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Mechel reports 9Q21 operational results

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World Coal,

Mechel PAO, one of the leading Russian mining and metals companies, has announced its 9M21 and 3Q21 operational results.

Mechel’s CEO, Oleg Korzhov, commented: “This year’s third quarter will be written into the history of international commodity markets as anomalous, as it saw a price rally both unprecedented in scale and unexpected for industry players. For example, the price of premium coking coal FOB Australia more than doubled in this quarter and firmly reached US$400/t. The price for premium coking coal CFR China set a new record in the last week of September, jumping yet another psychological barrier of US$600/t. Just as we have foreseen in our 2Q21 report, the signs of price adjustment began appearing only in 4Q21, after Chinese authorities took practical measures slashing steel production. Mechel’s coal assets finished this reporting period with mining results generally equal to the previous quarter. Considering the mining equipment renovation programme which we allocated RUB 3.3 billion to this year, we continue with our gradual restoration of our key operational results. The 35% y/y decrease in coal production was due to decreased contractor mining at Neryungrinsky and Krasnogorsky opencast as well as face transfers at V.I. Lenina and Sibirginskaya underground mines.

“Coking coal concentrate sales went down 30% in 3Q21 as mining decreased at Neryungrinsky Open Pit due to difficult geological conditions at stoping areas, as well as the fact that in 2Q21 sales involved accumulated coal stockpiles of which there were practically none left by 3Q21. The same factors were at play for the overall sales of thermal coal, which declined by 10% in 3Q21. PCI and anthracite sales remained on the previous reporting period’s level.

“Iron ore concentrate sales went down 12% due to repairs at Korshunov Mining Plant’s washing plant. The facility has accumulated major ore stockpiles which will be processed into saleable product in the next reporting periods. In 3Q21, the plant shipped 16 000 t of iron ore concentrate to third-party buyers, which is a 108% increase q/q.

“Coke sales in 3Q21 went down 8% due to stockpiles having been sold off in the previous quarter. Besides, shipment of one of the contract shiploads was put off until 4Q21. However, trends in the coke market remain favourable.

“Pig iron and steel output remained largely at the previous quarter’s level.

“This reporting period saw a downward trend for average market prices for rolled steel as demand from the construction industry, steelwork producers, metalworking factories and machine-builders slumped. We think this logically followed the spike in demand for steel products seen in 2Q21, when consumers formed reserves sufficient for their needs.

“Another factor negatively impacting our 3Q21 sales was the introduction of new export tariffs. In 2021, before the introduction of these tariffs, exports accounted for over 30% of sales of our Group’s Russian-based facilities, but as the new tariffs hit, this share fell by nearly 10% and returned to the average level of the last few years. By our preliminary estimates, the temporary tariffs will cost our company about RUB 1.1 billion, which is roughly equivalent to 1% of our steel division’s revenue.

“On a positive note regarding 9M21 results, I would like to emphasise the increased share of high-margin products y/y. Sales of Chelyabinsk Metallurgical Plant’s universal rolling mill’s sections went up 26%, with sales of a most popular and profitable type of output – H- and I-beams – up by 21%, hot-rolled thin flats up by 37%, Izhstal’s high-precision sections up by 73%, Urals Stampings Plant’s stampings up by 59% and high-margin types of Beloretsk Metallurgical Plant’s hardware up by 12%.

“Ferrosilicon sales went down 11% q/q due to planned repairs at Bratsk Ferroalloy Plant’s furnaces. Most of the plant’s ferrosilicon goes to export.

“The 3Q21 31% decrease in electricity generation q/q was due to planned repairs of our technological equipment. The decrease in heat generation is seasonal.”

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