Nlmk Corporate Presentation 02.02.2011
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NLMK TROIKA DIALOG CONFERENCE THE RUSSIA FORUM 2011 Moscow, 3 February 2011
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Transcript of Nlmk Corporate Presentation 02.02.2011
NLMK
TROIKA DIALOG CONFERENCE THE RUSSIA FORUM 2011
Moscow, 3 February 2011
Disclaimer
This document is confidential and has been prepared by NLMK (the “Company”) solely for use at the investor presentation of the Company and may not be reproduced, retransmitted or further distributed to any other person or published, in whole or in part, for any other purpose.
This document does not constitute or form part of any advertisement of securities, any offer or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for, any shares in the Company or Global Depositary Shares (GDSs), nor shall it or any part of it nor the fact of its presentation or distribution form the basis of, or be relied on in connection with, any contract or investment decision.
No reliance may be placed for any purpose whatsoever on the information contained in this document or on assumptions made as to its completeness. No representation or warranty, express or implied, is given by the Company, its subsidiaries or any of their respective advisers, officers, employees or agents, as to the accuracy of the information or opinions or for any loss howsoever arising, directly or indirectly, from any use of this presentation or its contents.
The distribution of this document in other jurisdictions may be restricted by law and any person into whose possession this document comes should inform themselves about, and observe, any such restrictions.
This document may include forward-looking statements. These forward-looking statements include matters that are not historical facts or statements regarding the Company’s intentions, beliefs or current expectations concerning, among other things, the Company’s results of operations, financial condition, liquidity, prospects, growth, strategies, and the industry in which the Company operates. By their nature, forwarding-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The Company cautions you that forward-looking statements are not guarantees of future performance and that the Company’s actual results of operations, financial condition and liquidity and the development of the industry in which the Company operates may differ materially from those made in or suggested by the forward-looking statements contained in this document. In addition, even if the Company’s results of operations, financial condition and liquidity and the development of the industry in which the Company operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in future periods. The Company does not undertake any obligation to review or confirm analysts’ expectations or estimates or to update any forward-looking statements to reflect events that occur or circumstances that arise after the date of this presentation.
By attending this presentation you agree to be bound by the foregoing terms.
2
3
1. Company overview
2. Market trends and performance
3. Sustainable growth strategy
4. Outlook
5. Appendixes
MMK
NLMK
EVRAZ
Severstal
Usiminas
Baoshan
Arcelor Thyssen
US Steel
Nucor
Nippon
POSCO
-15%
-10%
-5%
0%
5%
10%
15%
0% 5% 10% 15% 20% 25% 30% 35%
NLMK: Business profile Profitability leadership maintained
Source: Companies‘ reports, NLMK estimates
Balanced portfolio of assets
Favorable geographic locations
Efficient vertical integration
Diversified sales and products mix
Experienced management team
EBITDA per tonne, NLMK vs Russian peers
USD
Source: Companies‘ data, Bloomberg
Circle size corresponds to sales revenue. ROE calculated as profit from operations after income tax/Shareholder equity
ROE
EBITDA margin
4
EBITDA margin vs ROE, H1 2010
35 70
117
268
183
243
302
375
84 102
168 180
166
269 234
-200
-100
0
100
200
300
400
500
2001 2002 2003 2004 2005 2006 2007 2008 Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Peers range NLMK Russian peer group av.
NLMK: balanced and favorably located assets Russian production platform enhanced with international assets
Crude steel production Steel products sales
NLMK Group* 10.6 m t 10.6 m t
* 2009 production includes Lipetsk production site, Long steel division, VIZ-Stal, DanSteel and NLMK Indiana
** CY2009 production results
Moscow
Novolipetsk Steel: 8.4 m t Slabs: 3.6 m t Flats: 4.3 m t
VIZ-Stal Transformer steel: 0.1 m t
Altai-koks Coke: 3.0 m t
Dan Steel Thick plate: 0.2 m t
Belgium
France
Italy
Stoilensky Iron ore concentrate: 13.9 m t
Carsid Slabs
La Louviere HRC, CRC, Long product
Clabecq Thin plates
Denmark
Verona Steel Heavy plate, Forged ingots
Coating (Beautor, Sorral) CRC, EG, HDG, Pre-painted
Sharon Coating HDG
Farrell HRC, CRC
NLMK Indiana HRC: 0.37 m t**
RUSSIA
Czech Rep.
USA
NLMK Long products Steel : 1.7 m t Longs: 1.5 m t
- NLMK Group production and trading assets
- NLMK - Duferco JV facilities - NLMK - Duferco JV service
centres
- Assets under construction
5
Zhernovskoe (under construction) Coking coal deposit
Kaluga mini-mill (under construction) Projected capacity Steel: 1.5 m t Longs: 1.55 m t
Usinskoe-3 Coking coal deposit
Efficient vertical integration Ensures cost advantage in raw materials supply
NLMK self-sufficiency
Iron ore: 100% for 190 years
Coke: over 100% with modern facilities
Scrap: becoming the largest collector in Russia
Energy: 40% to 56% self-sufficiency investment on-
stream
Coal: target to get at least 90% self-sufficiency
100% >100%
80%
>40%
50%
Iron ore Coke Scrap Energy Logistics support
6
417
330
-63 -22 -1 -1
200
250
300
350
400
450
500
Non-consolidated Lipetsk site
Consolidated NLMK Group
Vertical integration cash cost reduction effect, Q3 2010
USD/t
Iron ore
Coke Scrap
Other raw materials
Production costs Constantly one of the best
Q2 2010 cost position
o Coking coal dynamics impacted on slab cost increase
to $325/t (+13.6% q-o-q)
o Billet cost remained largely flat (q-o-q)
Q3 2010 cost position
o Strict cost control allowed to maintain nearly flat slab
cost (+1,5% q-o-q)
o Billet production cost followed scrap price increase
Q2 2010 cash cost per tonne of slab
Total $330/t
100
150
200
250
300
350
400
450
500
550
Source: World Steel Dynamics, NLMK estimates
Average steel cash cost by region
USD/tonne
7
115
33 37
28
24
14
30
49
Coal and coke
Iron ore
Scrap
Other materials
Electric energy
Natural gas
Labour
Othe expenses
35%
10%
11%
9%
7%
4%
9%
15%
330 325
286
408 386 395
226 213 165
18 18 18
0
100
200
300
400
500
600
Q3 2010 Q2 2010 Q1 2010
USD /t
Slabs Billets Coke Iron ore concentrate
2010 cash cost evolution
8
1. Company overview
2. Market trends and performance
3. Sustainable growth strategy
4. Outlook
5. Appendixes
Diversified sales and product mix Timely response to improved market environment
Q3’10: Diversified sales structure Wide product mix with strong value-added share
Flexible export/domestic markets balance
Dynamic export market strategy
Slabs sales benefit from Duferco JV demand Value
added products supported Russian sales
Transformer steel sales recovering
2008-2010 sales by region (tonnes)
9
Q3 ‘10: Increasing sales of long products
Q2 2010 2,912 million tonnes
5%
30%
22%
11%
5%
3%
2% 2%
13%
Pig iron
Slabs and billets
Hot rolled
Cold rolled
Galvanised
Pre-painted
Transformer steel
Dynamo steel
Long products and metalware
0%
20%
40%
60%
80%
100%
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Russia EU countries Middle East
North America Asia and Pacific Other
Export market
Local market
-16%
1%
0%
3%
6%
9%
14%
16%
54% Long products
Dynamo steel
Transformer steel
Metallware
Galvanised steel
Pre-painted steel
HRC inc. thick plates
Pig iron, slabs and billets
CRC
Q3 2010 3,021 million tonnes
Market diversification ensures higher sales
Group can gain from low markets as a low cost
producer
Slab sales partially hedged by Duferco JV and
DanSteel
Able to change output and markets
* Source: WSA working papers 10
300
350
400
450
500
550
600
2009steelcashcost
Ironore
Coal Other Q2 '10cost
Oreandcoal
Q3 '10cost
Oreandcoal(Q4)
Q4 '10cost 2
Oreandcoal
Q1'11Cost
Steel prices are supported by costs of raw materials…
* Source: WSD, SBB, Company estimates
Av. HRC price in 2009
… but capped by low utilization rates
55%
65%
75%
85%
95%
NLMK in the global market environment Resilience to challenging market through the last 10 years
Steel outlook
Apparent steel use per capita
China’s continuous growth is a support factor
Low inventories reflecting concerns over price volatility
Steel demand is growing driven by developing nations
Raw materials play today much more important role
11
Global steel demand
1199 1125
1272 1340
1431 1496
0
200
400
600
800
1000
1200
1400
1600
2008 2009 2010 2011 2012 2013
Source: World Steel Association working group; research agencies.
0
100
200
300
400
500
600
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
World Europian Union RussiaUnited States China
473 581 616 663
0
200
400
600
800
1st quadrant 2nd quadrant 3rd quadrant 4th quadrant
World HRC cost curve, 2010
65% 35%
35% 65%
0%
50%
100%
2003 2010Other costs Raw materials
Million t
Kg/capita
USD
Debt maturities pay-off as of the end of Q3 2010
Financial highlights Exceptional performance and confident outlook
Robust performance in Q3 2010
o Revenue USD2.232 billion, +4% q-o-q
o EBITDA USD695 million, -10% q-o-q
o EBITDA margin 31%
Strong financial position
o USD1.148 billion of net debt
o Cash and ST investments of USD1.51 billion
Highest credit ratings among Russian peers
12
Short term debt payment*
**
$ million
0
300
600
900
2010 2011 2012 2013 and onward
PXF Bonds ECA EBRD Others
0.59
0.14
0.15
0.14
0.16
0
0.2
0.4
0.6
Q4
10
Q1
11
Q2
11
Q3
11
Q4
10
-Q
3 1
1
$ bn
13
1. Company overview
2. Market trends and performance
3. Sustainable growth strategy
4. Outlook
5. Appendixes
Sustainable growth strategy A leading producer in Russia in terms of organic development
Strategic goals o Expanding low cost steel production platform
o Improving quality and product mix
o Developing upstream assets
Main capex projects for 2010 o BF#7 (70% completed) and new steelmaking
o Color-coating line to be finished in 2010
o EAF mini-mill of 1.5 million t in 2012
Main objectives 2012-2014 o Crude steel +5.0 million tpa to 17.5 million tpa
o Flats +0.5 million tpa to 7 million tpa
o Longs +1.5 million tpa to 4 million tpa
o Pelletizing plant
o 50% of gas and 20% of coke use decrease
o Launch of high grade transformer steel production
* From 2000 to 2009, Lipetsk production site. US GAAP financials data ** Reinvestment ratio = Capex/depreciation
Crude steel capacity growth in 2010-2012 – 40%
0.17 0.14 0.15 0.24 0.27
0.58 0.62
0.96
1.93
1.12
1.60
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
0.00
0.50
1.00
1.50
2.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E
NLMK Capex (lhs) Reinvestment rate (rhs)
CAPEX* vs reinvestment rate **
USD, billion
14
12.5 12.5 12.5
3.4 3.4
1.5
0
4
8
12
16
2010 2011 2012
Existing BF#7 EAF (Kaluga)
m tpa BF: 3.4 m tpa Since mid-2011
EAF: 1.5 m tpa Since 2012
M&A approach Pursuing strategic objectives through prudent M&A approach
Downstream vertical integration
o Securing slab processing
o Improving earnings quality
o Technology transfer
o Market expansion
Niche market share gains
o Commercial synergies due to market share expansion
o Optimization of the product mix and logistics
o Cost savings on R&D
Upstream expansion
o Ensuring secure raw materials supply
o Value-creation as a primary goal
* Preliminary data (annualized)
Iron ore price vs cash cost*
0
25
50
75
100
2003 2004 2005 2006 2007 2008 2009 2010E
Spread
USD/t
Coal price vs cash cost (Russia)*
0
25
50
75
100
125
150
175
200
2003 2004 2005 2006 2007 2008 2009 2010E
Spread
USD/t
15
JV rationale o Increase presence in the key company markets
o Diversify product and market portfolio
Operating and financial performance o Break-even in 2010 with further improvement in 2011
o Sales in 2009 – 2.8 mln t, 2010 budget – 3.8 mln t
Future strategy o Growth of rolled products output and quality
improvement
Duferco JV … A solid part of downstream integration strategy
24%
5%
23% 3%
15%
15%
15%
HR steel
Semifineshed
Coated steel
Longs
Plate
Pickled steel
CR steel
3.8 mln t
16
Slab supply flows to JV
Sales by product (2010F)
Project: BF Production
Установка «печь-ковш»
BLAST FURNACE
o Location: Lipetsk
o Status: over 80% complete
o Capacity: 3.4 m t pa
PCI TECHNOLOGY INTEGRATION*
o Launch date: Q4 2011 – Q1 2012
o Total investments: about $200 m
o Coke consumption reduced by 20%
o Gas consumption reduced by 70%
Iron production capacity (Lipetsk)
9.4
* Pulverized coal injection
17
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2010 2012
BF #7 launch in mid-2011
12.4
Project: Steelmaking
Ladle Furnace
LADLE FURNACES and VACUUM DEGASSER
o Location and installation date: Lipetsk site, 2010-11
o Improved quality
o New grades of steel, incl. for machinery and automotive
GAS EXHAUST DUCTS
o Lipetsk site, 2010
o Reduced environmental impact
o Higher equipment reliability
o Use of waste gas for power generation
Gas Exhaust Ducts
18
Project: Rolling Capacities
Установка «печь-ковш»
EXPANSION OF HRC PRODUCTION
o Location: Lipetsk
o Capacity growth: +400,000 tonnes by 2014
EXPANSION OF PLATE PRODUCTION
o Location: DanSteel (Denmark)
o Capacity growth: +70,000 tonnes
NEW COLD-ROLLING MILL
o Location: Lipetsk
o Capacity growth: +350,000 tonnes
NEW COLOUR-COATING LINE
o Location: Lipetsk
o Capacity growth: +200,000 tonnes
Flat steel for the Russian market
8% 14% 12%
55%
40%
0%
10%
20%
30%
40%
50%
60%
HRC Thick plates CRC Pre-painted Galvanized
Completed
19
0
50
100
150
200
250
300
350
400
2010 2011 2012-14
Transformer steel upgrade
Project: High Grade Transformer Steel
PRODUCTION UPGRADES AT NOVOLIPETSK
o Status: 80% complete
o 60,000 t pa of high-permeability transformer steel
o Total investments: above $300 m
o Improved quality and stronger market positions
PRODUCTION UPGRADES AT VIZ-STAL
o Improved quality of products
o In the long term: considering launching high-permeability transformer steel production
High-permeability transformer steel production
20
Possible further expansion of high-permeability transformer steel production
‘000 tonnes
340
60
0.0
1.0
2.0
3.0
4.0
2010 2012-13
Project: Long Products
KALUGA MINI-MILL (EAF)
o Location: Kaluga region (80 km from Moscow)
o Capacity: 1.55 m t pa
o Total investments: c. $1.2 bn
o Extended output of construction steel
NEW ROLLING MILL IN BEREZOVSKY
o Completed
o Capacity: 1 m t pa
o Total investments: c. $140 m
o Improved market positions
Steel and Finished product capacity
100% finished products 80%
finished products
3.8
21
m t
2.2
Project: Iron Ore Production
OPEN PIT EXPANSION
o Location: Stoilensky (Stary Oskol)
o +30% growth in iron ore raw extraction
o Goal: maintain 100% self-sufficiency in low cost iron ore
BENEFICIATION PLANT, 4th SECTION
o Location: Stoilensky (Stary Oskol)
o Capacity: +4 m t pa (since 2006)
o Goal: maintain 100% self-sufficiency in low cost iron ore concentrate
PELLETIZING PLANT (to be approved)
o Location: Stoilensky (Stary Oskol)
o Capacity: 6 m t pa
o Goal: increase self-sufficiency in pellets from 0% up to 100%
o Status: the project awaits approval from the BoD
Iron ore concentrate production capacity
22
11.0
12.0
13.0
14.0
15.0
2010 Mid - 2011
m t
+ 2 m t
23
1. Company overview
2. Market trends and performance
3. Sustainable growth strategy
4. Outlook
5. Appendixes
Outlook
24
Q4 10 Outlook
o Crude steel production and steel products sales to reach 3 m t
o Average sales prices to reflect seasonality trends
o Production cost to increase due to the seasonal restocking of scrap inventories and growing prices for coking coal
o EBITDA margin will be in the range of 20-25%
Market trends
o In Q4 the prices reached the bottom and in the second half of the quarter we see the upward trend in prices on the
back of growing prices for the raw materials
o …these factors may support steel prices In the end of Q4 2010 and early Q1 2011
25
1. Company overview
2. Market trends and performance
3. Sustainable growth strategy
4. Outlook
5. Appendixes
0
100
200
300
400
500
600
700
800
Below break even area
Sales trends Domestic market recovered
Sales to the domestic market recovering
o Q3 ‘10: Domestic sales of 35% (+3.p.p. q-o-q)
Sales growth to developed markets
o 22% and 17% of overall sales goes to Europe and USA
o About ½ of slabs in 9M2010 sold to NLMK - Duferco JV
Drivers of further growth
o High raw materials costs globally drives the
competitiveness of our sales
o Synergies with subsidiaries and JV facilities
Trends to be monitored
o Traders activity on restocking cycle
o Developing countries‘ economic trends
o Developed countries steel inventories
o Cash cost in Russia and China
o Capacity utilization of the marginal producers
HRC price cycle: China FOB vs Russia export FOB
Source: SBB, Bloomberg, CRU
0%
10%
20%
30%
40%
50%
60%
70%
Decrease No change Increase
N.America Europe Asia & M.East
Steel price expectations, November 2010 (TSI - SBB)
26 Source: The Steel Index (TSI), owned by Steel Business Briefing (SBB)
China FOB
Russia FOB
-7000
-6000
-5000
-4000
-3000
-2000
-1000
0
1000
2000
3000
Jan
-08
Mar
-08
May
-09
Ju
l-0
8
Sep
-09
No
v-0
8
Jan
-09
Mar
-09
May
-09
Ju
l-0
9
Sep
-09
No
v-0
9
Jan
-10
Mar
-10
May
-10
Jul-
10
Sep
-10
No
v-1
0
Global market environment: China
* Source: CRU, Morgan Stanley, NLMK estimates
27
Steel production and exports in China are capped by
o High cost of production
o Government successful efforts to restructure steel industry
• Banning construction/expansion of steel capacities
• Closure of small inefficient capacities (c.100 m tpa of capacities to be shut down in 2010-11)
• Further consolidation of industry
Steel demand in China still remains high
o 9M ‘10 FAI up 24.5% y-o-y
o ASU (Sept’ 10) was – 8.7% y-o-y (to 605 m t ann’d)
-20%
0%
20%
40%
60%
80%
100%
0
100
200
300
400
500
600
Crude steel production Finished steel consumption Steel FAI (r.h.)
million t %, y-o-y
China: steel production vs FAI in steel sector
August 2009 utilization rate was over 90%
* Source: CRU, Morgan Stanley, MacQuarie, WSA
Net imports from China
,000 t
250
400
550
700
850
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
Jan
-08
Feb
-08
Mar
-08
Ap
r-0
8M
ay-0
8Ju
n-0
8Ju
l-0
8A
ug-
08
Sep
-08
Oct
-08
No
v-0
8D
ec-0
8Ja
n-0
9Fe
b-0
9M
ar-0
9A
pr-
09
May
-09
Jun
-09
Jul-
09
Au
g-0
9Se
p-0
9O
ct-0
9N
ov-
09
Dec
-09
Jan
-10
Feb
-10
Mar
-10
Ap
r-1
0M
ay-1
0Ju
n-1
0Ju
l-1
0A
ug-
10
Sep
-10
Oct
-10
No
v-1
0D
ec-1
0
Steel inventory at traders (5 provinces) lhs HRC price China export FOB (rhs)
USD/t ,000 t
STEEL STOCK
Steel inventories in China
* Source: Bloomberg, SBB
2008 -41 m
YTD11% growth
1.5 mths of consumption
Growth in net exports short-lived due to orders execution delay and VAT rebates removal since July 15
Global market environment: Europe Inventory low
o Lean inventory management to cap substantial inventory rebuilding
o ...current European stock level is well below historical average
Demand mixed
o Prices are about to increase driven by the restocking of inventories globally
o … however stockholders in Europe require more evidence of strong end-user demand
o Improved demand in Northern Europe driven by auto and capital goods producers
o Flat steel sales supported by manufacturing sector
o EU construction in 6M ‘10 decreased -6%
o EU industry in 6M ‘10 grew +17%
Supply challenged
o Low supply discipline may put pressure on prices
o Limited arbitrage for Asian material deliveries
o Steelmakers are yet to adapt to new raw materials pricing mechanisms
Source: IISI, World Bank, IMF, Company estimates, etc. The change is YoY for all Indicators (except Libor rate).
Source: Worldsteel, Eurometal 28
Europe steel stock and production
200
300
400
500
600
700
800
Slab, import EU, CFR HRC, EU domestic market (GB exc.), EXW
USD$/t
EU: HRC and slab price dynamics
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
Jan
-06
Ap
r-0
6
Jul-
06
Oct
-06
Jan
-07
Ap
r-0
7
Jul-
07
Oct
-07
Jan
-08
Ap
r-0
8
Jul-
08
Oct
-08
Jan
-09
Ap
r-0
9
Jul-
09
Oct
-09
Jan
-10
Ap
r-1
0
Jul-
10
Oct
-10
production, l.h. stock, r.h.
‘000 tonnes STEEL STOCK - DAYS
STEEL PRODUCTION
2006 average stock
Source: Metal Bulletin, Metal-Courier
Global market environment: USA
Stocks: restocking is almost complete
o Stock levels are growing but still below historical
average
Supply balancing
o July ‘10 utilization rate grew to 75% (up from 44% in
H1 ’09) with the decline in the first week of October to
69.7%
o Market relatively “shielded” from imports
Demand struggling
o Demand still remains cautious and the recent prices
increases face hurdles from clients
o Long steel demand lags behind the flat supported by
auto sector
Source: IISI, World Bank, IMF, Company estimates, etc. The change is YoY for all Indicators (except Libor rate).
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Jan
-06
Mar
-06
May
-06
Jul-
06
Sep
-06
No
v-0
6Ja
n-0
7M
ar-0
7M
ay-0
7Ju
l-0
7Se
p-0
7N
ov-
07
Jan
-08
Mar
-08
May
-08
Jul-
08
Sep
-08
No
v-0
8Ja
n-0
9M
ar-0
9M
ay-0
9Ju
l-0
9Se
p-0
9N
ov-
09
Jan
-10
Mar
-10
May
-10
Jul-
10
Sep
-10
No
v-1
0
steel stock output* Source: MCSI, WSA
US steel stock and production
‘000 tonnes
STEEL STOCK
Steel production
2.6 mths of supply
Stocks +30% y-o-y
200
300
400
500
600
700
800
Slabs, import USA, CFR GOM HRC, USA domestic market, EXW
Source: CRU , Metal-Courier
USD$/t
USA: HRC and slab price dynamics
20.0
25.0
30.0
35.0
40.0
45.0
50.0
55.0
Manufacturing PMI
Russian economy Stabilization continues
Inflation remains low
o Annualized 2010 inflation is expected to be c7%*
Interest rates are stable
o RR unchanged at 7.75% (-4.7 p.p. lower y-o-y)
o Growth in mortgage loans up to R166bn in 7M’10
(x2.5 to y-o-y)
o Actual mortgage market recovery (mortgage loans
increase up to R166.3bn in 7M’10, x2.5 to 7M’09;
120-140% y-o-y growth is expected)
Real disposable income
o In H1’10 +5,1% y-o-y
* - source: Research reports, Company estimates
Russia: PMI, monthly
Driven by, mainly, domestic demand
8000
10000
12000
14000
16000
18000
20000
0
10
20
30
40
50
60
Q1 08Q2 08Q3 08Q4 08Q1 09Q2 09Q3 09Q4 09Q1 10Q2 10Q3 10
M2 (money agregate), RUR bln r.h. Net export, USD bln
Trade balance vs M2
Source: Bloomberg, Goskomstat
30
0%
20%
40%
60%
80%
100%
120%
Jan
-05
May
-05
Sep
-05
Jan
-06
May
-06
Sep
-06
Jan
-07
May
-07
Sep
-07
Jan
-08
May
-08
Sep
-08
Jan
-09
May
-09
Sep
-09
Jan
-10
May
-10
Jan
- 0
9
May
- 0
9
Sep
- 0
9
Domestic steel sector
Domestic steel consumption bounces back
o YTD2009 ASU is 31% higher y-o-y
Low cost position benefits exports
o Russian steelmakers benefit from vertically integrated
model and high efficiency
Source: Metal Expert, Bloomberg, Company estimates
Russia: Apparent steel use (ASU)
0
20
40
60
80
100
120
140
160
0
1
1
2
2
3
3
4
4
Jan
-08
Mar
-08
May
-08
Jul-
08
Sep
-08
No
v-0
8
Jan
-09
Mar
-09
May
-09
Jul-
09
Sep
-09
No
v-0
9
Jan
-10
Mar
-10
May
-10
Jul-
10
Sep
-10
ASU, monthly Oil price
million t USD/br YTD steel consumption +30% y-o-y
200
300
400
500
600
700
800
Slab FOB Black/ Baltic Sea HRC FOB Black/ Baltic Sea
USD$/t
CIS: HRC and slab price dynamics
Source: Metal Bulletin 31
Russia: Steel capacities utilization rate
Jan
- 0
5
May
- 0
5
Sep
- 0
5
Jan
- 0
6
May
- 0
6
Sep
- 0
6
Jan
- 0
7
Jan
- 0
8
May
- 0
8
Sep
- 0
8
May
- 0
7
Sep
- 0
7
Jan
- 1
0
May
- 1
0
7 8 9 10 10 11 12 11 13
16 17
28
8
16
24 27 26
31 33 32
36 39
42
6%
8%
10%
12%
14%
16%
0
10
20
30
40
50
Mortgage loans, in RUR bn (RHS)Weighted average morgage rate in RUR (LHS)Unemployment rate(LHS)
32
Construction sector dynamics
Source: Goskomstat
0
50
100
150
200
250
300
350
400
0
1
2
3
4
Cement production, Jan '09 = 1 (LHS)
Value of construction starts, in RUR m (RHS)
2-3 mths delay in orders
RUR m Jan’09 = 1
~22 m2 per capita vs. ~39 m2 in EU
66% 63%
85% 92%
74% 77%
97%
42.8%
85%
65%
83%
35% 37%
15% 8%
26% 23%
3%
57.2%
15%
35%
17%
0%
20%
40%
60%
80%
100%
2Q2008
3Q2008
4Q2008
1Q2009
2Q2009
3Q2009
4Q2009
1Q2010
2Q2010
3Q2010
4Q2010
Investments in existing objects Investments in objects under construction
Sources: Russian economy and investment market survey IIQ 2010
Real estate investment structure
Mortgage loans dynamics
Sources: Bank of Russia, Rosstat, Agency for Housing Mortgage Lending
Construction sector recovery in 2010 o Growth in real estate investments in 2010 (+52% y-o-y )
Strong upward trend in construction sector’s steel consumption
o Steel consumption in 9M’10 (+37% y-o-y), with +56% y-o-y in flat steel
Factors contributing to demand growth o Growth in m2 +6.8% YTD
o Russia is a Europe leader in sales premises set in operation – 697 thd m2 in 9M’10, 3.6 mln m2 more is expected to be set in operation till 2012
RUR bn
Domestic market: Construction Steady revival in the most important segment
0
75
150
225
300
375
Key risks
o Growing prices to increase overall cash cost
Risks mitigated by
o Diversified supplier base
o Integration into coke operations
o Option to develop own coal deposit
o Diversified business model (EAF)
Russian coal market
o Russian market is lower priced vs seaborne
o Further expansion on stream
Future strategy
o Supplier base diversification
o Development of green-field projects to cover up to 70-90% needs
o Looking for opportunities of integration into efficient coal production
o PCI technology installation to reduce by 30% coke consumption per 1 tonne of steel
o Import high grade coking coal to improve coke quality
Coal supplies … risk mitigation
33
Coal price vs EBITDA per tonne
Cash cost sensitivity to coal price dynamics
Q2 2010 cash cost
10% Coal price increase
100% Coal price increase
50% Coal price increase
At $125/t for c/coal
$/t
-
100
200
300
400
500
600
700
800
2003 2004 2005 2006 2007 2008 2009 H12010
Spread HRC FOB BS - coal exw Coal prices EBITDA per tonne
$/t
0
100
200
300
400
500
600
700
1980 1985 1990 1995 2000 2006 2010E 2015E 2020E 2025E 2030E
Transformer steel market o Dominated by 6 large producers
o High entry barriers due to advanced technology and
“know how” required
o Stable pricing and growing demand
NLMK’s position o NLMK holds ~15% of the global supply
o 2 mills: Lipetsk and VIZ (Urals) with 160,000 and
190,000 tpa capacity respectively
o Exports represent 80%
o Over 200 of domestic customers
o Over 20% of consolidated EBITDA
Capex plans o C. $100-150 m to be invested within 5 years
o Development of high permeability transformer steel
Market outlook
o Prices to remain stable
o Electricity generation growth driven by China, India
and Russia
Transformer steel Sustainable performance in the high margin high end sector
Source: Company historicals, estimates,
0
50
100
150
200
250
300
350
400
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E
2010EVIZ stal mill transformer steel sales Lipetsk mill transformer steel sales
Transformer steel prices, l.h.
USD/t
Transformer steel sales vs prices
‘000 tonnes
World Marketed Energy Consumption
Qdrl btu
source: EIA, World Energy Projections Plus
+33% in global energy demand by 2030
34
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