Severstal reports Q2 & H1 2018 operational results

Severstal reports Q2 & H1 2018 operational results

Moscow, Russia - 19 July 2018 - PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world's leading vertically integrat­­ed steel and steel-related mining companies, today announces its operational results for Q2 & H1 2018.

Q2 2018 GROUP HIGHLIGHTS

• Hot metal output declined 4% in Q2 2018 to 2.26 mln tonnes (Q1 2018: 2.35 mln tonnes) compared with the previous quarter impacted by short-term maintenance works at BF#4 and BF#5, whereas crude steel production declined only 1% to 3.00 mln tonnes (Q1 2018: 3.03 mln tonnes) as a result of lower consumption of pig iron in BOFs. Meanwhile, the Company continues its efficiency programmes aimed at decreasing raw material consumption ratios in the steel production process.

• Consolidated steel product sales were broadly stable at 2.84 mln tonnes in Q2 2018 compared with the previous quarter (Q1 2018: 2.86 mln tonnes). Domestic sales increased to 64% (Q1 2018: 52%) reflecting a more attractive pricing environment driven by the commencement of the construction season in Russia.

• The share of high value-added (HVA) products within the sales portfolio increased 1 p.p. to 46% (Q1 2018: 45%) as the company increased its sales volumes of galivanised, colour coated and thick plate products. This was partially mitigated by lower large diameter pipe ("LDP") and cold-rolled product sales.

• Coking coal concentrate sales volumes from Vorkutaugol grew 19% largely driven by higher production volumes of "2ZH", "GZHO" and "Concentrate K" grades.  Meanwhile, Vorkutaugol sold-off stocks of "1ZH" grade which also contributed to Q2 2018 sales volumes growth.

• Iron ore pellet sales surged 31% and totalled 3.12 mln tonnes (Q1 2018: 2.38 mln tonnes) after the realisation of finished goods in transit in Q2, carried over from the previous quarter.

• Iron ore concentrate sales increased to 1.36 mln tonnes (Q1 2018: 1.29 mln tonnes) driven by seasonal production growth at Olcon.

H1 2018 GROUP HIGHLIGHTS

• Hot metal output increased 1% in H1 2018 to 4.61 mln tonnes (H1 2017: 4.58 mln tonnes) compared with the previous period as a result of fewer maintenance works in H1 2018 and declining idle time at BF's. Crude steel production increased 6% to 6.03 mln tonnes (H1 2017: 5.70 mln tonnes) following steel production efficiency improvement after the launch of the ladle furnace #2 in July 2017 and higher production volumes of Balakovo mini-mill.

• Consolidated steel product sales improved to 5.71 mln tonnes in H1 2018 (H1 2017: 5.28 mln tonnes). Severstal increased sales volumes of HVA products, which was partially offset by the growth in semi-finished product sales. This resulted in 2 ppts improvement of the HVA product mix to 46% (H1 2017: 44%).

• Average selling prices for the majority of steel products substantially grew c.4%-22% in H1 following global trends and sales and marketing initiatives run by Severstal.

• The improvement of H1 2018 iron ore concentrate sales y/y partially reflects the consolidation of the Yakovlevskiy mine.

SUMMARY OF KEY PRODUCTION, SALES VOLUMES

SEVERSTAL'S CONSOLIDATED SALES (NET OF INTERCOMPANY SALES)

SEVERSTAL RESOURCES

• Coking coal concentrate sales volumes from Vorkutaugol grew 19% largely driven by higher production volumes of "2ZH", "GZHO" and "Concentrate K" grades.  Meanwhile, Vorkutaugol sold-off stocks of "1ZH" grade which also contributed to Q2 2018 sales volumes growth. Internal coking coal concentrate procurement increased to 95% in Q2 2018 while the minor volumes allocated by Vorkutaugol to external sales marginally declined q/q.

• Steam coal sales at Vorkutaugol declined 14% q/q reflecting weaker demand from domestic consumers due to the end of the heating season.

• Iron ore pellet sales surged 31% and totalled 3.12 mln tonnes (Q1 2018: 2.38 mln tonnes) after the realisation of a share of finished goods in transit in Q2, carried over from the previous quarter.

• Iron ore concentrate sales increased to 1.36 mln tonnes (Q1 2018: 1.29 mln tonnes) driven by seasonal production growth at Olcon.

SEVERSTAL RUSSIAN STEEL ('RSD')

• RSD steel product sales declined to 2.86 mln tonnes compared with the previous quarter (Q1 2018: 2.87 mln tonnes). Domestic sales increased to 64% (Q1 2018: 52%) reflecting a more attractive pricing environment driven by the commencement of the construction season in Russia.
• The share of high value-added (HVA) products within the sales portfolio remained high at 46% (Q1 2018: 45%) benefitting from higher sales volumes of thick plate, colour coated and galivanised products, partially offset by lower LDP and cold rolled steel sales.
• Semi-finished product volumes decreased, reflecting declining volumes of billets, which were redirected to the production of long steel products.
• Severstal increased its sales of the HDG and colour-coated products responding to seasonally strong demand in Russia. This resulted in lower cold-rolled coil sales volumes.
• LDP sales volumes declined 28% q/q due to the accumulation of finished goods to be dispatched in Q3 2018 from the Izhora Pipe Mill. In March 2018, the Izhora Pipe Mill won a tender to supply approximately 165kt of LDPs for Gazprom projects during 2018-2019.
• Average selling prices for the majority of steel products remained high in Q2 2018 in line with global trends. The increase in semi-finished product average selling prices was a result of a higher share of slabs in the product mix and the decline in LDP average selling price was compensated by higher sales volumes of thick plate.

Q2 & H1 2018 ESG (ENVIRONMENTAL, SOCIAL, GOVERNANCE) HIGHLIGHTS

• Health and safety of our employees and contractors is crucial for all our operations. Severstal targets zero fatalities. In Q2 2018, LTIFR* decreased 47% q/q to 0.78 (Q1 2018: 1.47). However, in the whole H1 2018 unfortunately we had two fatalities of our staff and one contractor. We are investigating each of these cases to prevent occurrence in the future.

• We continue applying innovative occupational health and safety initiatives. In H1 2018, Vorkutaugol started assembling a multi-functional safety system called Strata, thus becoming one of the first companies in Russia to have mines completely equipped with this new innovative system for online monitoring of key underground processes.

• At Severstal Russian Steel atmospheric emissions of pollutants remained almost unchanged in H1 2018 at 154,100 tonnes compared with the previous period (H1 2017: 154,800 tonnes). Atmospheric emission of pollutants per tonne of steel products went down by 6% to 25.5 kg per tonne of steel in H1 2018 (H1 2017: 27.1 kg per tonne) due to the reconstruction of coke battery #4 starting May 2017 and the launch of central gas cleaning system for ladle furnace #2. Renovation of the blast furnace slag treatment plant continued in H1 2018 to decrease atmospheric emissions of pollutants and is expected to be completed by the end of 2018.
• At Severstal Resources atmospheric emissions of pollutants slightly decreased in H1 2018 compared with the previous period and totaled 107,700 tonnes (H1 2017: 108,200 tonnes).

Notes to this section:

* LTIFR refers to Lost Time Injury Frequency Rate of Severstal staff, the number of lost time injuries occurring in a workplace per 1 million hours worked.

** Emissions data is calculated in accordance with Russian regulation and is reported to the relevant Russian authorities on an annual basis and reviewed by them.

*** Steel production at Cherepovets Steel Mill and Severstal Long Product Mill Balakovo.

1) All production data is reported in thousands of tonnes;

2) Sales prices are stated on EXW basis;

3) Segmental data includes intercompany sales;

4) Semi-finished products include pig iron, slabs, billets, ingots, steel casting and forgings;

5) Large diameter pipes include all pipes with a diameter between 820 and 1420 mm.

Investor Relations

Evgeny Belov

T: +7 (495) 926-77-66 ext. 6445

evgenii.belov@severstal.com

Public Relations

Anastasia Mishanina

T: +7 (495) 926-77-66 ext. 6457

anastasia.mishanina@severstal.com

Severstal's financial communications agency - Hudson Sandler

Andrew Hayes / Emily Dillon / Dan de Belder

T: +44 (0) 20 7796 4133

PАО Severstal is one of the world's leading vertically integrated steel and steel related mining companies, with assets in Russia, Ukraine, Latvia and Poland. Severstal is listed on RTS and MICEX and the company's GDRs are traded on the LSE. Severstal reported revenue of $7,848 million and EBITDA of $2,577 million in 2017. Severstal's crude steel production in 2017 reached 11.7 million tonnes www.severstal.com