Severstal reports Q3 & 9M 2017 operational results

Severstal reports Q3 & 9M 2017 operational results

Moscow, Russia - 10 October 2017 - PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world's leading vertically integrated steel and steel-related mining companies, today announces its operational results for Q3 & 9M 2017.

Q3 2017 GROUP HIGHLIGHTS 

· Hot metal output remained almost unchanged at 2.23 mln tonnes (Q2 2017: 2.24 mln tonnes) compared with the previous quarter, whereas crude steel production was up 4% at 2.94 mln tonnes (Q2 2017: 2.83 mln tonnes). Crude steel output at CherMK in Q2 2017 was lower due to planned maintenance works at converter #1.

· Consolidated steel product sales continued to grow in Q3, up 4% q/q to 2.86 mln tonnes, following 9% q/q growth in the previous quarter (Q2 2017: 2.75 mln tonnes). During Q3, the Company continued to sell stocks of HVA products accumulated in previous periods in response to increased demand and the ongoing construction season in Russia. Semi-finished product sales were impacted by inventory level normalisation following maintenance works at converter #1 in Q2.

· The share of domestic sales volumes within the sales mix increased to 65% (Q2 2017: 60%). Improved domestic demand in Q3 was driven by the ongoing construction season.

· The share of high value-added (HVA) products within the sales portfolio increased significantly, to 49% (Q2 2017: 44%), driven by a destocking of large diameter pipes, cold-rolled, HDG and colour-coated products.

· Coking coal concentrate sales volumes from Vorkutaugol increased 11% driven by an increase in production volumes following the planned long-wall repositioning at the Vorkutinskaya and Komsomolskaya mines in H1 2017.

· Iron ore pellet sales decreased 17% and totalled 2.38 mln tonnes (Q2 2017: 2.88 mln tonnes) despite the increase in production volumes q/q. This was due to higher share of finished goods in transit and accumulation of stocks at the end of Q3, following Q2 sell-off. The Company expects an uptick in pellet sales volumes in subsequent periods.

· Raw material prices were supported by strong steel demand in China during Q3. Export steel prices started to recover, and Russian domestic steel prices followed global trends, but with a time lag. Industry experts anticipate Russian domestic steel demand to increase 5% for 2017. On October 6, 2017 the EU Commission imposed definitive anti-dumping duties against Russian, Ukrainian, Iranian and Brazilian steelmakers. As a result of Severstal's track record of balanced and cautious European sales, the Company got the lowest duty rate among all exporting companies under the investigation, which is even lower than 5.3% for the current price level. The ruling has some slight negative financial effects which are estimated to be immaterial versus our annual earnings and which are fully offset by the ability for us to continue serving our European customers.

SUMMARY OF KEY PRODUCTION, SALES VOLUMES AND SELLING PRICES DATA

SEVERSTAL'S CONSOLIDATED SALES (NET OF INTERCOMPANY SALES)

SEVERSTAL RESOURCES

· Coking coal concentrate sales volumes from Vorkutaugol increased 11% driven by growth in production volumes following the planned long-wall repositioning at the Vorkutinskaya and Komsomolskaya mines in H1 2017. Internal coking coal concentrate procurement was almost 95% in Q3 while the minor volumes allocated by Vorkutaugol to external sales increased significantly, reflecting the low base effect.

· Steam coal sales at Vorkutaugol declined 24% q/q reflecting weaker demand from domestic consumers following the end of the heating season.

· Iron ore pellet sales decreased 17% and totalled 2.38 mln tonnes (Q2 2017: 2.88 mln tonnes) despite the increase in production volumes q/q. This was due to higher share of finished goods in transit and accumulation of stocks at the end of Q3, following Q2 sell-off. The Company expects an uptick in pellet sales volumes in subsequent periods.

· Iron ore concentrate sales decreased 13% q/q to 1.08 mln tonnes (Q2 2017: 1.24 mln tonnes). Iron ore concentrate sales improvement in Q2 reflected seasonal dynamics and planned production increase at Olcon.

SEVERSTAL RUSSIAN STEEL ('RSD')

· RSD steel product sales improved 4% to 2.87 mln tonnes compared with the previous quarter (Q2 2017: 2.76 mln tonnes). During Q3, the Company sold off its stocks of HVA products accumulated in previous periods to respond to increased demand and the ongoing construction season in Russia. Semi-finished product sales were impacted by stock normalisation following maintenance works at converter #1 in Q2.

· The Company increased domestic sales volumes to 65% (Q2 2017: 60%) to respond to improved domestic demand in Q3.

· Following the refurbishment of the four-stand cold rolling mill at CherMK and the increase in production volumes, cold-rolled coil sales volumes in 9M 2017 were up 49% in comparison with 9M 2016. In addition, the sale of previously accumulated seasonal cold-rolled coil (CRC) stock drove a 2% sales increase q/q.

· The share of high value-added (HVA) products within the sales portfolio was a record 49% (Q2 2017: 44%) driven by increased cold-rolled, galvanised and colour-coated sales.

· Large diameter pipe (LDP) sales volumes surged 111% q/q following a destocking of finished goods produced in H1 2017 at Izhora Pipe Mill. Meanwhile, Izhora Pipe Mill remains at full capacity utilisation and continues to supply LDPs to Gazprom, Rosneft and other customers.

· Average selling prices for the majority of steel products followed global trends in Q3 - while, since July, on export markets the Company has been achieving a recovery in prices. Domestic prices were catching up with global price trends but with a time lag, and this contributed to a decline in average selling prices.

Notes

1) All production data is reported in metric tonnes;

2) Sales prices are stated on EXW basis;

3) Segmental data includes intercompany sales;

4) Semi-finished products include pig iron, slabs, billets, ingots, steel casting and forgings;

5) Large diameter pipes include all pipes with a diameter between 820 and 1420 mm.

Contacts

Investor Relations

Evgeny Belov

T: +7 (495) 926-77-66 ext. 6445

[email protected]

Public Relations

Anastasia Mishanina

T: +7 (495) 926-77-66 ext. 6457

[email protected]

Severstal's financial communications agency - Hudson Sandler

Andrew Hayes / Emily Dillon / Fern Duncan

T: +44 (0) 20 7796 4133

***

PАО Severstal is one of the world's leading vertically integrated steel and steel related mining companies, with assets in Russia, Ukraine, Latvia and Poland. Severstal is listed on RTS and MICEX and the company's GDRs are traded on the LSE. Severstal reported revenue of $5,916 million and EBITDA of $1,911 million in 2016. Severstal's crude steel production in 2016 reached 11.6 million tonnes www.severstal.com