OREANDA-NEWS. PAO Severstal, one of the world’s leading vertically integrated steel and steel-related mining companies, today announces its operational results for Q2 & H1 2016.

Hot metal output decreased 6% q/q to 2.21 mln tonnes (Q1 2016: 2.35 mln tonnes) mainly impacted by short-term maintenance of BF#5 at Cherepovets Steel Mill (CherMK) during the quarter.

Reflecting abovementioned maintenance as well as scheduled short-term maintenance of continuous casters #3 and the billet caster, crude steel production declined 3% q/q to 2.81 mln tonnes (Q1 2016: 2.91 mln tonnes). Meanwhile, seasonal demand growth underpinned improved production run rates at the Balakovo mini-mill, which partially mitigated the negative impact of the maintenance works.

Despite a decline in crude steel output, consolidated sales of steel products increased 14% q/q to 2.79 mln tonnes (Q1 2016: 2.45 mln). This reflects higher domestic steel consumption on the back of seasonal factors as well as improved activity by local traders anticipating RUB-denominated domestic steel price increases. This resulted in a substantial inventory reduction by the Company during the period.

The seasonal improvement in domestic steel consumption enabled the Company to swiftly relocate volumes from export destinations to the local markets given the proximity of the main producing assets to the border, resulting in the share of domestic steel products sales volumes in the sales mix increasing to 64% (Q1 2016: 60%).

The Company completed the refurbishment of the four-stand cold rolling mill at CherMK in May 2016. This will increase mill capacity to 200,000 tonnes per annum and significantly improve product quality, enabling the Company to expand its product line and enter new markets.

The four-stand cold rolling mill was in ramp-up mode in June 2016. Despite this, the share of high value-added (HVA) products in the sales portfolio increased to 43% (Q1 2016: 42%) reflecting robust demand in the domestic market.

The Company continues to monitor methane gas concentration levels at Severnaya mine in order to identify further steps in the recovery process. Operations at the mine remain suspended with the flooding process having been completed in May 2016. Among the potential options to be considered by the Company is mining the Severnaya coal reserves via an adjacent Komsomolskaya mine. All of Vorkutaugol's other four mines and one open pit are operating as usual. The Company will provide further updates as soon as information becomes available.

Following a significant spike in global steel prices in March 2016, we continue to observe the expected steel price normalisation process. We believe this price normalisation will once again trigger an intention by Chinese steel producers to start cutting production capacities. In the domestic market, Russian steel companies managed to successfully deliver several rounds of RUB-denominated price increases in order to catch up with export USD-denominated prices.

The domestic market, which typically offers higher sales margins, remains the priority focus for the Company. Nevertheless, we foresee normalisation of domestic market premiums towards the end of the construction season.