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Magnitogorsk posts strong Q2 output on higher demand, prices, warns of weaker H2


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Magnitogorsk posts strong Q2 output on higher demand, prices, warns of weaker H2

Increased furnace utilization rates and a seasonal boost in localdemand led to a 5.2% quarter-over-quarter rise in second-quarter crude steel productionand a 38.2% jump in realized prices at OJSCMagnitogorsk Iron & Steel Works, but the outlook for the comingquarter is less positive, the company said July 13.

Crude steel production rose to 3.18 million tonnes, while averagerealized prices totaled US$448 per tonne in the period under review.

Urals and Siberia-focused Magnitogorsk, Russia's least export-orientatedsteel producer, said it benefited from higher seasonal demand in Russia — despitethe country's precarious financial situation — as construction companies restockedahead of the spring and summer building season.

The company shipped more products to local and CIS buyers thanin the previous quarter, with local sales accounting for 76.7% of total sales, comparedto 68.8% in the first quarter.

At the same time, export sales fell 18.8% from the first quarterto 685,000 tonnes as Magnitogorsk capitalized on higher prices in its local market.

Apart from the lift in season demand, the company also attributedthe increase in crude steel production to its greater use of its electric arc furnaces,whose utilization rates grew to 61%, from 59% in the first quarter.

The company also confirmed strong demand from producers for large-diameterpipes, galvanized steel and coated steel used by carmakers.

However, results for Magnitogorsk's raw materials segment weremixed.

While second-quarter iron ore production jumped 18.1% comparedto the first quarter to 880,000 tonnes, the company's coking coal concentrate outputfell by 20.7% over the same period to 629,000 tonnes.

The fall in coal production was due to scheduled maintenancestoppages at Magnitogorsk's Chertinskaya-Koksovayamine, although output in the first six months of the year was up 9.9% to about 1.4million tonnes.

Metals and mining analysts described the result as "strong,"but in line with expectations.

In a note to clients July 13, Oleg Petropavlovskiy, a metalsand mining analyst with BCS Global Markets, also noted Magnitogorsk's negative outlookas the company expects a moderate correction in prices and lower demand for steelin the third quarter of 2016.