MMK Group trading update for Q2 and H1 2021

14 july 2021

Magnitogorsk, Russia

PJSC Magnitogorsk Iron & Steel Works ("MMK", or the "Group") (MICEX-RTS: MAGN; LSE: MMK), one of the world's largest steel producers, is pleased to announce its Trading Update for Q2 and H1 2021.

HIGHLIGHTS

Q2 2021

VS Q1 2021

• Pig iron output increased by 2.6% quarter-on-quarter (q-o-q) to 2,640 thousand tonnes, driven by the increase in productivity of blast furnaces amid continuing high steel demand.

• Steel output grew 3.1% q-o-q to 3,401 thousand tonnes, reflecting favourable market conditions.

• MMK Group's sales of steel products totalled 3,320 thousand tonnes, up 14.3% q-o-q, driven by high steel demand.

• Sales of the Group's premium products were up 20.6% to 1,392 thousand tonnes, driven by seasonal growth in demand.

• MMK Coal's coal concentrate production totalled 874 thousand tonnes, up 7.3% q-o-q, due to stronger procurement of ROM coals amid higher demand from MMK.

HIGHLIGHTS

H1 2021

VS H1 2020

• Pig iron output increased by 17.3% year-on-year (y-o-y) to 5,213 thousand tonnes, as blast furnace operations were not being overhauled over these six months.

• Steel output increased by 24.5% y-o-y, as no overhauls took place at converter facilities, as well as the completion of Hot-Rolling Mill 2500's modernisation.

• MMK Group's sales of finished products increased by 25.3% y-o-y to 6,224 thousand tonnes driven by favourable market conditions and the high utilisation rate of Hot-Rolling Mill 2500 after its modernisation.

• Sales of premium products grew by 3.5% y-o-y to 2,546 thousand tonnes on the back of positive market trends.

• Production of coal concentrate increased by 12.6% y-o-y to 1,690 thousand tonnes, driven by stronger demand from MMK amid favourable market conditions.

MARKET OVERVIEW

Global steel products market: In Q2 2021, global steel was output steadily recovering after the drop of 2020. According to WorldSteel, 837.5 mln tonnes of steel were produced in the first five months of 2021, up 14.5% y-o-y and up 9% compared to 2019.Demand for rolled steel in key world regions stayed higher than supply, with prices steadily rising. In May, Chinese authorities hardened their rhetoric concerning high prices in their domestic market for rolled steel, which led to a short price pullback.

Russian steel products market: In Russia, demand for rolled steel in Q2 2021 stayed high, supported by the continuing recovery of the Russian economy after the recession of 2020. According to Metal Expert, during the first five months of 2021, apparent steel use of rolled steel in Russia grew 6.5% y-o-y, with May figures up as high as 35.9% y-o-y. The growing seasonal demand in the construction industry, ongoing national projects and easing of pandemic-related restrictions were the key drivers for the Russian steel products market in Q2 2021.

Global iron ore market: In the second quarter, the 62% Fe index hit a new all-time high amid a price rally in global steel products markets. China's pig iron output grew at about 10% y-o-y, slightly outpacing key commodity exporters' capacities. As a result, prices for steel products in China were supported by already-high prices for iron ore at the end of the second quarter.

Russian iron ore market: In the second quarter, demand for raw materials remained relatively strong both in the domestic and key export markets, while iron ore exports from Russia continued to grow in traditional target markets, leaving domestic prices no other route than to follow global market trends and increase rapidly.

Global coking coal market: Spot coal prices showed strong growth in the second quarter, reflecting the rising prices on related raw materials and rolled products markets. Demand in the steel industries of developed countries has approached pre-COVID levels, while the supply of raw materials for coking has not increased for a number of reasons.

Russian coking coal market: Following the strong growth of early 2021, domestic prices increased only slightly in the second quarter. Given the patterns of changes in coal prices, the dynamics that took place in global indices in Q2 2021 will not affect Russian market prices until the next quarter.

Russian metal scrap market: In the second quarter scrap prices on the Russian market continued growing during peak demand within the country, albeit fluctuating during the quarter. It is expected that the market will be impacted by the new increase of scrap export duties from Russia and the adoption of export duties for steel products.

thousand tonnes

Q2 2021

Q1 2021

%

H1 2021

H1 2020

%

Crude steel production

3,401

3,300

3.1

6,701

5,381

24.5

Pig iron production

2,640

2,572

2.6

5,213

4,444

17.3

Coal concentrate production

874

815

7.3

1,690

1,501

12.6

Iron ore production

874

815

7,3

1 690

1 501

12,6

Finished products sales,
including:

3,320

2,904

14.3

6,224

4,968

25.3

Slabs and billets

74

53

38.3

127

20

546.6

Long products

316

268

17.9

585

628

- 7.0

Flat hot-rolled products

1,538

1,428

7.7

2,966

1,861

59.4

Premium products, including:

1,392

1,154

20.6

2,546

2,459

3.5

Thick plate (Mill 5000)

251

165

52.8

416

444

- 6.3

Flat cold-rolled products

203

184

10.0

387

437

- 11.3

Downstream products, including:

938

805

16.5

1,743

1,578

10.4

Tinplate

  43

43

0.0

  87

86

0.4

Galvanised steel

538

439

22.5

976

821

19.0

Polymer-coated steel

158

150

5.0

308

297

3.8

Band

35

35

- 2.1

70

59

18.1

Formed section

17

26

- 31.7

43

67

- 35.6

Pipe

24

12

97.0

37

31

18.0

Metalware

118

97

21.2

215

198

8.6

Other metal products

4

2

148.8

6

19

- 68.4

Share of premium products

41.9%

39.7%

40.9%

49.5%

USD/tonne

Q2 2021

Q1 2021

%

H1 2021

H1 2020

%

Average price per tonne:

944

713

32.4

836

560

49.3

Slabs and billets

626

568

10.2

602

255

136.1

Long products

762

633

20.4

702

472

48.7

Flat hot-rolled products

880

638

37.9

764

475

60.8

Premium products, including:

1,073

832

29.0

964

648

48.8

Thick plate (Mill 5000)

746

667

11.8

714

615

16.1

Flat cold-rolled products

989

731

35.3

866

572

51.4

Downstream products, including:

1,179

889

32.6

1,045

679

53.9

Tinplate

849

736

15.4

792

736

7.6

Galvanised steel

1,198

853

40.4

1,043

641

62.7

Polymer-coated steel

1,482

1,121

32.2

1,306

808

61.6

Band

1,028

798

28.8

912

631

44.5

Formed section

1,149

863

33.1

979

706

38.7

Pipe

969

706

37.3

880

531

65.7

Metalware

893

820

8.9

860

649

32.5

Other metal products

1,426

1,100

29.6

1,332

682

95.3

+ 32.4% Q-o-Q

AVERAGE SELLING PRICE

Average selling prices for Q2 2021 grew by 32.4% q-o-q to USD 944 per tonne, driven by an upward trend in global prices for metal products amid continued global supply constraints. In H1 2021, prices grew by 49.3% y-o-y to USD 836 per tonne, driven by favourable market dynamics amid last year's low base.

thousand tonnes

Q2 2021

Q1 2021

%

H1 2021

H1 2020

%

Crude steel production

3,401

3,300

3.1

6,701

5,381

24.5

Pig iron production

2,640

2,572

2.6

5,213

4,444

17.3

Finished products sales,
including:

3,288

2,853

15.3

6,141

4,719

30.1

Slabs and billets

74

53

38.3

127

20

546.6

Long products

316

268

17.9

585

628

- 7.0

Flat hot-rolled products

1,721

1,570

9.6

3,291

1,926

70.9

Premium products, including:

1,177

961

22.5

2,138

2,145

- 0.3

Thick plate (Mill 5000)

251

165

52.8

416

444

- 6.3

Flat cold-rolled products

203

184

10.0

387

437

- 11.3

Downstream products, including:

723

612

18.1

1,335

1,264

5.6

Tinplate

43

43

0.0

87

86

0.4

Galvanised steel

350

270

29.5

621

576

7.7

Polymer-coated steel

131

126

3.9

256

227

12.9

Band

35

35

- 2.1

70

59

18.1

Formed section

17

26

- 31.7

43

67

- 35.6

Pipe

24

12

97.0

37

31

18.0

Metalware

118

97

21.2

215

198

8.6

Other metal products

4

2

148.8

6

19

- 68.4

Share of premium products

35.8%

33.7%

34.8%

45.4%

+ 15.3% Q-o-Q

sales of finished products

Sales of finished steel products in Q2 2021 increased by 15.3% q-o-q to 3,288 thousand tonnes, driven by favourable market conditions. The 30.1% y-o-y increase in sales to 6,141 thousand tonnes in H1 2021 was due to the completion of Hot Rolling Mill 2500's modernisation.

+ 17.9% Q-o-Q

sales of long products

Sales of long products in Q2 2021 were up 17.9% q-o-q to 316 thousand tonnes reflecting the seasonal growth in demand. Year-on-year, sales decreased by 7.0% to 585 thousand tonnes amidst scheduled repairs of rolling equipment.

+ 9.6% Q-o-Q

sales of hot-rolled products

Sales of hot-rolled products grew 9.6% q-o-q in Q2 2021 q-o-q to 1,721 thousand tonnes, coming on the back of seasonal recovery in demand. Sales were up 70.9% y-o-y to 3,291 thousand tonnes, driven by the production growth at Hot-Rolling Mill 2500 following its modernisation.

+ 22.5% Q-o-Q

sales of premium products

Sales of premium products in Q2 2021 increased by 22.5% q-o-q to 1,177 thousand tonnes following the reconstruction of Reverse Cold-Rolling Mill 1700. The share of premium products grew to 35.8% of the sales portfolio. Year-on-year, sales decreased slightly to 2,138 thousand tonnes.

+ 52.8% Q-o-Q

sales of Mill 5000 products

Sales volumes of thick plates from Mill 5000 were up 52.8% q-o-q to 251 thousand tonnes, driven by the growth in orders from pipe manufacturers. Y-o-Y sales fell 6.3% to 416 thousand tonnes, following a change in the order mix.

+ 10.0% Q-o-Q

sales of cold-rolled products

Sales of cold-rolled products in Q2 2021 were up 10.0% q-o-q to 203 thousand tonnes following the reconstruction of Reverse Cold-Rolling Mill 1700. Sales dropped 11.3% y-o-y to 387 thousand tonnes due to higher sales of coated steel amid higher margins.

     0.0% Q-o-Q

sales of tinplate

Sales of tinplate in Q2 2021 remained flat q-o-q at 43 thousand tonnes, reflecting full capacity utilisation. Sales of tinplate increased slightly year-on-year to 87 thousand tonnes.

+ 29.5% Q-o-Q

sales of galvanised steel

The increase in the sales of galvanised steel in Q2 2021 by 29.5% q-o-q to 350 thousand tonnes was due to seasonal growth in demand and higher equipment productivity. In H1 2021, sales increased by 7.7% y-o-y to 621 thousand tonnes.

+ 3.9% Q-o-Q

SALES OF POLYMER-COATED STEEL

Sales of polymer-coated steel increased by 3.9% q-o-q to 131 thousand tonnes due to seasonal factors. Year-on-year, sales were up 12.9% to 256 thousand tonnes, reflecting a low 2020 base amid the spread of the COVID-19 pandemic.

thousand tonnes

Q2 2021

Q1 2021

%

H1 2021

H1 2020

%

Finished products sales,
including:

221

196

12.7

416

322

29.5

Flat hot-rolled products

6

3

103.8

9

7

17.5

Premium products, including:

215

193

11.4

408

314

29.8%

Flat cold-rolled products

-

-

-

-

-

-

Downstream products, including:

215

193

11.4

408

314

29.8%

Galvanised steel

187

168

11.4

356

244

45.5

Polymer-coated steel

27

25

10.9

52

70

- 25.7

Share of premium products

97.4%

98.5%

97.9%

97.7%

Intersegment sales from Steel segment Russia

189

145

30.0

334

72

362.1

+ 12.7% Q-o-Q

SALES OF FINISHED PRODUCTS

The sales of finished products in the Turkish steel segment in Q2 2021 were up 12.7% q-o-q to 221 thousand tonnes, reflecting the steadying of semi-finished hot-rolled stock shipments and favourable market conditions. At the same time, exports exceeded domestic sales in Turkey.

Sales were up 29.5% y-o-y, reflecting a low 2020 base amid the spread of the pandemic and lockdown restrictions.

thousand tonnes

Q2 2021

Q1 2021

%

H1 2021

H1 2020

%

Coking coal mining

1,098

1,282

- 14.4

2,380

2,181

9.1

Coking coal processing

1,496

1,356

10.3

2,853

2,644

7.9

Mined

1,068

1,177

- 9.2

2,246

2,419

- 7.2

Purchased

358

114

214.3

471

225

109.5

Toll

70

65

7.2

136

-

-

Coking coal concentrate

874

815

7.3

1,690

1,501

12.6

- 14.4% Q-o-Q

COKING COAL PRODUCTION

Coking coal production in Q2 2021 amounted to 1,098 thousand tonnes, a decrease of 14.4% q-o-q, due to face transfer operations at the Kostromovskaya mine. Coking coal production increased by 9.1% y-o-y to 2,380 thousand tonnes as MMK's demand for concentrate grew.

+ 7.3% Q-o-Q

COKING COAL CONCENTRATE PRODUCTION

Coking coal concentrate production in Q2 2021 was up 7.3% q-o-q due to stronger procurement of ROM coals amid higher demand from MMK. Coal concentrate production was up 12.6% y-o-y to 1,690 thousand tonnes amid higher demand from MMK.

HIGHLIGHTS

• On 8 July 2021, BSI issued a Verification Certificate confirming the reliability of the Group's statement on its greenhouse gas emissions. BSI carried out its verification to the latest revision of ISO 14064-1:2018.

• In Q2 2021, MMK joined the Social Charter of Russian Business. The Social Charter of Russian Business is a new format for assessing the joint contribution of a business and its partners to the country's sustainability and social wellbeing.

Q2 2021

Q1 2021

%

H1 2021

H1 2020

%

LTIFR

1.16

1.20

- 0.03

1.18

0.69

71.0

Gross air emissions, thousand tonnes

46.6

47.5

- 1.9

94.2

81.5

15.6

Specific air emissions, kg/tonne

13.7

14.4

- 4.9

14.0

15.1

- 7.3

+ 71.0% Y-o-Y

ltifr

- 7.3% Y-o-Y

SPECIFIC AIR EMISSIONS

Specific air emissions in H1 2021 decreased by 7.3% y-o-y to 14.0 kg per tonne, driven by an increase in the share of scrap in the charge on the back of increased EAF steel output.

Specific air emissions decreased by 4.9% q-o-q to 13.7 kg per tonne as a result of an increase in EAF steel production.

OUTLOOK

• Seasonal recovery of demand in Russia and continued favourable conditions in global markets will positively impact the Group's sales in Q3. Sales will be additionally supported by the start of hot tests at the electric arc furnace facility, with a casting and rolling module at the Turkish asset.

• Completion of the reconstruction of Reverse Cold-Rolling Mill 1700 and 100% utilisation of premium products equipment will positively impact the structure of the Group's sales portfolio.

• CAPEX for Q3 2021 is expected to decline q-o-q, in line with the implementation schedule for projects pursued under the Group's strategy.

• Operational excellence measures implemented under MMK's updated strategic initiatives will further boost the Group's profitability in Q3 2021.

ABOUT MMK

MMK is one of the world's largest steel producers and a leading Russian metals company. The Group's operations in Russia include a large steel-producing unit encompassing the entire production chain, from the preparation of iron ore to downstream processing of rolled steel. MMK turns out a broad range of steel products, with a predominant share of premium products. In 2020, MMK produced 11.6 mln tonnes of crude steel and sold 10.8 mln tonnes of commercial steel products.

ММK is an industry leader in terms of production costs and margins. Group revenue in 2020 totalled USD 6,395 mln, with an EBITDA of USD 1,492 mln. MMK boasts the industry's lowest debt burden. Net debt/EBITDA ratio was -0.06х at the end of 2020. The Group's investment-grade rating is confirmed by the leading global rating agencies Fitch, Moody's and S&P.

MMK's ordinary shares are traded on the Moscow Exchange, while its depositary receipts are traded on the London Stock Exchange. Free float amounts to 15.7%.

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INVESTOR RELATIONS DEPARTMENT

Veronika Kryachko
+7 915 380 6266
kryachko.vs@mmk.ru

ESG DEPARTMENT

Yaroslava Vrubel
+7 982 282 9682
vrubel.ys@mmk.ru

COMMUNICATIONS DEPARTMENT

Dmitry Kuchumov
+7 985 219 2874
kuchumov.do@mmk.ru

Oleg Egorov
+7 903 971 8837
egorov.oa@mmk.ru