Q2 & 6M 2022 NLMK Group Trading Update

NLMK Group's Q2 2022 operating performance

Steel output stood at 4.4 m t (-2% qoq; 4% yoy) against the backdrop of reduced steel production at NLMK Russia Long.

Sales went down to 4.0 m t (-12% qoq; -7% yoy) driven by the increase in NLMKs intragroup slab supply by 0.4 m t qoq and a decline in demand in key markets.

Sales mix: Semi-finished products accounted for 45% of sales (flat qoq; +8 p.p. yoy). Finished product sales declined by 13% qoq to 2.2 m t (-19 % yoy).

Sales on home markets stood at 2.6 m t (-3% qoq; -7% yoy). Supply to the US market amounted to 0.4 m t (-3% qoq; -25% yoy) against the backdrop of low buying activity amid high stocks accumulated. In Europe, sales increased by 20% qoq to 0.7 m t (+45% yoy) due to higher shipments of hot-rolled steel at La Louvière. In Russia, sales decreased by 10% qoq to 1.5 m t (-15% yoy) driven by the slowdown in economic activity amid external trade and financial restrictions.

Sales in export markets dropped by 33% qoq to 1.2 m t (-17% yoy).

RAW MATERIALS MARKET IN Q2 2022

• Prices for Australian coking coal decreased by 4% qoq (+3.5 yoy). In May, prices approached the level of multi-year highs following the European Unions announcement on introducing an embargo on Russian coal supplies, and worsening weather conditions in Australia. By the end of the quarter, coal prices declined due to the decrease in steel prices and the normalization of trade flows. The price of imported coking coal in China grew by 14% qoq (+82% yoy). Prices peaked in April following the lockdown in one of China's largest coal-producing regions. The price trend then reversed due to the growth of supplies from Russia and Mongolia following an ease of pandemic restrictions and domestic production recovery.
• Prices for Iron Ore materials remained flat qoq (-29% yoy). In April, prices grew driven by an increase in steel production in China, worsening weather conditions in Brazil and Australia, and a reduction in supplies of iron ore from Ukraine. In the second half of the quarter, prices declined against the backdrop of a low steel/raw material spread, weak demand for steel products amid the lockdown restrictions in China.
• Scrap prices in the US and the EU reduced by 6% qoq (+7% yoy) driven by declining prices for finished products, seasonal growth in scrap collection and falling steel demand in Turkey. Ruble-denominated prices in Russia decreased by 19% qoq (-13 % yoy).

STEEL MARKETS IN Q2 2022

• Steel prices in China declined by 5% qoq (-14% yoy) against the backdrop of declining steel products consumption driven by lower activity in the construction sector and other metal-intensive industries amid a strict lockdown caused by another outbreak of COVID-19.
• Western markets posted a moderate increase in steel product prices. Average steel prices in the US and the EU increased by 5% and 3% qoq, respectively, due to rush demand in March-April driven by the rebalancing of global trade flows. In May, the price trend reversed amid a partial normalization of supply chains, growth in imports from Asia, and lower prices for metallurgical raw materials. Final demand slowed down as energy prices grew and monetary policy tightened.
• In Russia, dollar-denominated prices for steel products increased by 16% qoq amid ruble appreciation (+23% qoq). Ruble-denominated prices for steel products decreased by 10% qoq due to excess supply caused by export sanctions. Moreover, a slowdown in overall domestic demand had a negative impact.
• Global steel production increased by 7% qoq driven mainly by China, where steel output grew by 14% qoq. In the US and the EU, production increased by 4% and 3% qoq, respectively, driven by higher steel product prices in the first half of the quarter. In Russia, steel output declined qoq.

SEGMENTAL PERFORMANCE

NLMK RUSSIA FLAT PRODUCTS[1]

Q2 2022 performance

Steel output stood at 3.5 m t (-1% qoq; -2% yoy).

Sales in the Segment decreased to 3.2 m t, down 9% qoq (-11% yoy). The decline in slab demand in the EU and Middle East markets was in full offset by intragroup sales to the Groups foreign assets. The Segments sales decreased due to deceleration of demand for hot- and cold-rolled steel in the key steel consuming industries in the Russian market.

Sales mix: sales of semi-finished products to third parties decreased to 0.9 m t, down 35% qoq (10% yoy) due to lower demand in export sales and increased intragroup supply of slabs. Semi-finished product sales to the Group companies and NBH grew to 1.2 m t, up 58% qoq (+5% yoy).

Finished rolled product sales in Q2 decreased to 1.0 m t, down 20% (-24% yoy) as domestic demand declined amid a slowdown of the economy.

Sales markets: sales in Russia decreased by 17% qoq to 1.0 m t (-23% yoy). Export sales decreased to 2.2 m t, down 5% qoq (-4% yoy); the share of export in sales reached 70% (+4% p.p. qoq; +5 p.p. yoy).

NLMK RUSSIA LONG PRODUCTS[2]

Q2 2022 performance

Steel output decreased to 0.7 m t, down 12% qoq (-8% yoy) as planned repairs were underway at NLMK Ural. Steel output at NLMK Kaluga was reduced amid declining demand in the Russian market and restrictions on export to the EU. Steel capacity utilization in the Segment was 82% (-12 p.p. qoq; -8 p.p. yoy).

Sales stood at 0.72 m t (-1% qoq; -12% yoy) as demand for long products in Russia decreased. This was offset by pivoting sales of square billets from Europe to Turkey. Finished product sales totalled 0.64 m t (-4% qoq;
-6% yoy). The share of finished products in sales was 89% (-3 p.p. qoq; +6 p.p. yoy).

Sales markets: export sales grew to 0.20 m t, up 9% qoq (-21% yoy). Sales in Russia decreased to 0.52 m t, down 5% qoq (-5% yoy) as a result of lower demand. The share of sales in Russia was 73% (-3 p.p. qoq; +3 p.p. yoy).

Scrap: scrap sales increased to 1.3 m t, up 43% qoq (-19% yoy) amid the seasonal accumulation of scrap stocks. The share of scrap sales to Group companies was 99%.

NLMK USA

Q2 2022 performance

Sales in the Segment decreased to 0.4 m t, down 3% (-25% yoy) amid the slowdown of consumer activity. A further decline in prices is expected as end-demand will be slowing down and the level of stocks accumulated since the beginning of 2022 is high.

6M 2022 performance

Sales in the Segment decreased to 0.8 m t (-18% yoy) from the high base of the same period last year when consumption was on the rise amid pent-up demand.

NLMK DANSTEEL:

Q2 2022 performance

Sales decreased to 0.16 m t, down 7% (-4% yoy) due to a demand slowdown amid expectations of further price reductions for thick plate in Europe.

6M 2022 performance

Sales decreased to 0.32 m, down 4%, amid end-demand normalization and stock accumulation in Europe.

JOINT VENTURE NLMK Belgium Holdings (NBH)[3]

Q2 2022 performance

Steel product output decreased to 0.51 m t, down 4% qoq, as hot-rolled steel production was reduced at NLMK La Louvière in response to the slowdown in demand at quarter-end. Production output increased 2.3 times vs. the same period last year due to the completion of the first upgrading phase at NLMK La Louvière Hot Strip Mill (Strategy 2022 project).

Sales grew by 32% qoq to 0.54 m t (+62% yoy) due to the low base effect of the previous quarter when shipments were down due to high consumer stock levels and logistic constraints amid the transport shortage.

6M 2022 performance

Steel product output doubled yoy, up to 1.0 m t, amid hot-rolling mill upgrades at NLMK La Louvière, completed in May 2021.

Sales grew to 0.94 m t, up 15% yoy, driven by H1 2022 production growth. Sell-off of finished-product stocks in 1H 2021 accounts for the high-base effect.