MMK operational trading update for Q4 and 12 months 2010

MMK Group operational highlights

^{* - incl. products made from MMK steel}

• Crude steel output in 2010 amounted to 11,419 th. tonnes which is 19% higher y-on-y.
• MMK finished steel products output in 2010 amounted to 10,245 th. tonnes, and increased by 17% y-on-y.
• MMK-Metiz finished steel products output in 2010 amounted to 450 th. tonnes and increased by 46% y-on-y.
• The share of higher value-added products (HVA) in MMK Group finished steel output in 2010 grew to 38.2% (compared to 31.2% in 2009), in Q4 2010 it reached the maximum historical level of 42.3%.
• Coking coal concentrate output rose by 20% in 2010 y-on-y to 2,960 th. tonnes.
• Production of iron ore for own needs in 2010 amounted to 4,680 th. tonnes which is 17.5% higher y-on-y.

MMK first vice-president for strategy and metallurgy Rafkat Takhautdinov said: “MMK has retained the leading position in Russia in terms of rolled steel output. In 2010 MMK share in the domestic rolled steel production amounted to 17%. The overall growth of MMK finished steel output in 2010 amounted to 17% compared to 2009, while domestic sales growth amounted to 44% exceeding the consumption growth rate in Russia. This was to a large extent possible due to our focus on new highly marginal product types to meet the demand of the domestic market, including import replacement. We are optimistic about the growth of steel consumption in Russia in 2011 and plan to increase our production volumes in Russia to 12 mln tonnes this year”.  

Steel segment

MMK

^{*- including shipments to CIS}

• Finished steel products output in 2010 rose by 17% y-on-y and amounted to 10,245 th. tonnes. The growth was driven by recovery of the global and Russian economy, as well as mastering of new product types at MMK.
• Steel products output volumes grew by 1,481 th. tonnes y-on-y, of which 1,047 th. tonnes was built up by HVA products.
• HVA products output in 2010 amounted to 3,448 th. tonnes, which translates into 44% growth y-on-y.
• Q4 2010 finished products output amounted to 2,508 th. tonnes, which is 6% lower than in Q3 2010. It was construction steel types which were affected by the seasonal slowdown of activity in the sector.
• Long steel output in 12 months 2010 grew y-on-y thanks to recovery of the construction industry and increased production volumes on MMK-Metiz, which uses MMK long steel to produce its hardware products.
• Hot-rolled steel products were replaced in the production portfolio by HVA products which lead to slower growth pace of the former in 2010.
• Heavy plate output at Mill 5000 amounted to 943 th. tonnes in 2010. The y-on-y growth is driven by Mill 5000 operating at full capacity, as well as Russian pipe-makers (e.g. ChTPZ) starting new LDP making facilities.
• Flat cold-rolled products and cold-rolled band output volumes in 12 months 2010 grew by 3% and 9% y-on-y respectively due to recovery of the Russian automotive industry and increase of MMK share in this market segment.
• Galvanised steel output growth in 2010 is attributable to the construction sector recovery.
• Formed section production in 2010 rose by 2.4 times y-on-y due to significant growth of demand from railroad carriage works, which implement the programme of the railroad cars fleet renewal.
• MMK continued to increase domestic sales due to growing demand from main steel consuming sectors of the Russian economy. Domestic sales in 2010 grew by 44% y-on-y (from 4,903 th. tonnes in 2009 to 7,044 th. tonnes in 2010), exceeding domestic consumption growth rate. The company managed to reach these results thanks to import replacement strategy as MMK masters unique steel products types in demand in the domestic market.
• The share of domestic shipments in Q4 2010 rose by 8% q-on-q and amounted to 77%. 
• The domestic shipments share in 2010 amounted to 69% which is 13% higher y-on-y. This is the record level for the company.
• Q4 2010 average realized price per ton of steel products amounted to $664, which is 5% higher q-on-q. The average realized price for 2010 rose by 32% y-on-y (from $474 to $627) thanks to growing demand for MMK steel products and increasing share of HVA products in the production portfolio.
• Domestic shipments growth corresponds to MMK strategy of increasing presence in the markets which offer price premium. MMK average domestic price per ton of steel products equals to $686 and exceeds the average export price, which is $497 per ton, by $189.

MMK-Metiz

• MMK-Metiz is a leading hardware producer in Russia. The company specialises in production of wires, railroad and construction fastening, calibrated steel products, cold-rolled band, bimetal steel products, welded meshes and nettings, steel ropes, electrodes for welding, etc.
• MMK-Metiz finished steel products output amounted to 450 th. tonnes in 2010 which is 46% higher y-on-y. The growth is driven by recovery of demand of major hardware consuming industries (construction, steelmaking, car-making).

MMK-Atakas

• Finished steel products output at MMK-Atakas in 2010 amounted to 156 th. tonnes. Last year saw commissioning and ramping up of major production facilities.

Mining segment

COAL

Belon

• Productions of coking coal concentrate amounted to 842 th. tonnes in Q4 2010 which is 60% higher q-on-q.  Overall productions of coking coal concentrate amounted to 2,960 th. tonnes in 2010 which is 20% higher compared to 2009.
• Production of steam coal concentrate amounted to 549 th. tonnes in Q4 2010 which is 4% higher q-on-q. 

At present Belon is one of the key suppliers of Zh-grade coals in the Russian market. The company increased its share in the Russian market in 2010 to 10% from 8% in 2009. MMK intends to complete sale of the steam coal production business at Belon within the strategy of MMK to dispose of non-core assets.

IRON ORE

• Supplies of captive iron ore from MMKsubsidiary Bakal amounted to 1,421 th. tonnes in 2010, which is 107% higher y-on-y.
• Production of iron ore at MMK base in Magnitogorsk grew to 1,491 th. tonnes which is 3.5% higher y-on-y.

According to the programme designed to expand MMK captive iron ore mining base, it is planned to increase crude ore output by 20% by 2013 thanks to continued development of the existing mines in Magnitogorsk.

MMK continues increasing production at Bakal (Sosnovsky iron ore field in particular) and expand processing of tailings. The year 2010 saw revamping of slag processing facility Amcom-1 and commissioning of Amcom-3, which will allow to boost processing of tailings in 2011. Overall annual production at the three facilities in operation will exceed 900 th. tonnes.

MMK also develops captive iron ore processing facilities. Currently a programme is being implemented which is designed to increase sintering plant capacity by 3.5% in 2011.

Developments at MMK key investment projects

Mill 5000
Mill 5000 is one of the key investment projects of MMK contributing to increase of HVA products share in MMK production portfolio and to growth of the company’s presence in the domestic market in Russia. In 2010 Mill 5000 reached full capacity and currently runs at 100% utilization rate.

Mill 2000
MMK continues construction of its new cold rolling complex (Mill 2000) in order to benefit from the growing market of high-strength steel types. The complex will use state-of-the-art technologies to produce high quality cold-rolled and galvanised steel products for inner and outer car-body parts as well as for use in white-goods production and in construction industry. Mill 2000 will produce 2 mln tons of finished steel products per year, including 700 th. tonnes of galvanised steel.

Cold rolling mill and pickling line will be commissioned in the middle of 2011, while full-cycle production at the facility will be commissioned by mid-2012. Construction and engineering works are advancing in line with the schedule and currently employ 2,200 specialists. At the moment construction of the shop is 90% complete, 90% of equipment is brought to the construction site.

MMK-Atakas
In order to strengthen the footprint in the Middle East market MMK completes construction of MMK-Atakas steel-making complex in Turkey.

February 2010 saw commissioning of the colour-coating line, April 2010 – hot-dip galvanising line. At the same time captive sea port of MMK-Atakas in Iskenderun started its operation. Construction works were completed at the cold rolling shop, scrap yard, water preparation shop and power station. In October 2010 MMK-Atakas commissioned the cold-rolling mill. It is planned that all the production facilities of MMK-Atakas complex in Iskenderun and in Istanbul be commissioned in 2011.

Outlook
MMK intends to increase crude steel and finished steel output in 2011 compared to 2010 by 14% and 17% accordingly. Such growth is driven by strong demand for MMK products from major steel consuming sectors in Russia. Overall steel consumption in Russia is expected to grow at least at 10% in 2011 y-on-y.

MMKGroup Q4 and 12 months 2010 results under IFRS will be published in April 2011.