Severstal' : Severstal reports Q2 & H1 2018 operatioal results

July 19, 2018

PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world's leading vertically integrated steel and steel-related mining companies, today announces its operational results for Q2 & H1 2018.

Q2 2018 GROUP HIGHLIGHTS 

• Hot metal output declined 4% in Q2 2018 to 2.26 mln tonnes (Q1 2018: 2.35 mln tonnes) compared with the previous quarter impacted by short-term maintenance works at BF#4 and BF#5, whereas crude steel production declined only 1% to 3.00 mln tonnes (Q1 2018: 3.03 mln tonnes) as a result of lower consumption of pig iron in BOFs. Meanwhile, the Company continues its efficiency programmes aimed at decreasing raw material consumption ratios in the steel production process. 
• Consolidated steel product sales were broadly stable at 2.84 mln tonnes in Q2 2018 compared with the previous quarter (Q1 2018: 2.86 mln tonnes). Domestic sales increased to 64% (Q1 2018: 52%) reflecting a more attractive pricing environment driven by the commencement of the construction season in Russia. 
• The share of high value-added (HVA) products within the sales portfolio increased 1 p.p. to 46% (Q1 2018: 45%) as the company increased its sales volumes of galivanised, colour coated and thick plate products. This was partially mitigated by lower large diameter pipe ('LDP') and cold-rolled product sales. 
• Coking coal concentrate sales volumes from Vorkutaugol grew 19% largely driven by higher production volumes of '2ZH', 'GZHO' and 'Concentrate K' grades. Meanwhile, Vorkutaugol sold-off stocks of '1ZH' grade which also contributed to Q2 2018 sales volumes growth. 
• Iron ore pellet sales surged 31% and totalled 3.12 mln tonnes (Q1 2018: 2.38 mln tonnes) after the realisation of finished goods in transit in Q2, carried over from the previous quarter. 
• Iron ore concentrate sales increased to 1.36 mln tonnes (Q1 2018: 1.29 mln tonnes) driven by seasonal production growth at Olcon.

H1 2018 GROUP HIGHLIGHTS 

• Hot metal output increased 1% in H1 2018 to 4.61 mln tonnes (H1 2017: 4.58 mln tonnes) compared with the previous period as a result of fewer maintenance works in H1 2018 and declining idle time at BF's. Crude steel production increased 6% to 6.03 mln tonnes (H1 2017: 5.70 mln tonnes) following steel production efficiency improvement after the launch of the ladle furnace #2 in July 2017 and higher production volumes of Balakovo mini-mill. 
• Consolidated steel product sales improved to 5.71 mln tonnes in H1 2018 (H1 2017: 5.28 mln tonnes). Severstal increased sales volumes of HVA products, which was partially offset by the growth in semifinished product sales. This resulted in 2 ppts improvement of the HVA product mix to 46% (H1 2017: 44%). 
• Average selling prices for the majority of steel products substantially grew c.4%-22% in H1 following global trends and sales and marketing initiatives run by Severstal. 
• The improvement of H1 2018 iron ore concentrate sales y/y partially reflects the consolidation of the Yakovlevskiy mine.

SUMMARY OF KEY PRODUCTION, SALES VOLUMES

Production, thousands of tonnes	Q2 2018	Q1 2018	Change, %	H1 2018	H1 2017	Change, %
Crude Steel (Russian Steel)	3,001	3,033	(1%)	6,034	5,695	6%
Hot metal (Russian Steel)	2,259	2,347	(4%)	4,606	4,582	1%
Sales volumes, thousands of tonnes	Q2 2018	Q1 2018	Change, %	H1 2018	H1 2017	Change, %
Coking coal concentrate	750	628	19%	1,378	1,538	(10%)
Iron ore pellets	3,123	2,377	31%	5,500	5,459	1%
Iron ore concentrate	1,364	1,292	6%	2,656	2,039	30%
Total steel products (Consolidated)	2,844	2,864	(1%)	5,708	5,281	8%
Total steel products (Russian Steel)	2,857	2,874	(1%)	5,731	5,300	8%

High value added steel products, %	Q2 2018	Q1 2018	Change, %	H1 2018	H1 2017	Change, %
Severstal (Consolidated)	46%	45%	1 ppts	46%	44%	2 ppts
Severstal Russian Steel	46%	45%	1 ppts	45%	44%	1 ppts

SEVERSTAL'S CONSOLIDATED SALES (NET OF INTERCOMPANY SALES)

Sales volumes, thousands of tonnes		Q2 2018	Q1 2018	Change, %	H1 2018	H1 2017	Change, %
Coal:	342		404	(15%)	746	910	(18%)
Coking coal concentrate	35		46	(24%)	81	19	n/a
Steam coal	307		358	(14%)	665	891	(25%)
Iron ore:	2,165		1,441	50%	3,606	3,042	19%
Iron ore pellets	2,054		1,188	73%	3,242	3,011	8%
Iron ore concentrate	111		253	(56%)	364	31	n/a
Semi-finished products	185		256	(28%)	441	228	93%
Rolled products:	2,219		2,166	2%	4,385	4,205	4%
Hot-rolled coil	969		963	1%	1,932	2,042	(5%)
Hot-rolled plate	226		198	14%	424	378	12%
Cold-rolled coil	321		389	(17%)	710	665	7%
Galvanised and metallic coated coil	218		198	10%	416	267	56%
Colour coated coil	105		67	57%	172	185	(7%)
Long products	380		351	8%	731	668	9%
Downstream products:	440		442	(0%)	882	848	4%
Metalware products	146		128	14%	274	315	(13%)
Large diameter pipes	86		119	(28%)	205	127	61%
Other tubes, pipes, formed shapes	208		195	7%	403	406	(1%)

Sales price, $/tonne	Q2 2018	Q1 2018	Change, %	H1 2018	H1 2017	Change, %
Semi-finished products	511	428	19%	462	385	20%
Hot-rolled coil	590	551	7%	571	485	18%
Hot-rolled plate	729	741	(2%)	734	602	22%
Cold-rolled coil	639	626	2%	632	596	6%
Galvanised and metallic coated coil	782	734	7%	759	724	5%
Colour coated coil	948	899	5%	929	892	4%
Long products	503	496	1%	499	407	23%
Metalware products	979	1,013	(3%)	995	885	12%
Large diameter pipes	1,047	1,284	(18%)	1,185	1,494	(21%)
Other tubes, pipes, formed shapes	629	602	4%	616	579	6%

Q2 & H1 2018 ESG (ENVIRONMENTAL, SOCIAL, GOVERNANCE) HIGHLIGHTS

• Health and safety of our employees and contractors is crucial for all our operations. Severstal targets zero fatalities. In Q2 2018, LTIFR* decreased 47% q/q to 0.78 (Q1 2018: 1.47). However, in the whole H1 2018 unfortunately we had two fatalities of our staff and one contractor. We are investigating each of these cases to prevent occurrence in the future.
• We continue applying innovative occupational health and safety initiatives. In H1 2018, Vorkutaugol started assembling a multi-functional safety system called Strata, thus becoming one of the first companies in Russia to have mines completely equipped with this new innovative system for online monitoring of key underground processes.

Health and Safety	Q2 2018	Q1 2018	Change, %		H1 2018	H1 2017	Change, %
LTIFR*	0.78	1.47		(47%)	1.12	0.82	37%

• At Severstal Russian Steel atmospheric emissions of pollutants remained almost unchanged in H1 2018 at 154,100 tonnes compared with the previous period (H1 2017: 154,800 tonnes). Atmospheric emission of pollutants per tonne of steel products went down by 6% to 25.5 kg per tonne of steel in H1 2018 (H1 2017: 27.1 kg per tonne) due to the reconstruction of coke battery #4 starting May 2017 and the launch of central gas cleaning system for ladle furnace #2. Renovation of the blast furnace slag treatment plant continued in H1 2018 to decrease atmospheric emissions of pollutants and is expected to be completed by the end of 2018.
• At Severstal Resources atmospheric emissions of pollutants slightly decreased in H1 2018 compared with the previous period and totaled 107,700 tonnes (H1 2017: 108,200 tonnes).

Environment**	Q2 2018	Q1 2018	Change, %	H1 2018	H1 2017	Change, %
Atmospheric emission of pollutants, thousand tonnes (Russian Steel)	71.8	82.3	(13%)	154.1	154.8	(0%)
Atmospheric emission of pollutants, thousand tonnes (Severstal Resources)	57.1	50.1	14%	107.7	108.2	(0%)
Specific atmospheric emission of pollutants, kg per tonne of steel***	23.9	27.1	(12%)	25.5	27.1	(6%)

Notes to this section:

* LTIFR refers to Lost Time Injury Frequency Rate of Severstal staff, the number of lost time injuries occurring in a workplace per 1 million hours worked.

** Emissions data is calculated in accordance with Russian regulation and is reported to the relevant Russian authorities on an annual basis and reviewed by them.

*** Steel production at Cherepovets Steel Mill and Severstal Long Product Mill Balakovo.