Mechel Reports 2015 Operational Results

Mechel PAO’s Chief Executive Officer Oleg Korzhov commented on the 2015 operational results:

“In 2015, Mechel’s coal assets worked in a new reality. On one hand, ruble devaluation had a positive impact on mining costs and helped the company’s enterprises consolidate their position as compared to their competitors. Our production results improved, while mining at the Elga deposit more than tripled. On the other hand, in 2015 international commodity prices demonstrated historical lows as the market failed to reach the bottom many experts hoped for last year and the year before last. At the same time, 2015 saw further decrease of Chinese imports as China, the world’s most important coal consumer, plummeted its imports by over 40% since 2013. The latter factor became key for our sales policy. For example, last year Yakutugol decreased exports by 30%, while domestic sales went up by 44%.

“Coking coal concentrate sales went down by 19% in the accounting period. The decrease in sales to China was partly compensated by reorienting our sales to the domestic market where the price dynamics has been more attractive this year. We have also increased sales of coking coal concentrate to other Asian countries — Japan and Indonesia. To reduce buying from third-party producers in 2015 we supplied additional volumes of coking coal concentrate from Elga Coal Complex to the Group’s steelmaking facilities.

“The slump in PCI sales was primarily due to the global decrease in demand both from Asian and European countries. China and South Korea were our key markets for PCI in 2015.

“We managed to maintain anthracite sales at the same level as last year by redirecting exports from China to Vietnam as well as Southern Europe.

“Steam coal sales went up by 10% due to an increase in production at Elga. We are fully compliant with our commitments as per active contracts with Russian generating companies and our Asian customers.

“Sales of iron ore concentrate went down by 10% as production volumes decreased due to negative market conditions. Uninterrupted supply of iron ore concentrate to Chelyabinsk Metallurgical Plant’s furnace facilities is a priority for us.

“Mechel’s coke and chemical enterprises decreased coke production in 2015 due to unstable demand. Two thirds of coke production was supplied to the Group’s facilities.

“The steel division has increased production of steel and pig iron by 1% and 3% respectively, year-on-year. The universal rolling mill continues to master new types of rolls. In this accounting period we achieved a major increase (+41%) in production of high value-added products. Despite a significant decrease in apparent consumption of construction-purpose long rolls in Russia, we maintained our domestic market supply on last year’s level, increasing our share of this market we consider strategic. We also optimized our portfolio regarding other types of long rolls, thus minimizing production of low value-added products.

“Flat rolls production went up by 10% due to several new contracts with major Russian companies and sale of excessive stockpiles by Mechel Service Global sales network in Western Europe.

The 10-percent decrease in hardware sales is due to the shrinking of our domestic market and the overall negative dynamics of Russia’s hardware market which persists into 2016.

“Bratsk Ferroalloy Plant increased ferrosilicon production by 2% year-on-year. The seven-percent decrease in ferrosilicon sales was due to a shifting in shipment schedule for the plant’s contracted products from this accounting period into early 2016.

“Steady demand for forgings in Eurozone countries enabled us to increase sales of these products by 2%.

“Oversupply of rolling stock on the railway market in 2015 and the resulting slump in demand for new wagons had their impact on our stampings sales which fell by 20%. As Russian government is taking measures to support the wagon-making industry, we expect more orders to come this year.

“The power division last year managed to increase electricity production by 12% due to the stable work of Southern Kuzbass Power Plant which had successfully undergone equipment modernization. The seven-percent decrease in heat production was due to the halt in heat supply of several third-party consumers.”