16 Jul 2009 09:00
16 July 2009
Novolipetsk Steel (NLMK) Q2 2009 Trading Update
Novolipetsk Steel (LSE: NLMK) today announces the following regular trading update for
Q2 2009.
NLMK Group: Q2 2009 operating highlights 1
‐ Production:
Crude steel: 2.6 million tonnes (+24% quarter-on-quarter)
Finished products: 2.5 million tonnes (+18% quarter-on-quarter)
- Sales:
Total sales: 2.3 million tonnes (-3% quarter-on-quarter), including
Slabs: 0.8 million tonnes (+27% quarter-on-quarter)
Flat products: 1.1 million tonnes (-7% quarter-on-quarter)
Billets: 0.06 million tonnes (‐21% quarter-on-quarter)
Long products: 0.2 million tonnes (‐25% quarter-on-quarter)
Metal‐ware: 0.05 million tonnes (+36% quarter-on-quarter)
Outlook
We believe that our operational and financial performance in Q3 2009 will improve. This will be driven by stabilization and some improvement in the pricing environment of our key markets during the second and the third quarters coupled with high utilization rates at our production capacities.
Disclaimer:
This announcement may contain a number of forward‐looking statements relating to, among others, the financial condition and results of operations of the Company. Such forward‐looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by them and are based on assumptions regarding the Company's present and future business strategies and the environment in which the Company and its subsidiaries operate both now and in the future. Forward‐looking statements speak only as at the date of this announcement and save as required by applicable legal and/or regulatory requirements the Company expressly disclaims any obligation to release publicly any updates or revisions to any forward‐looking statements.
NLMK Group: 1
NLMK Group Q2 2009 sales volumes 2:
| Million, t |
| Q2 2009 | Q1 2009 | Q2 2008 |
| Q2 2009 / Q1 2009 | Q2 2009 / Q2 2008 |
| Pig Iron |
| 0.015 | 0.090 | 0.228 |
| -83.0% | -93.3% |
| Slabs |
| 0.822 | 0.645 | 1.545 |
| 27.5% | -46.8% |
| Flats |
| 1.082 | 1.159 | 1.748 |
| -6.6% | -38.1% |
| Billets |
| 0.057 | 0.072 | 0.152 |
| -21.0% | -62.5% |
| Long products |
| 0.249 | 0.334 | 0.301 |
| -25.4% | -17.3% |
| Metalware |
| 0.049 | 0.036 | 0.051 |
| 36.2% | -3.9% |
| Total sales products |
| 2.274 | 2.335 | 4.025 |
| -2.6% | -43.5% |
Main production site in Lipetsk
NLMK (Lipetsk production site) steel sales volumes in Q2 2009:
| Million, t |
| Q2 2009 | Q1 2009 | Q2 2008 |
| Q2 2009 / Q1 2009 | Q2 2009 / Q2 2008 |
| Pig Iron |
| 0.090 | 0.011 | 0.153 |
| 712.2% | -41.3% |
| Slabs |
| 0.906 | 0.598 | 1.063 |
| 51.5% | -14.7% |
| Hot-rolled steel 3 |
| 0.433 | 0.459 | 0.511 |
| -5.5% | -15.2% |
| Cold-rolled steel |
| 0.329 | 0.325 | 0.418 |
| 1.4% | -21.2% |
| Hot-dip galvanized steel |
| 0.059 | 0.056 | 0.121 |
| 5.8% | -51.3% |
| Pre-painted steel |
| 0.081 | 0.057 | 0.099 |
| 42.8% | -17.8% |
| Dynamo steel |
| 0.030 | 0.041 | 0.095 |
| -27.3% | -68.8% |
| Transformer steel |
| 0.006 | 0.012 | 0.042 |
| -54.4% | -86.8% |
DanSteel A/S
DanSteel A/S sales volumes in Q2 2009:
| Million, t |
| Q2 2009 | Q1 2009 | Q2 2008 |
| Q2 2009 / Q1 2009 | Q2 2009 / Q2 2008 |
| Heavy plates |
| 0.051 | 0.072 | 0.153 |
| -29.4% | -66.8% |
Beta Steel Corp.
Beta Steel Corp. sales volumes in Q2 2009:
| Million, t |
| Q2 2009 | Q1 2009 | Q2 2008 |
| Q2 2009 / Q1 2009 | Q2 2009 / Q2 2008 |
| Hot-rolled steel |
| 0.063 | 0.076 | 0.103 |
| -16.9% | -39.1% |
VIZ‐Stal
VIZ‐Stal sales volumes in Q2 2009:
| Million, t |
| Q2 2009 | Q1 2009 | Q2 2008 |
| Q2 2009 / Q1 2009 | Q2 2009 / Q2 2008 |
| Transformer steel |
| 0.017 | 0.010 | 0.047 |
| 69.3% | -62.8% |
| Dynamo steel |
| 0.000 | 0.000 | 0.003 |
| 20.2% | -91.1% |
Stoilensky GOK
Stoilensky GOK sales volumes in Q2 2009:
| Million, t |
| Q2 2009 | Q1 2009 | Q2 2008 |
| Q2 2009 / Q1 2009 | Q2 2009 / Q2 2008 |
| Iron ore concentrate |
| 3.772 | 2.235 | 2.829 |
| 68.8% | 33.3% |
| Sinter ore |
| 0.612 | 0.329 | 0.382 |
| 86.2% | 60.4% |
Altay-Koks
Altai‐koks sales volumes in Q2 2009:
| Million, t |
| Q2 2009 | Q1 2009 | Q2 2008 |
| Q2 2009 / Q1 2009 | Q2 2009 / Q2 2008 |
| Coke (dry) |
| 0.830 | 0.551 | 0.961 |
| 50.6% | -13.7% |
Maxi‐Group
Maxi‐Group sales volumes in Q2 2009:
| Million, t |
| Q2 2009 | Q1 2009 | Q2 2008 |
| Q2 2009 / Q1 2009 | Q2 2009 / Q2 2008 |
| Billets |
| 0.075 | 0.039 | 0.172 |
| 94.1% | -56.5% |
| Rebar |
| 0.231 | 0.204 | 0.268 |
| 13.3% | -13.9% |
| Wire rod |
| 0.045 | 0.039 | 0.033 |
| 15.5% | 38.1% |
| Metalware |
| 0.049 | 0.036 | 0.051 |
| 36.2% | -3.9% |
| Ferrous and non-ferrous scrap 4 |
| 0.680 | 0.224 | 0.856 |
| 202.8% | -20.6% |
1 Q2 2009 production and sales data is preliminary and subject to further update;
2 Excluding inter-group operations;
3 Including hot-rolled pickled steel;
4 Including sales to Maxi-Group.
Management comments
NLMK Group operating review
In Q2 2009 NLMK Group produced 2.6 million tonnes of crude steel, an increase of 24% quarter-on-quarter. In Q2 2009, Group capacities were run at approximately 92% including our main production site in Lipetsk where utilisation rates reached 98%. At Maxi Group utilisation rates increased to 73%.
A substantial part of finished stock at NLMK's trading companies was sold in Q1 2009. Given that a large portion of stock was sold in Q1 2009, our Q2 2009 sales sequentially declined by 3% despite growth in production volumes.
In Q2 2009, slabs sales significantly increased totalling 0.8 million tonnes (excluding sales to DanSteel A/S which amounted to 41,000 tonnes). 197,000 tonnes of slabs were sold to Duferco JV, a 31% decrease sequentially.
Pig iron, hot rolled coils, billets and long products were subject to a major decline in sales. Colour-coated steel, a high value added product, has grown 40% quarter-on-quarter mostly driven by the end of the destocking period at trading companies and a seasonal increase in demand from the domestic construction sector. Metal ware sales substantially increased by 36% quarter-on-quarter.
Taking into account the length of the trading cycle (i.e. the period covering delivery from the plant to the point where ownership rights are transferred to the purchaser), NLMK's Q2 2009 sales represented a considerable portion of its Q1 2009 shipments. NLMK's sales were negatively impacted by low utilization rates and weak economic environment of the first quarter and the beginning of the second quarter of the year.
Moreover, the increased share of low value added products sales put downward pressure on the company's financial performance in the first half of 2009. At the end of Q2 2009, demand improved both in the domestic and export markets with a corresponding revival in the pricing environment driven mainly by consumers restocking.
Main production site in Lipetsk
Q2 2009 production at the main production site grew to 2.2 million tonnes, a 30% increase quarter-on-quarter. Production increased primarily due to the restart of blast furnace #4 (which has an annual capacity of 1.7 million tonnes) and run rates at production facilities reaching 100% by the end of the quarter.
Sales volumes exceeded those in Q1 2009, but were less than in Q2 2008. This growth was mainly attributed to an increase in slab exports from the Lipetsk site. A decline in transformer steel sales was due to a stoppage in the production line in order to upgrade and increase production efficiency and to improve the quality of the product. At the same time, utilization rates at VIZ-Stal grew driven by orders transferred from the Lipetsk site.
DanSteel A/S
Orders for DanSteel A/S products in Q2 2009 sequentially declined due to a persistently weak trading environment. This lead to lower thick plates sales compared to the analyzed periods. Prices remained under pressure causing a sequential decline.
Beta Steel Corp.
The decline in demand continued in the second quarter leading to lower sales volumes. Some positive signs of demand recovery appeared by the end of the second quarter driven primarily by restocking at the service centers. We believe that in Q2 2009 sales prices reached the bottom and began to improve by the end of the period.
VIZ-Stal
Q2 2009 sales volumes grew notably driven primarily by additional orders transferred from the Lipetsk plant where the transformer line was stopped for upgrading. Average selling prices for transformer steel slightly declined by 6% quarter-on-quarter.
Stoilensky
The quarter-on-quarter growth in iron ore concentrate and sinter ore sales in Q2 2009 of 69% and 86% respectively was driven by increased supplies to both NLMK's Lipetsk production site and external customers. In Q2 2009 average prices weakened compared to the same period of the last year.
Altai-koks
Sales volumes in Q2 2009 sequentially increased driven by both an increase in steel production at the Lipetsk plant and by the stoppage of 2 coking batteries at NLMK's Lipetsk plant in February 2009. These factors lead Q2 2009 utilisation rates to reach 70%. Q2 2009 average coke prices further deteriorated as compared to the previous quarter.
Maxi-Group
In Q2 2009 Maxi-Group produced 429,000 tonnes of steel, a 13% increase quarter-on-quarter.
Sales of billets grew 94% quarter-on-quarter mainly driven by the terms of several export contracts where titles for products sold were transferred only after the full payment was made by the purchaser. As a result, 20,000 tonnes of billets, exported in Q1 2009, were recorded in the accounts for Q2 2009.
In Q2 2009 less billets were used for processing into rebar and wire rod as demand for this product in the export markets improved. Metalware sales grew 36% quarter-on-quarter. This growth was mainly attributable to better demand from the construction sector and trading companies.
The growth in scrap sales in Q2 2009 was driven by higher production volumes and a seasonal increase in scrap collecting after the winter season.
Despite the overall quarter-on-quarter sales growth, only wire rod sales increased compared to the corresponding period last year, driven by the launch of new rolling facilities at the Berezovsky site (BEMZ). In Q2 2009, Berezovsky site produced 105,000 tonnes of long products (wire rod and rebar in bundles).
In Q2 2009, Maxi-Group rebar sales prices increased sequentially while billet and scrap prices declined. Wire rod and metalware prices remained largely at the same level.
Outlook
Early indications show that demand in Q3 2009 strengthened in the domestic market giving the Group the opportunity to increase hot-deep galvanized, pre-painted steel sales as well as long steel products sales (rebar and metalware). This increase in demand is primarily driven by consumer restocking coupled with a seasonal revival in the construction sector.
We also expect higher demand in the export markets as orders in July and August improved. The Middle East and South-East Asia are among the most active export markets at the beginning of Q3 2009. Demand for slabs, billets and hot-rolled steel is currently strong thus moving prices for these products upward which could lead to higher prices than in Q2 2009.
The key drivers of the current positive price trend are lower level of stocks and a seasonal revival of demand backed by a limited supply of steel.
We expect no major improvement in the Group's financial results in Q2 2009 compared to Q1 2009. Our Q2 2009 production costs are expected to be 15-20% lower due to a decrease in raw materials prices compared to Q1 2009 when the company used its inventories from 2008 which were purchased at higher prices. Additional factors contributing to the decrease in production cost are higher utilization rates at our production facilities coupled with the management efforts to reduce production costs.
Our Q2 2009 EBITDA margin is expected to remain at a level of 15-20%. In Q3 2009 we expect the financial performance of the Company to improve.
About NLMK
Novolipetsk Steel (LSE: NLMK) is one of the world's leading producers of steel, with 2008 revenue exceeding USD11 billion, output over 10.5 million tonnes. The key production facilities located in Russia, the EU and USA employ approximately 70,000 people.
The company produces a wide range of steel products, including slabs and billets, hot-rolled, cold-rolled, galvanized and electrical steel and other HVA products. In 2008 NLMK delivered its products to customers from 70 countries.
NLMK shares are traded in Russia on MICEX and RTS, and GDRs - on the London Stock Exchange.
Financial calendar
| August 24 - 30, 2009 | Release of H1 2009 Consolidated Financial Results (US GAAP) Conference Call Analyst Meeting |
| October 15, 2009 | Q3 2009 Trading Update |
| November 23-27, 2009 | Release of 9M 2009 Consolidated Financial Results (US GAAP) |
For further information:
NLMK
Anton Bazulev, Investor Relations
Tel: +7 495 915 1575
Email: info@nlmk.msk.ru