Posted on 15 July 2020

 

Source: Platts

 Russian steelmaker MMK said July 14 that it has begun to ramp up its output again, after seeing production drop 22% on the quarter and 24% on the year in April-June when it idled several facilities for upgrades to take advantage of the quieter market. 

The end of Q2 marked a pick-up in domestic steel consumption, which MMK expects to continue into the July-September period. Recovery in FOB Black Sea prices for hot-rolled coil, noticeable since late June, should continue to affect Russian domestic prices for flat rolled products, it added.

The pending launch of the rebuilt 2,500 mm wide strip hot-rolling mill, due this month, will expand the company's production capabilities and uphold its sales volumes in the rest of the year, it said.

MMK said it expects capacity utilization of its mills and lines involved in making high value added products -- heavy plate, cold-rolled and coated coil, tinplate, shaped profiles, pipes and wire products -- to be close to the maximum in Q3, and this should also support the company's steel sales.

In April-June, MMK made 2.36 million mt of crude steel, 660,000 mt less than in January-March and 730,000 mt less than in Q2 2019. Over the same period, the group's steel sales declined by 19% both on the quarter and on the year to 2.22 million mt.

Technically, the output decreased due to lower pig iron production as MMK had been conducting a 130-day long upgrade of blast furnace No. 2 at its flagship Urals-based Magnitogorsk Iron and Steel Works, completed in June.

This, the scheduled reconstruction of the 2,500 mm rolling mill and a number of other upgrades that affected the output were combined in the April-June quarter to help MMK make the most of the coronavirus-related decline in demand both in the domestic and export markets.

Weaker demand, coupled with extensive reconstructions, resulted in the company's production falling by double-digit percentages in the first six months of the year.

In January-June, MMK made 5.38 million mt of steel, just over 800,000 mt or 13% down year on year. Its steel sales, at 4.97 million mt, were 670,000 mt or 12% lower. High value added products comprised half of this volume.

MMK said its Q2 average dollar-denominated steel price softened by 12% on the quarter to $522/mt due to a combination of the ruble devaluation, business activity slowdown and global HRC price declines.

 

Cost-cutting effect

 

In Russia, iron ore supply currently exceeds demand, particularly with many domestic iron ore miners not having reduced output.

Facing a sharp reduction in exports to Europe and weak domestic sales in Q2, miners ramped up exports to China. Normally, Russian iron ore prices follow Chinese indexes, but given the excess supply levels, Russian consumers are getting slightly higher discount rates, MMK said.

For the same reason, they pay less for coking coal. Although Russian miners started to curtail extraction, the cumulative cut has not been enough to rebalance the market. Excess supply remains substantial and, with limited export opportunities, domestic coking coal price declines have continued since mid-2019.

 

Scrap supply, as well as prices, were, on the contrary, changeable against the backdrop of anti-coronavirus restrictions, but so were mills' requirements in scrap, MMK said, adding that Q2 did not see any pronounced trend. The steelmaker expects the home scrap market to stabilize in the current quarter, and with gradual growth in raw materials usage, it did not rule out a moderate increase in scrap prices.

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