"Russia in the context of current global steel trends and challenges" by Andrey Laptev
1. RUSSIA IN THE CONTEXT OF CURRENT GLOBAL
STEEL TRENDS AND CHALLENGES
Andrey Laptev, Head of Corporate Strategy
February 12th, 2014
2. Where the Global Steel Industry is Today
CAPEX and leverage position
Average EBITDA margin, %
Total CAPEX, $ bn (LHS)
16.7%
Median Net debt/EBITDA (RHS)
58
5
55.1
12.6%
4.0
3.7
10.7%
3.2
52
9.0%
7.7%
7.0%
3.2
3.2
4
3
47.4
1.8
47.0
45.4
46
46.5
46.0
2
1
40
2008
2009
2010
2011
2012
2013E
0
2008
2009
2010
2011
2012
2013E
• Subdued profitability
• Negative FCF
• Excessive leverage
Source: Bloomberg, Severstal estimates
* Top-40 – companies, constituents of Bloomberg Global Steel Producers Index
Page 2
3. The Steel Overcapacity Challenge
• Healthy post-crisis demand growth was insufficient to offset existing structurally excess
capacity and new additions
Global crude steel nominal excess capacity, mmt
1500
40%
33%
30%
1000
23%
500
23%
24%
21%
22%
20%
15%
10%
0
0%
2007
2008
2009
Global excess steel capacity, mln tonnes (LHS)
Source: Worldsteel, Severstal estimates
2010
2011
2012
2013
Excess capacity as % of total global crude steel capacity (RHS)
Page 3
4. Wait for “Invisible Hand” or Search for Solutions?
Chinese steel capacity regulation plans
Government measures
Solutions in other industries
Capacity discipline
SSAB / Ruukki merger
Local markets consolidation
Page 4
5. US Market: A Healthy Example
HRC prices by region, $/t
US domestic (EXW)
EU Southern (EXW)
China export (FOB)
Russia export (FOB)
$800
$750
$700
$650
$600
$550
$500
$450
$400
20-Dec-12
24-Feb-13
1-May-13
6-Jul-13
10-Sep-13
15-Nov-13
20-Jan-14
• Capacity eliminations
• Market consolidation
• Healthy long-term demand
Source: Metal Bulletin
Page 5
6. Russian Steel Demand Supported in 2013-2014
Steel consumption by the main demand segments in Russia
Industry
Estimated
volume in 2013,
mmt
Steel consumption growth,
y-o-y, %
2013
Main drivers in 2013-2014
2014F
13
•
•
Localization
Households income growth
-3.5%
•
•
•
White goods
Handling equipment
Agricultural machinery
•
•
New pipelines projects (“South
Stream”)
Drilling activity
Construction
•
•
Mortgage growth
Liquidation of savings
•
Machinery
1.8
-10.5%
•
Automotive
Demand growth in Europe and the
USA
Removing sanctions against Iran
Tubes and pipes
9
6%
Construction
20
5.5%
43.8
3%*
Domestic
demand
Exports
25
-7.9%
•
Source: Metal Expert, Severstal estimates
* In Severstal product range
Page 6
7. Tougher Competition on Export Markets
Global crude steel production growth by region in 2013, YoY %
10%
8%
6%
4%
2%
0%
-2%
-4%
6.8%
7.5%
Middle East
China
3.1%
Total world: +3.5%
1.9%
-1.9%
-1.5%
-0.8%
North
America
-2.7%
CIS (ex.
Russia)
-1.8%
EU
Russia
South
America
Other Asia
Japan
Chinese finished steel exports, mln t
80
66
60
56
52
43
40
20
20
11
7
7
2001
2002
2003
59
24
8
2000
27
48
55
0
Source: Worldsteel, CRU
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Page 7
8. Russian Domestic Market Challenge
Selected pig iron, steel and rolling
capacity additions in Russia
Year
Company
Project
Domestic sales, as % of total
2012
Capacity, mtpa
2013
84%
77%
2011
MMK
Cold Rolling Mill-2000
2,0
2012
NLMK
BF #7 at Lipetsk plant
3,4
2013
NLMK
Kaluga mini-mill
1,5
2013
UMMC
Tyumen mini-mill
Severstal
Balakovo mini-mill
1,0
2013
Novorosmetall
New EAF at
Abinskiy plant
63%
0,5
2013
59%
1,3
39%
33%
Peer 1
Source: Company data, press releases
Severstal
Peer 2
Source: Company data
Note: For Peer 2 domestic sales include sales to Russia & CIS
Page 8
9. Key Players’ CAPEX is Back to Normal
Group CAPEX, $mln
1600
80%
80%
72%
1200
58%
54%
50%
48%
800
1460
40%
1400
1134
850
400
60%
976
20%
500
0
0%
Peer 2
Peer 1
CAPEX Average in 2010-2013
Source: Company data, Severstal estimates
Note: For CAPEX/EBITDA ratio guided 2014 CAPEX and 9M2013 annualized EBITDA are used
CAPEX 2014E
Severstal
CAPEX/EBITDA, %
CAPEX/EBITDA Average in
2010-2013, %
Page 9
11. Healthy Long-term Demand Fundamentals in Russia
Mortgage loan penetration, % of GDP
Growth of automotive
production using local steel
Source: Citigroup, Severstal analysis
FIFA World Cup 2018: Steel Demand ~2 mmt
Infrastructure projects
Page 11
12. Severstal: Responding to the Challenges
Cost Position
Middle-to-the-left position of all our assets on
the cost curve
Margins
Targeting cycle-average EBITDA margin of c. 20%
CAPEX
Medium-term target of $1.0bn per annum
Net debt
Striving to keep Net debt/EBITDA below 1.5x
Dividends
Payout of not less than 25% of Net Income
FCF
Stable positive free cash flow
Page 12
14. Disclaimer
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