Thu. Dec 3rd, 2020

Russian steelmakers are starting to recover production and sales after a disastrous second quarter. Some give positive forecasts for the fourth quarter and count on deferred demand in the construction industry and the effect of state support. But in general, experts believe, by the end of the year, the steel demand will decline by 6-9%, production – by 3%, companies may lose about 15% of revenue.

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The results of the work of Russian ferrous metallurgy companies in the third quarter suggest that the industry’s situation is beginning to improve gradually.

Thus, MMK increased production by 22.2% compared to the second quarter, although the year-on-year decline remains at 9.7%. In general, over the nine months, the volume of steel production decreased by 12% compared to the same period last year, to 8.2 million tons.

NLMK managed to increase its production in the third quarter by 3% yoy to 3.9 million tonnes. About the second quarter, the dynamics of steel production turned out to be zero and in the whole nine months. But NLMK increased its sales by 3% to 13.3 million tons.

Severstal improved the results of the second quarter by 3% in the third quarter, to 2.9 million tons, in annual terms, production decreased by 3.3%. In general, in January-June, it fell by 6.9% to 8.5 million tons. Simultaneously, the group’s consolidated sales of steel products in the third quarter outpaced the results of the second quarter by 18%, increasing to 3.01 million tonnes.

Boris Sinitsyn from VTB Capital notes the improvement in the dynamics of the industry as a whole.

In nine months, the four largest steel producers in Russia saw their smelting fall by 3% and sales by 2%.

In the second quarter, the decline was 6-8% year-on-year. Still, the favorable situation on world markets and the gradual recovery of demand in the Russian Federation contributed to improved indicators by the end of the summer, the expert notes.

He adds that the domestically-oriented producers this year have found themselves in a more difficult position in terms of both volumes and prices than exporters. If we count in dollars, then prices for flat products in Russia have dropped by 8-12% over the past 12 months, while export prices have grown by 20-25%. However, Mr. Sinitsyn stresses, the rise in prices in all markets began only in the summer with a recovery in demand after quarantine measures in China and other large countries. This year’s average steel prices are still 15–20% lower than last year, so the drop in revenue will be appropriate, the expert believes.

Airat Khalikov, executive director of the CEP of Gazprombank, emphasizes that the steel market in Russia reflects the state of the construction complex, where 70% of long products and 52% of sheet metal are supplied.

According to the expert, the demand for steel in construction in July-August has already significantly recovered and exceeded last year’s values ​​against the backdrop of the implementation of deferred demand and the recovery of the complex as a whole. In August, the demand for rebar, a key type of long products, grew by 10% to 814 thousand tons, and this is the maximum of recent years, Mr. Khalikov notes. He expects that demand and steel production will return to their previous level only in 2022, and by the end of 2020, steel demand will decline by 6-9%, steel production – by 3%.

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