Moscow, Russia– 19 August 2020 – Mechel PAO (MOEX: MTLR, NYSE: MTL), one of the leading Russian mining and metals companies, announces 1H2020 operational results.

Mechel PAO’s Chief Executive Officer Oleg Korzhov commented on 1H2020 operational results:

“We do not see any significant impact of the COVID-19 pandemic on our mining segment’s operational results. Our facilities function in a stable mode and fulfill their obligations regarding product shipments. However, the pandemic’s effect on the steel division’s 2Q2020 sales is obvious, in both export and domestic markets. There was no traditional seasonal spike in demand.

“The seven-percent improvement in overall coal mining volumes quarter-on-quarter is due to the restoration and increase of the mining equipment at our Yakut and Kuzbass facilities, which had a positive effect on this accounting period’s sales to Asia Pacific where business has picked up after the coronavirus pandemic passed its peak stage. Nevertheless, the coal prices fell to a four-year minimum and are far from the previous quarter’s comfortable levels. The coal prices are under pressure from the policy of Chinese authorities that now adhere to strict ecological requirements toward imported coal and its quality and buy coal according to quotas. In June, the majority of Australian producers — key players on the international coal market — announced that they intend a downward correction of their operational plans. This gives grounds to expect that global coal prices may begin to move back up.

“Coking coal concentrate sales went up by 14 percent quarter-on-quarter due to increased mining and stable customer demand. Our sales structure underwent changes as the financial year ended in March (as well as several contracts with Japanese partners). We redirected thus released volumes toward China and South Korea.

“The 17-percent increase in PCI sales and the six-percent increase in anthracite sales were due to Southern Kuzbass Coal Company boosting production of these types of coal. PCI coals were fully shipped to export, while in anthracite sales exports accounted for 77%, with sales on the more profitable Asian markets doubling. Also, in Posiet and Ust-Luga ports we formed two shiploads of anthracite that were de-facto sold in the next accounting period.

“In the second quarter, we increased thermal coal sales by 11% thanks to our redirecting sales in favor of Vietnamese customers. We set a quarterly shipment record to this country in the second quarter, reaching 373,000 tonnes. This year we also supply a major volume of thermal coal to Far Eastern Generating Company that we have a long-term contract with.

“Iron ore concentrate sales went down by 18% quarter-on-quarter due to a slump in ore mining and lower iron content in the ore.

“Sales of metallurgical coke generally remained at the previous quarter’s level. Weaker demand for this product in the European Union was partially compensated by a hike in sales to Asia. For example, we sent a test batch of coke to Malaysia.

“In the steel division, pig iron and steel output went up by 5% and 6% accordingly as major overhauls of Chelyabinsk Metallurgical Plant’s blast furnace and converter were completed. Considering our country’s difficult epidemiological situation, we adapted to market needs and our clients’ requirements insofar as ready product output and sales policy were concerned. And even though the construction season started out late, the overall sales of long rolls remained at the first quarter’s level, with a three-percent increase year-on-year, primarily due to rebar sales. Sales of the universal rolling mill’s shapes and sections went down in the second quarter due to a noticeable slump in demand for high-margin products in this period.

“In 1H2020 we increased output of rolled flats that are consistently in demand, as this product’s high profit margin makes it a priority for the Group. In 2Q2020 we saw a decrease in sales due to the coronavirus pandemic.

“Early this year our forgings sales demonstrated growth, as we managed to profit by the situation in European markets where Chinese producers’ share fell due to that country’s quarantine measures. However, in the second quarter the closure of European storages led to a 24-percent slump in sales of forged rolls quarter-on-quarter. Nevertheless, we increased domestic sales of stainless steel and construction alloyed forgings by 7%. The decrease in stampings sales was due to a weaker demand for railroad axles as Russia’s wagonbuilding market hit stagnation.

“As Bratsk Ferroalloy Plant launched its upgraded ore thermal furnace #3, the plant increased output and sales of ferrosilicon (+46% quarter-on-quarter). Transfer of a major shipload, already prepared for dispatch, from the first to the second quarter contributed to this result.

“As engineering and furniture plants’ demand for wire dramatically decreased due to an overall slump in acquisitions, this led to an eight-percent decrease in 1H2020 hardware sales. In 2Q2020 we managed to boost sales of other types of hardware and attain positive dynamics (+1% quarter-on-quarter).

“The decrease in generation of electricity and heat by 18% and 52% accordingly in 2Q2020 quarter-on-quarter was due to the end of the cold season and the beginning of sweeping repairs of our heat-power equipment.”

Production and sales for 1H2020

Production:

Sales:

Universal rolling mill:

* Excluding operational results of Elga Coal Complex.

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Mechel PAO
Ekaterina Videman
Tel: + 7 495 221 88 88
ekaterina.videman@mechel.com