Severstal Reports Q4 2015 Operational Results

Severstal reports Q4 2015 and FY 2015 operational results

Moscow, Russia - January 26, 2016 - 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 Q4 2015 and FY 2015.

Q4 2015 GROUP HIGHLIGHTS 

· Hot metal output remained largely unchanged q/q at 2.34 mln tonnes (Q3 2015: 2.31 mln tonnes).

· Crude steel production decreased 5% q/q to 2.75 mln tonnes (Q3 2015: 2.89 mln tonnes), partially as a result of seasonally weaker demand for long steel products and lower output at Balakovo mini-mill, which remains in ramp-up mode. Crude steel output at Cherepovets Steel Mill was impacted by scheduled short-term maintenance of converter #1, continuous casters #4 and #5 and the billet caster.

· In addition, an 88% q/q increase in semi-finished product sales contributed to substantially reducing inventory levels for semi-finished products.

· Reflecting a seasonal softness in the domestic market, the share of domestic steel products sales volumes in the sales mix decreased marginally to 64% (Q3 2015: 67%). The domestic market, which offers higher sales margins, remains a priority for the Company.

· Consolidated sales of steel products decreased 13% q/q to 2.62 mln tonnes (Q3 2015: 3.00 mln) on the back of seasonally weaker steel consumption in Russia's construction sector. Meanwhile, despite the continuing slump in oil prices, healthy demand for steel products was maintained from the oil & gas sector.

· The share of high value-added (HVA) products in the sales portfolio remained strong at 47% (Q3 2015: 47%) despite an 88% q/q increase in semi-finished product sales.

· Coking coal concentrate sales volumes improved 1% q/q reflecting a substantial increase in ROM-coal output volumes in Q4 at Vorkutaugol following the completion of several scheduled long-wall repositionings at the beginning of the quarter.

· Sales of iron ore concentrate decreased 15% q/q due to considerably lower external sales as a result of seasonally weaker demand. Meanwhile the company is producing captive iron ore concentrate efficiently more thanks to a focus on steady cost improvement and stripping ratio reduction.

· Ongoing concerns regarding the prospects of the Chinese economy and the potential slowdown of the US economy have put pressure on the global metals & mining sector. At the same time, steel overcapacity continues to influence global steel prices which remained in decline over the quarter. In the domestic market, USD-denominated prices started to decline, reflecting both the RUB devaluation and initiatives by Russian steel producers to cut local prices in response to seasonally weaker demand. Against this backdrop Severstal continues to demonstrate resilience thanks to a focus on cost efficiencies throughout the business, HVA products, improving customer care, and the geographical advantage of its assets for shifting sales between domestic and export markets.

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 increased 1% q/q to 1.48 mln tonnes (Q3 2015: 1.46 mln tonnes) reflecting a substantial increase in ROM-coal output volumes in Q4 at Vorkutaugol with completion of the scheduled long-wall repositionings at several mines at the beginning of Q4.

● Steam coal sales at Vorkutaugol increased 17% q/q on the back of improved demand from domestic consumers during the heating season.

● Iron ore pellet sales decreased 1% q/q to 2.70 mln tonnes (Q3 2015: 2.73 mln tonnes) reflecting both lower internal procurement and seasonally weaker demand.

● Iron ore concentrate sales volumes decreased 15% q/q to 0.96 mln tonnes (Q3 2015: 1.13 mln tonnes) due to considerably lower external sales resulting from seasonally weaker demand. Internal consumption was also lower due to increased use of higher Fe content olivine pellets, which require lower volumes of sinter.

● Average coking coal concentrate selling prices increased 11% q/q despite a 4% q/q decline of hard coking coal benchmark contract prices (Australia, FOB) in Q4 and an 8% q/q decline of global coking coal spot prices. This is primarily a function of an upward revision of coking coal contract prices in the domestic market fully offsetting the RUB devaluation of 5% during the quarter. Additionally, an increase in the share of hard coking coal within the sales mix positively impacted the average selling price.

● Average USD-denominated selling prices of iron ore concentrate at Olkon increased 3% q/q against a 15% q/q decline in the global iron ore benchmark (China, CFR). This was largely driven by a marginal increase in RUB-denominated prices offsetting the RUB devaluation during the period. Prices for iron ore pellets at Karelsky Okatysh were less resilient (declining 4% q/q) due to the geographical structure of sales.

SEVERSTAL RUSSIAN STEEL ('RSD')

● RSD steel product sales decreased by 13% q/q to 2.63 mln tonnes due to seasonal factors and short-term scheduled maintenance at the hot-rolling shop at Cherepovets Steel Mill. This resulted in both a 16% q/q decline in hot-rolled coil sales and a 88% q/q uptick in semi-finished products sales.

● The share of HVA products within the sales mix remained at 47%, despite seasonally lower demand for galvanised and metallic coated coil and color coated coil (sales volumes decreased 27% q/q and 31% q/q).

● Despite seasonally weaker demand, the share of domestic sales volumes within the sales mix decreased only marginally to 64% (Q3 2015: 67%), reflecting Severstal's ability to efficiently reallocate sales volumes between markets and target higher margin domestic sales.

● Long product sales volumes decreased 31% q/q reflecting subdued demand for long steel products due to seasonality and scheduled maintenance of the billet caster at Cherepovets Steel Mill.

● Despite a marginal 1% q/q decline in large diameter pipe (LDP) sales volumes, Izhora Pipe Mill was operating at full capacity in Q4 2015. Severstal continued supplying LDPs to Gazprom for the Power of Siberia and Ukhta-Torzhok projects during the quarter. Moreover, some volumes were delivered to Transneft and Gazprom for maintenance projects.

● Reflecting the continuing downward adjustment in global steel prices and a seasonally soft domestic market, which resulted in Russian steel producers reducing their prices, USD-denominated average steel prices for rolled products at RSD decreased q/q for almost all products (except for LDPs). Ongoing RUB devaluation weighed additional pressure on USD-denominated prices.

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) Metalware sales volumes and metalware average selling prices include Severstal Metiz, Severstal Distribution LLC and AO Severstal Distribution data;

6) Large diameter pipes include all pipes with a diameter between 820 and 1420 mm;

7) On 19 August 2014, Severstal announced that it has completed the sale of PBS Coals Inc., a metallurgical coal producer located in Pennsylvania, USA, to Corsa Coal Corp., a Canadian public company. In regard to the sale and in full accordance with IFRS standards Severstal continues to report the operational results of PBS Coals Inc. until 19 August 2014 - its disposal date, which are included in the Group's 2014 consolidated operational results

Investor Relations

Victor Drozdov

T: +7 (495) 926-77-66 ext. 6987

[email protected]

Public Relations

Anastasia Mishanina

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

[email protected]

Severstal's financial communications agent - Hudson Sandler

Andrew Hayes / Elena Garside / Alex Brennan

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, Poland, Italy and Liberia. Severstal is listed on RTS and MICEX and the company's GDRs are traded on the LSE. Severstal reported revenue of $8,296 million and EBITDA of $2,203 million in 2014. Severstal's crude steel production in 2015 reached 11.5 million tonnes. www.severstal.com

http://www.rns-pdf.londonstockexchange.com/rns/9715M_-2016-1-26.pdf