Mechel Reports 1Q2015 Operational Results

Mechel’s Chief Executive Officer Oleg Korzhov commented on the 1Q2015 operational results:

“In 1Q2015, the Group’s enterprises yielded stable results despite market volatility and low prices on our mining division’s key products. As a whole, we maintained production at planned levels, and even improved on several counts. For example, at the Group’s key investment project, the Elga deposit, we nearly doubled coal output as compared to 4Q2014.

“In the mining division, coking coal concentrate sales went down by 14% as compared to the previous quarter due to a reduction in export sales. A large volume of coking coal concentrate was redirected to the domestic market as domestic prices were more attractive.

“At the same time, PCI sales went up by 5% due to the increased demand in Asia Pacific, primarily in China. Anthracite sales in 1Q2015 went down by 6% due to a decrease in supplies to CIS customers. Nevertheless, there is an increase in anthracite supplies to Chelyabinsk Metallurgical Plant as compared to 1Q2014, as using anthracite as fuel instead of expensive coke fines enabled the plant to significantly cut costs in producing agglomerate (iron-containing ore for pig iron production).

“Steam coal sales went down by 18% quarter-on-quarter, which is due to a weaker European demand.

“An increase in price and demand for iron ore concentrate in Asian markets in 1Q2015 stimulated the 15-percent increase in supplies to this region’s customers.

The company’s steel segment in 1Q2015 continued working on improving the division’s profitability, which was made possible due to record low prices on chief raw materials for steelmaking — coking coal and iron ore — and favorable price dynamics for ready products. Nevertheless, we expect a slump in demand from construction companies and a narrowing of Russia’s steel products market (particularly for steel bar and hardware) throughout 2015.

“The decrease of overall sales of flat and long rolls in 1Q2015 quarter-on-quarter by 1% and 6% accordingly was due to the closure of several Mechel Service Global subsidiaries in Western Europe. At the same time, Chelyabinsk Metallurgical Plant in 1Q2015 increased long rolls sales to companies partially owned by the state.

“At the universal rolling mill, new types of products are continuously mastered, with some 20 new types to be produced in 2015. In 1Q2015 the mill produced and shipped off double the volume of products as compared to the same period last year. The mill’s construction beam currently takes up more than a quarter of the domestic market. Meanwhile the rail certification procedure is in its final stage — we expect to obtain certificates in a few days, which will enable us to begin shipping our product to Russian Railways. We expect that such major infrastructure transport projects like the high-speed Moscow-Kazan railway will give a powerful impulse to the development of rail production and enable us to bring the universal rolling mill to maximum load.

“In 4Q2014 we signed a profitable contract for billet sales and have already supplied billets to Europe in 1Q2015. Thus the results for this product’s sales show a 119-percent increase quarter-on-quarter.

“In 1Q2015 we increased forgings sales by 6% due to an increased demand in Europe. We have seen a 36-percent slump in stampings sales in this accounting period due to a weaker demand from mechanical engineering companies which are cutting down on acquiring spare parts for production and repairs of rolling stock.

“The power division’s enterprises in 1Q2015 increased production of electricity and heat by 8%, which is largely due to seasonal highs in demand.”