SeverstalCHMF832.00 RKbuy
Magnitogorsk Iron and Steel WorksMAGN31.09 RKbuy
NLMKNLMK136.50 RKbuy
EvercoreEVR$92.92 Buy
MechelMTLR122.94
Russia is considered the leader in exports in many industries. In the first place - the fuel and energy complex, and on the second - metallurgy. The post-pandemic period has been successful for many sectors of the economy.
The metal industry is no exception either.: in relation to 2020, 2021 showed an increase in exports by 146,5%, according to official statistics of Rosstat.
But 2022 won't be as positive: due to sanctions in March 2022, the EU banned the export of Russian steel to their countries. We understand, which companies bring the largest percentage of revenue in the country's total exports, what difficulties await the industry due to Western sanctions and what are the prospects for the sector due to the restrictions imposed.
List of main manufacturers in the Russian Federation
There are many companies in Russia, who are engaged in servicing both internal, and external demand for metal products thanks to a well-developed infrastructure over several hundred years and minerals. And among them are a few, which are regularly included in the list of the largest world and Russian producers of ferrous metal or steel.
Summary statistics on industry leaders for 2021, billion rubles
| Net profit | Share of exports in revenue | P / E | P / S | P / B | D / E | Payment of final dividends | |
|---|---|---|---|---|---|---|---|
| Severstal | 272,9 | 47% | 4,46 | 1,61 | 4,61 | 0,30 | Not |
| MMC | 229,3 | 26% | 1,54 | 0,89 | 0,76 | 0,03 | Not |
| NLMK | 225,7 | 56,3% | 3,51 | 1,09 | 2,89 | 0,15 | Not |
| Evraz | 217,6 | 61,1% | 3,99 | 1,25 | 0,78 | 0,51 | Not |
| Mechel | 80,5 | 60% | 1,18 | 0,24 | 12 | 0,95 | Not |
Now it is worth paying special attention to the indicator "total debt / capital" - D / E. Prices in the domestic market are limited, and new taxes calculated on the basis of world prices. Due to the existing difference between the real selling price of products by Russian metallurgists and the published price on world markets, the tax burden of enterprises will increase. According to this indicator, MMK looks best.
Consider the features of each company in more detail: what makes up the revenue, with which countries exports are built and what sanctions were imposed against the company or management.
Severstal (CHMF). One of the largest mining and steel companies in the country has been operating since 1955. Slightly more than half of the business's revenue comes from sales within the country - 53%, Europe brought 34% all sales volumes. The company is considered one of the leaders among Russian full-cycle steel producers - from mining to processing and sale of finished steel products.. And at the end of 2021, the brand showed the highest net profit among other leaders.
The head office of the company is located in Cherepovets, where the business owns the second largest steel mill in Russia, the Cherepovets Iron and Steel Works. Due to the good endowment with natural resources, the company is among the producers with the lowest cost.
The business adheres to a policy of minimal debt burden and is distinguished by high dividend payments. Shares are traded on the Moscow Exchange, depositary receipts on the London site. Credit rating, assigned by the largest agency of the country "Expert RA", — at the level of ruAАА. The company and its owner, Alexei Mordashov, were among the first to fall under Western sanctions..
MMC (MAGN). Another major manufacturer in the industry, is considered one of the leaders in the production of steel and ferrous metallurgy in Russia. The business is no longer export-oriented, and to the domestic market.
The brand is considered the number one supplier of steel in the Russian market, as well as the only manufacturer of tinplate in the country. The share of revenue for 2021 from sales in Russia is 74%, to the Middle East 11%, and for sales in the EU - total 7%. The Asian continent brought 4%, Africa — 2% and 1% each brought sales in South and North America. The steel segment brings 89,7% profit from operations in Russia.
Orientation of business to the domestic market helps the company not to depend heavily on the restrictions imposed: the chairman of the board of directors, Viktor Rashnikov, fell under the sanctions.
NLMK (NLMK). The company is considered one of the world's leading steel producers. And about 20% of all volumes of Russian steel production are accounted for by NLMK. The structure of revenue by region looks like this: to the Russian market 43,7% of all sales, to the USA - 12,3%, and for EU countries 12,6%. Credit rating from "Expert RA" at the level of ruAAA. Sanctions bans have bypassed business so far.
Evraz (EVR). The company has been operating since 1992 and is considered one of the largest steel producers in Russia and the world. Headquarters in London and Moscow.
Business revenue is diversified and distributed across different regions: Russia accounts for up to 38.9% of total sales in 2021, the Asian continent brought 26% total sales, USA - 21,3%. Europe accounted for the least sales - 6,6%. The company is on the UK sanctions list, like its main owner - Roman Abramovich.
Mechel (MTLR). Another leader in the steel industry: shares of the mining company were among the first among the metallurgical companies to be traded on the New York Stock Exchange. Included in the top 10 largest global producers of coal for metallurgy.
Exported up to 60% proceeds, of which the EU countries accounted for 13%. Sanction restrictions affected the company as a supplier of coal abroad, which accounts for about 13% proceeds, from work in the EU.
To make a profit in metallurgical production, it is important for companies to have their own resources and be provided with their own raw materials.. This will help you not to depend on other manufacturers., e.g. foreign partners, cooperation with which may be closed. This is important in the context of sanctions restrictions.
The level of provision of companies with their own raw materials
| Coal | Ore | |
|---|---|---|
| Severstal | 96% | 130% |
| MMC | 40% | 17% |
| NLMK | 100% | 92% |
| Evraz | 100% | 70% |
| Mechel | 100% | 90% |
Steel market in Europe until 2022
The European market after the imposition of sanctions is closed to Russian companies. The ban also affected steel prices in Europe.: in March they reached historical highs.
According to statistics from Eurofer, the European Association of Steel Manufacturers, Since 2011, Russia has consistently been among the top ten steel exporting countries in the European Union and ranks second in terms of the volume of supplied products after Turkey.
So, Turkey in recent years accounts for about 18,8%, and to Russia 15,2%. A third of all European demand is met by just two countries. Means, restrictive measures will have a negative impact on the economies of European countries.
Steel market in Russia
2021 the year turned out to be positive for all companies in the industry. However, after the imposition of EU sanctions, some of which are aimed at companies in the metallurgical industry, sector faces additional challenges. Among the main:
- Complete ban on steel exports to EU countries, where the share of Russia is about 16%. European countries are the third largest steel export destination for the country after Asia, which accounts for 35%, and the Middle East with a share 30%.
- Decrease in domestic demand. This is primarily due to the construction sector., which uses steel products in large volumes: a sharp increase in the key rate and a decrease in the volume of mortgage loans. Number of mortgages, issued by banks in April and May, lower by a third and reached the low of February 2017, which does not increase sales.
- State regulation of prices for metal products. Back in March 2022, Deputy Minister of Industry and Trade Viktor Yevtukhov proposed limiting the markup of manufacturers on metal products, and in May this information was confirmed: the government is drafting a, which will limit the maximum margin. This is done to keep prices down..
- Ruble strengthening. For any exporter, including for metallurgists, weak ruble is important, since product prices are usually denominated in US dollars. Now the ruble has strongly strengthened against the backdrop of currency restrictions, which leads to a drop in revenue and profit.
As a result, reports began to appear, that metallurgists are forced to reduce production and sell products at a big discount.
The gradual reduction of the key rate of the Central Bank is considered positive news for the industry., resulting in a revival in the mortgage lending market, which will help increase the demand for products. Another option for the metal manufacturer is the expansion of the geography of presence: export development for Asian countries, as well as increasing supplies to Africa.
Now they are ready to buy products from Russia in China, Turkey and India. But the need for steel in these countries is much lower., than in Europe, as they have many local producers.
Besides, now any Russian product is sold at a discount, as the buyer takes the risk of falling under sanctions. Reportedly, discount of Russian steel in Asian markets reaches 25-30%.
What's the bottom line?
The metallurgical industry is not the most promising for investments now. It can be replaced by other sectors of the economy, which are not so strongly affected by the sanctions. On the other hand, among the main representatives of the metallurgical sector there are those, who has not suffered so much from the restrictions of the European Union.
Severstal, whose business was heavily dependent on exports to Europe, should not be considered for investment in the short term. But to such enterprises, like NLMK, whose exports are well diversified by region or focused on domestic consumption, you can take a closer look.
Besides, NLMK so far looks less affected by sanctions bans. The main shareholder is Vladimir Lisin, owning 79,3% enterprise shares, was not included in the sanctions lists. The company has factories in Europe, who can now sell products there.
Another representative of the metallurgical industry is considered a good alternative, which specializes in non-ferrous metal, — Norilsk Nickel: EU countries will not be able to find a replacement for such an exporter. The company is the world's largest producer of nickel and palladium.
