NLMK.L Regulatory News (NLMK)

Press release

19 January 2017

4Q 2016 AND 12M 2016 NLMK GROUP TRADING UPDATE*

In 2016, NLMK Group steel output** increased by 4% yoy to a record 16.6 m t; sales totaled 15.9 m t (stable yoy). Group steelmaking capacities in 2016 were running at 96%, up by 3 p.p. yoy. 4Q 2016 sales totaled 3.6 m t (-4% yoy); steel output grew by 8% yoy to 4.2 m t.

12M 2016 highlight:

· Crude steel output** grew by 4% yoy to 16.6 m t on the back of the increase in production across all sites.

· NLMK Group capacity utilization rates increased by 3 p.p. to 96%.

· NLMK Group sales totaled 15.9 m t (flat yoy).

· Share of finished product sales grew by 2 p.p. yoy to 64%.

· Market shares in NLMK Group total sales:

- share of product sales by Group companies in regions where products are manufactured (hereinafter referred to as 'home markets') totaled 66% (flat yoy).

- share of sales to third parties (except NBH) in markets external to countries where products are manufactured (hereinafter referred to as 'export markets') totaled 34% (flat yoy).

Q4 2016 highlights:

· Crude steel output** increased to 4.2 m t (+8% yoy and +3% qoq) following the completion of planned repairs at Novolipetsk in 3Q 2016.

· Steelmaking capacity utilization rates were up by 3 p.p. yoy to 95%.

· NLMK Group sales totaled 3.6 m t (-4% yoy and -15% qoq) due to the decrease in pig iron deliveries (-73% yoy and -61% qoq).

· Finished products accounted for 62% of total sales (+6 p.p. yoy and -3 p.p. qoq).

* Hereinafter 4Q 2016 and 12M 2016 output and sales figures are preliminary

** Steel output is given taking into account associated companies (NBH)

Steel output at Group sites reaches record high1

1 Hereinafter 4Q 2016 and 12M 2016 production and sales data is preliminary 

2 Including pig iron, slabs and billets

3 Home markets: Russia for the Russian assets of NLMK Group, North America for NLMK USA and the EU market for NLMK Dansteel and NBH

NLMK Group operating highlights

12M 2016 overview:

· Crude steel output: record high output of 16.64 m t (+4% yoy): growth across all NLMK Group sites on the back of the increase in equipment productivity (see Appendix 1).

· Sales: 15.89 m t, stable yoy.

· Sales structure: finished rolled product sales increased by 4% yoy to 10.17 m t, driven by a 5% yoy increase in long product sales (mainly exports) and a 4% increase in flat steel deliveries (predominantly in home markets in Russia, Europe, and the USA). Finished products accounted for 64% (+2 p.p. yoy).

· Sales of semi-finished products eased by 5% yoy to 5.71 m t, due to the decrease in pig iron sales (-44% yoy) and the increase in the volume of slabs rolled into finished products by NLMK Group facilities. Slab deliveries to Group facilities and associated companies grew by 3% yoy to 3.96 m t, or 60% of total Novolipetsk slab sales (+4 p.p. yoy).

· Sales in home markets climbed by 1% yoy to 10.46 m t, home sales accounting for 66%. Total sales in Russia eased by 3% yoy to 5.94 m t due to the decline in demand for long products in Russia. Sales of NLMK's international divisions (NLMK Europe and NLMK USA) in the European and US markets increased by 6% yoy to 4.44 m t;

· Sales in NLMK Group's export markets grew to 5.46 m t (+1% yoy), accounting for 34% of NLMK Group's total sales (with NBH). Key growth drivers included the increase in export long product sales.

· Price trends: Steel product prices in the global markets were recovering throughout the year on the back of the growth in prices for raw materials; a better-than-anticipated demand trend on China; and intensified trade restrictions in developed markets (including in Europe and the USA). Steel product prices in the Russian market in 2016 grew by 2-7% (in US$). Average prices in the US grew by 15-20% yoy, and to 10% in the European market. Export market prices (FOB Black Sea) saw a variety of trends: from an insignificant decrease in billet prices (-2% yoy) to a 5-10% growth in slab and flat product prices.

4Q 2016 overview:

· Crude steel output: an 8% yoy increase in output to 4.22 m t (+3% qoq) across all sites of NLMK Group and associated companies, driven by improved equipment productivity; and strong demand for products, including billet exports. The drop in steel output at NLMK Russia Long Division sites vs. 3Q 2016 (-6% qoq) is associated with the seasonal decrease in demand for long products in Russia.

· Sales: 3.60 m t; a 4% drop yoy due to the decrease in semi-finished product sales (-17% yoy). The 15% qoq drop vs. 3Q 2016 is associated with the seasonal decrease in demand in the Russian market; and the high base effect in 3Q when finished product sales contracted in previous periods were accounted for.

· Sales structure: finished product sales increased by 6% yoy to 2.25 m t, due mainly to the 43% yoy growth in long steel sales. Finished products accounted for 62% (+6 p.p. yoy). The 19% decrease in finished product sales and a 4 p.p. decrease in their share vs. Q3 2016 was associated with the seasonal contraction in demand in Russia.

· Sales in home markets: climbed by 3% yoy to 2.42 m t, home sales accounting for 67% (+4 p.p. yoy). Sales in Russia eased by 3% yoy to 1.36 m due to the seasonal decline in demand. Sales of NLMK's international divisions in their home European and US markets increased by 8% yoy to 0.50 m t; NBH sales to the EU market gained 18% yoy to 0.51 m t. The 12% qoq drop in Group sales in its home markets was associated with the seasonal changes in demand in the Russian market.

· Sales in NLMK Group's export markets decreased by 12% yoy to 1.21 m t (-16% qoq), accounting for 33% of NLMK Group's total sales with NBH (-4 p.p. yoy and -1 p.p. qoq). Key factors behind the yoy decline included the increase in home flat steel sales, predominantly by NLMK's international companies. Key export destinations included European countries, North America and the Middle East.

· Price trends: The increase in raw material prices offset the seasonal fall in finished product prices, resulting in a 1-5% qoq (+15-40% yoy) increase in steel prices in Russia. Steel prices in the European market continued to grow by 3-14% qoq (30-45% yoy) following a seasonal drop in demand during the summer months. The US market saw the abnormally high premium to Chinese prices recede, resulting in a 5-8% qoq fall (vs. 35-45% growth yoy) in average prices. Prices throughout the quarter grew by 12-20% on the back of the increase in raw material prices. Export market prices (FOB Black Sea) climbed by 4-20% qoq (+30-60% yoy).

Segments' operating highlights

NLMK Russia Flat4 grows sales of finished products in 2016 

4 NLMK Russia Flat companies include Novolipetsk, VIZ-Steel, and Altai-Koks. Novolipetsk and VIZ-Steel sales are calculated including the corresponding share

of trading companies.

5 Coke operating data is shown in dry weight.

· 12M 2016 overview: Segment sales eased by 0.34 m t to 12.69 m t, due mainly to pig iron exports decreasing by 0.25 m t.

· 4Q 2016 overview: Segment sales eased by 11% yoy to 2.90 m t (-12% qoq), due to pig iron exports slumping by 54% yoy (-18% qoq) and sales of slabs to third parties easing by 23% yoy (+12% qoq) to 0.69 m t.

NLMK Russia Long output and sales grew significantly in 20166

6 NLMK Russia Long companies include NLMK Ural, NLMK Metalware, NLMK Kaluga and scrap collecting facilities. Export long product sales are calculated

including the corresponding share of trading companies

· 12M 2016 overview: Segment sales increased by 18% yoy to 2.81 m t, driven by export growth to 1.11 m t (+228% yoy).

· 4Q 2016 overview: Segment sales shot up by 38% yoy to 0.68 m t, driven by export growth to 0.34 m t (x4.3 yoy). The 22% qoq decrease in long product sales was associated with the seasonal weakening in demand for construction products in Russia.

Foreign Rolled Products improved their operating performance in 2016

· 12M 2016 overview: Segment sales increased by 4% yoy to 2.30 m t, supported by stable demand in the USA and European markets.

· 4Q 2016 overview: Segment sales increased to 0.50 m t (+8% yoy and -7% qoq), supported by improved market conditions in the US and the EU.

NLMK USA grows sales by 3% in 2016 on the back of fading demand in the US 7

7 NLMK USA includes NLMK Indiana, NLMK Pennsylvania, and Sharon Coating. Operating data for NLMK USA is presented in metric tonnes.

8 NLMK USA also sells non-significant volumes of merchant slabs not included into total rolled steel sales. In Q4'16, Q3'16, Q2'16 and Q1'16 slab sales totaled

1,000 t, 5,000 t, 1,000 t, and 2,000 t, respectively.

· The yoy sales growth was driven by stable demand from key consumers; restocking by trading companies; and trade restrictions targeting rolled steel imports in the American market.

· Slab shipments from the Lipetsk site increased by 4% yoy to 1.27 m t, including 0.29 m t in 4Q (-23% qoq and -10% yoy).

NLMK Dansteel 2016 sales outstrip EU market growth rates by more than two times

· Sales growth drivers included the recovery in demand from machine building and wind power industries; high competitiveness of products.

NLMK Belgium Holdings (NBH) 9 2016 sales up by 8%

9 NBH assets include producers of thick plates NLMK Clabecq (Belgium), NLMK Verona (Italy) and producers of flat steel NLMK La Louvière (Belgium) and NLMK Strasbourg (France).

· 12M 2016 overview: NBH steel output (NLMK Verona) increased by 5% yoy to 0.20 m t on the back of improved market conditions.

· Sales climbed by 8% on the back of the recovery in demand in Europe and weaker competition from rolled product imports.

· Sales growth drivers: recovery in demand from key consumers (machine building, automotive) and successful competitions with imports. 4Q sales grew by 18% qoq, including +16% yoy for flat products, driven by the launch of the second cold-rolling line with a capacity of 150,000 tpa;

· Slab deliveries from Novolipetsk to NBH for further processing totaled 2.12 m t (+2% yoy) in 12M 2016.

· 4Q 2016 overview: Steel output increased by 28% yoy to 0.05 m t (+8% qoq). Sales climbed by 18% yoy to 0.51 m t (+5% qoq) on the back of the recovery in demand from key consumers (machine builders) in the EU.

Mining Division's record operating performance in 2016

· 12M 2016 overview: Concentrate sales grew by 1% yoy, reaching a record high of 15.40 m t; sales of captive pellets totaled 0.24 m t.

· Output growth was driven by operational efficiency programmes and the launch of HPGR units. See press release.

· Lauch of Stoilensky's Pelletizing Plant with a capacity of 6 m t per year in November 2016. Pellet sales since the launch of the Plant totaled 0.24 m t; the entire volume going to Novolipetsk. The share of IORM sales to third parties is expected to decline as the Plant ramps up.

· 4Q 2016 overview: Transitioning to in-house pellets had an impact on concentrate sales: there was a 12% drop qoq to 3.7 m t.

Appendixes

Appendix 1. NLMK Group crude steel production 

 Appendix 2. NLMK Group steel product output

Appendix 3. Steel product sales by NLMK Russia Flat

Appendix 4. Main raw materials production

 Appendix 5. NLMK Group steel product sales

Appendix 6. NLMK Russia Flat sales structure