Translated material
Magnitogorsk lived up to forecasts
Despite high steel prices, MMK finished the second quarter with a net profit of only $53 million, which is 40% lower than in the first three months, the company's revenue increased by 25%, to $2.1 billion, EBITDA -- by 17%, to $437 million with a profitability of 21%. The reason for the decline in profits, as the company notes, is “the influence of one-time factors, mainly exchange rate differences and provisions for doubtful debts,” without which the profit would have amounted to $122 million. However, experts say that Magnitogorsk’s profits were also affected by an increase in prices for iron ore (90 percent) and coal (25 percent), which the plant has to purchase, since, unlike other steel companies, it is not fully provided with its own raw materials.
“In the third quarter, MMK can show one of the strongest financial results,” says Uralsib analyst Dmitry Smolin. The company can ensure this by focusing on the domestic market (over 70% of supplies), where prices for steel products have not changed, unlike export prices, which decreased by 20-25%. According to the analyst, MMK remains one of the industry leaders in terms of production costs. “We see no reason for raw material prices to rise; they will be stable or even decline in the fourth quarter,” Oleg Fedonin, vice president of the MMK management company for finance and economics, said yesterday during a telephone conference. -- Moreover, we see the potential for lower prices for scrap and ore. Thus, we have great confidence that costs in the third quarter will remain at the level of the second quarter.”
In the fourth quarter, Magnitogorsk expects prices and demand for steel products to recover after the decline in June-August. This will be facilitated by demand from pipe and auto manufacturers, as well as machine builders. There are signs of improvement in export markets as production declines in China due to power problems and the closure of inefficient plants, the company said. By 2014, MMK plans to increase production volume by more than 60%, to 18.3 million tons as a result of the development of the Magnitogorsk site (construction of mill 2000, reconstruction of mill 2500) and the completion of the construction of the MMK-Atakas plant in Turkey.