OREANDA-NEWS. The credit metrics of OJSC Magnitogorsk Iron & Steel Works (MMK) (BB+/Positive), PAO Severstal (BBB-/Negative), and PJSC Novolipetsk Steel (NLMK) (BBB-/Negative) should remain broadly within our guidance despite a difficult operating environment, Fitch Ratings says. The companies do not have any large committed capex programmes and we expect management to adjust dividends in order to maintain conservative debt levels.

Fitch expects Russian domestic steel consumption to decline by 5% in 2016 and domestic prices to remain under pressure. Despite the decline in consumption, capacity utilisation rates are expected to remain high. As a result, we expect EBITDA for MMK, Severstal and NLMK to fall by double digits in 2016. This contrasts with 2015 when the depreciation of the rouble benefitted the cost base, which supported margins and partly mitigated the fall in steel prices.

Our forecast assumptions incorporate a gradual rouble appreciation against the US dollar to USD/RUB 75 in 2016, USD/RUB 68 in 2017, USD/RUB 62 in 2018 and USD/RUB 57 in 2019. In addition, we assume a 15% general decline in steel prices for 2016 and a gradual recovery in prices thereafter (5% for 2017 and 2018, and 2% in 2019).