Mechel PAO announces 1H2016 operational results

Production and sales for 1H2016

Production:

Product Name 1H2016, thousand tonnes 1H2015, thousand tonnes % 2Q2016, thousand tonnes 1Q2016, thousand tonnes % Run-of-mine coal  11,528 11,448 +1 5,864 5,663 +4 Pig Iron  2,044 2,045 0 1,039 1,005 +3 Steel  2,112 2,147 -2 1,067 1,044 +2

 Sales:

Product Name 1H2016, thousand tonnes 1H2015, thousand tonnes % 2Q2016, thousand tonnes 1Q2016, thousand tonnes % Coking coal concentrate 4,470 4,068 +10 2,249 2,221 +1 PCI 934 1,322 -29 413 521 -21 Anthracites 908 1,109 -18 488 420 +16 Steam coal 3,575 3,039 +18 1,863 1,713 +9 Iron ore concentrate 1,342 1,317 +2 658 684 -4 Coke 1,446 1,484 -3 741 705 +5 Ferrosilicon 40 39 +2 18 21 -14 Flat products 253 237 +7 126 128 -2 Long products 1,504 1,367 +10 770 734 +5 Billets 107 112 -4 40 67 -41 Hardware 331 340 -3 173 159 +9 Electric power generation (thousand kWh) 1,714,766 2,284,107 -25 751,332 963,434 -22 Heat power generation (Gcal) 3,105,575 3,139,076 -1 964,652 2,140,923 -55

Key investment projects progress

Universal rolling mill:

Product Name 1H2016, thousand tonnes 1H2015, thousand tonnes % 2Q2016, thousand tonnes 1Q2016, thousand tonnes % Rails, beams and  shapes 213 78 +175 117 96 +21

 Elga Coal Complex:

Product Name         1H2016, thousand tonnes 1H2015, thousand tonnes % 2Q2016, thousand tonnes 1Q2016, thousand tonnes % Run-of-mine coal 2,011 1,864  +8  1,018 993  +3

 Mechel PAO’s Chief Executive Officer Oleg Korzhov commented on the 2Q2016 operational results:

“In this accounting period, the coal industry demonstrated stable demand on both global and domestic markets, with a growth registered in both quarter benchmarks and spot prices. In 2Q2016, China remained the market’s chief driver, and showed an increased demand for coal in the second quarter due to the decrease of local production. This year, Chinese authorities announced plans to close down unprofitable facilities which produce a total of up to 250 million tonnes a year. According to analysts, about a third of this volume has already left the market. Accordingly, imports took the place of these unprofitable producers, especially as far as coking coal was concerned.

“Mechel put this market situation to good use. We increased overall mining by 4% and redirected some of our chief product — coking coal concentrate — to China, increasing our sales to this country nearly by half quarter on quarter. We also made several coking coal shipments to India and Vietnam, which are new markets for us.

“PCI sales went down by 21% largely due to our running out of stock, which was entirely sold to Asia in the previous quarter due to the price dynamics we found comfortable for us. Today we consider PCI sales to South Korea as per our long-term contracts as a priority.

“The 16-percent increase in anthracite sales was due to a favorable price situation in Europe (Germany, the Netherlands and Belgium). Besides that, the seasonal increase of agglomerate production at Chelyabinsk Metallurgical Plant had its impact on the increase of demand for anthracite in the facility’s agglomeration process.

“Steam coal sales went up by 9% due to an increase in shipments from Elga Coal Complex and Southern Kuzbass Coal Company’s facilities. Over 50% of steam coal in this accounting period was exported to China.

“Coke sales went up by 5% in 2Q2016 due to an increase in domestic demand. It is important to note that we have resumed shipping coke to the United States in this accounting period.

“The steel division increased production quarter-on-quarter — steel production went up by 2%, pig iron by 3%. I would like to note that we have moved forward in implementing our strategy aimed at boosting our share in the high-margin product market, which resulted in billet sales decreased by 41%. This year Mechel supplied Russian Railways with over 120,000 tonnes of rails, and we plan to bring this volume up to 220,000-250,000 tonnes by the year’s end.

“In 2Q2016, domestic sales of flat rolls saw an insignificant decrease of 2%. At the same time, in the regions where our European steel trade network Mechel Service Global is present, we see a growth in demand for this type of product and we plan to expand our client base in the future.

“The five-percent increase in long rolls sales in 2Q2016 quarter-on-quarter was due to a seasonal hike in demand for rebar and other products from construction companies. Opening new Mechel Service offices in Northern Caucasus and Volga Federal Districts had a positive impact on our sales dynamics.

“Sales of Bratsk Ferroalloy Plant’s ferrosilicon to the Group’s enterprises and third parties went down by 14% due to some shipments being put off until the third quarter, while ferrosilicon production maintained the same level.

“The nine-percent increase in hardware sales in 2Q2016 was due to Beloretsk Metallurgical Plant’s efficient work with its clients and an increase in sales of wire ropes for energy, mining and oil industries, partly replacing import goods, as well as an expansion of our market through shipments to other CIS states.

“Our power division in the second quarter decreased electricity generation by 22% quarter-on-quarter. This decrease is due to planned repairs and equipment reconstruction at Southern Kuzbass Power Plant. The 55-percent decrease in heat generation is due to seasonal factors as the heating period drew to a close.”