iron ore material input costs. According to MMK’s announcement, domestic coking coal prices increased marginally in 2Q21. Given the patterns of changes in coal prices, the dynamics that took place in global indices in the second quarter will not affect the domestic prices until the next quarter.

MMK communicated a positive outlook for 3Q21 which is justified by sustainable demand and continuing steel price increases that should be reflected primarily in the 3Q21 results. In addition, MMK expects a further premium product sales increase after the reconstruction of Reverse Cold-Rolling Mill 1700 and the 100% utilization of premium product equipment. We expect a limited effect on the 2021 financials from the start of hot tests at the electric arc furnace facility in Turkey aimed at bringing 200-260 kt of HRC already in 2021. With scrap price quotes in Turkey currently reaching $485-490/t and conversion costs of approx. $185/t of HRC we derive $225-230/t of incremental EBITDA translating into an additional $45-50 mn of 2021 EBITDA. We expect a robust set of financial results to be reported on 22 July.