Russian mining and steel company Evraz is likely to reduce its August exports of steel billet by 40,000-50,000 mt because the country's new export tax -- 15% of export prices or a minimal $115/mt payment in force from Aug. 1 till Dec. 31 -- is undermining these sales worthiness, the company's CEO Alexander Frolov said during a call Aug. 5.
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Whether Evraz will have to curtail its exports further, maintain them or restore will be determined by the pricing environment, he said, adding that so far billet sales have been less advantageous than slab due to a more rapid postpandemic recovery in flat-rolled products.
S&P Global Platts assessed the export price of CIS origin billet at $645/mt FOB Black Sea on Aug. 4, while slab was assessed at $790/mt. The $145/mt slab premium over billet exceeds the $115/mt duty billet exporters have to fork up.
The withdrawn 40,000-50,000 mt could represent a quarter of Evraz's billet sales -- the company was exporting an average 180,000 mt/month of billet in the first half of the year. It is not able to distribute them domestically as there is practically no merchant billet market in Russia. Neither is it able to convert the surplus billet to finished products, having its rolling mills already fully utilized, according to Frolov.
Slab more profitable
The company's slab production cost stood at $283/mt in H1. Evraz does not disclose its billet cost, but it is believed to be identical to slab as Evraz produces billet via the same blast furnace-based route. At the above price levels, and with slab and billet costs assumed as equal, production cost together with the export tax -- which currently varies between $118.50/mt for slab and $115/mt for billet -- reduces slab revenues to $388.50/mt and billet to $247/mt.
The company has already ramped up slab shipments, while dropping billet: in H1, its slab sales jumped 17.5% on the year to 1.54 million mt, while billet exports shrank by a quarter to 1.1 million mt. Evraz has not specified if it has any spare capacity left to convert more steel into slab, but according to an industry source the company's continuous slab casting machines are running flat out.
During the call with analysts, Frolov said Evraz has limitations and cannot switch to casting the entire steel volume allocated to exportable semis to slab. According to the company's trading updates, it normally exports up to 900,000-1 million mt of slab in half a year.
When asked about EU's carbon border adjustment mechanism, or CBAM, effect on Evraz and whether the pending demerger of its coal assets into a standalone business -- expected to finalize by the year-end -- was designed to give more freedom to assume carbon reductions, Frolov said CBAM will not have a direct impact as the company does not have significant exports to the EU, yet it might have an indirect influence as it is likely to disrupt flows in other markets where Evraz is more present.
"Splitting into coal and steel businesses would allow to address emissions more precisely for each segment, with the potential for greenhouse gas emissions reduction being even stronger on the coal side, where there is a potential to capture and utilize methane, something that the company does not do at present, but will have a significant gain in GHG emission reduction once it starts," he said.
Activity in steel-consuming industries continued returning to prepandemic levels during January-June, driving up steel prices and demand. Amid this rebound, Evraz almost doubled its H1 EBITDA on the year to $2.1 billion, which represents a half-year record for the last decade.
Contributing to this were higher steel, vanadium and coal product sales prices, but the company's cost-cutting initiatives also provided about 12% of the total earnings. Evraz reduced its net debt by $95 million to $3.26 billion, bringing its ratio of net debt to last 12-months EBITDA to 1x, and made a $1.2 billion net profit, 2.3 times more than in H1 2020.
Aside from merchant slab and billet, Evraz produces construction and railway steel products in Russia and North America, where it also makes flat-rolled steel products and pipes.
Steel demand up 7%
In H1, Russian steel consumption totaled 21.3 million mt, up 7% on the year, supported by improving economic activity. In some sectors, domestic steel consumption climbed 15%-25% on the year. For instance, the beam market volume gained 18%, but demand for structural products expanded at below the average 5%, according to Evraz.
Domestic crude steel production was up 9% on the year, outpacing demand in terms of growth rate and amounted to 38.2 million mt.
Despite the 7% rise in H1 steel production, Russia's coking coal concentrate consumption in January-June grew only 3% to 19.5 million mt, while coking coal exports, at 12.3 million mt, were 6% higher.
Russian metallurgical coal prices followed international benchmarks. In H1, the FCA Kuzbass benchmark price for premium Zh-grade coal averaged $101/mt, up 3% on the year, while semi-hard GZh-grade was valued at $83/mt, up 6% on the year. A steep increase in domestic prices is expected in the July-September quarter.