Mechel Reports EBITDA of USD 701 Million in H1 of 2021
Leading Russian mining and steel maker Mechel has announced its financial results for the first half of the current year. In the January-June period this year, Mechel saw a net profit of RUB 31.80 billion (USD 429.48 million) compared to a net profit of RUB 10.19 billion in the same period of the previous year. This was the result of foreign exchange gains on foreign currency liabilities. In the given period, Mechel's sales revenues increased by 40 percent year on year to RUB 184.91 billion (USD 2.49 billion). The operating profit was RUB 43.35 billion (USD 585.42 million), compared to RUB 5.67 billion in the first half of the previous year. Meanwhile, the company’s EBITDA in the first half amounted to RUB 51.97 billion (USD 701.74 million), rising by 136 percent compared to the corresponding period of the previous year.
Mechel General Director Oleg Korzhov said “In the second quarter, prices for our main product coking coal on CFR China and FOB Australia bases continued to grow steadily, positive dynamics of export quotations supported the domestic market as well. The main reason is the reduction in the production of coking coal in the PRC during this period. The growth of import quotations of coking coal in China was also influenced by the fact that the supply from Mongolia did not recover due to the worsening epidemiological situation in the country. We believe that demand from large metallurgical companies in China will continue to support prices for imported coal at a fairly high level throughout the Asian region. The correction is expected not earlier than the fourth quarter. We estimate the reporting period as a time of smooth recovery of production indicators. Coal production increased by 12% in relation to the previous quarter. We signed contracts for the supply of about 40 more units of mining transport equipment, which will be delivered to our enterprises in the second half of the year. In the current environment, the company's management decided to cut steam coal production in the second quarter, giving priority to coking coal amid favorable market conditions. This had a positive impact on the volumes of processing and sales of coking coal concentrate (+ 71% QoQ). Product sales both in the Asia-Pacific region and in the Russian market more than doubled.”
Pulverized coal sales were up 27% driven by higher shipments to consumers in Japan and South Korea. Anthracite sales were broadly flat in the previous quarter.
The share of exports in the structure of sales of coal products to third-party consumers in the second quarter amounted to 86%.
Sales of iron ore concentrate (iron ore concentrate) increased by 27% due to an increase in stripping and iron ore production. This indicator was positively influenced by the commissioning of new mining and transport equipment.
The dynamics of indicators of production of pig iron and steel smelting in the second quarter came to positive values. Taking into account the warehouse stocks prepared a quarter earlier, in anticipation of a seasonal recovery in demand, Mechel ensured a significant increase in sales of almost all types of products of the metallurgical division.
Total sales of long products in the second quarter increased by 22%. Mechel has increased the capacity utilization of the universal rail and structural mill for the sale of high-value-added structural shapes. As a result, sales of URBS shaped rolled products grew by 41% quarter-on-quarter, which was largely due to the implementation of the strategy to expand sales of high-margin products through the Mechel-Service sales network. Valve sales in the second quarter increased by 24%, while sales of these products in export markets, primarily in the CIS countries, more than doubled. The sale of rails to Russian Railways in the reporting period was not carried out due to the absence of an application from the customer. The bulk of rail products in the second quarter were shipped to export destinations.
Sales of flat products increased by 15% QoQ due to the expansion of production of these products at Chelyabinsk Metallurgical Plant following the completion of major repairs in the first quarter of 2021.