Is it worth investing in Russian metallurgists in new conditions?

Problems with export

The EU sanctions hit Russian metallurgists strongly, since Europe for them was one of the key markets.

According to the results of 2021, the share of exports to the EU in Severstal was 34.5%, NLMK - 20%, MMK - 7%.

After termination of deliveries to the EU, metallurgists will have to look for new markets. Most likely, there will be an increase in the supply to the Russian market, the Middle East and the Asia-Pacific region.

Of course, companies will have to make discounts for their new customers to grab their share from a new market. And, obviously, they will increase the cost of logistics. Thus, the profitability of metallurgists will decline.

Internal restrictions

Another negative factor for metallurgists was the limitation of internal charges.

Prices in the domestic market will restrain - this will affect the marginity of companies.

RZD tariffs

It is expected that in 2022 there will be a drop in demand for metal products in the Russian market (may up to 30%).

In particular, demand can dramatically decrease due to the fact that 8 of 14 auto plants suspended their activities. And the drop in production of the auto industry can reach 50%.

Metallurgists opposed the Railways initiative to index tariffs taking into account the growing inflation (by 12% in 2-sq. M., by 18% in 3rd, by 20% in the 4th).

Railway monopoly from these measures wants to additionally get 230 billion rubles. However, in this case, exports due to the growth of transport costs can become unprofitable.

But, since, Russian metallurgical companies have long become the most profitable in the world (this contributed to the rise in steel prices and the low cost of production), most likely they will cope with these problems.

At the same time, the highest marginality of Severstal, on 2nd place - NLMK, on ​​the 3rd - MMK.

Face FAS.

Do not forget about the fine FAS. FAS stated that MMK, NLMK and Severstal were established and maintained high monopolized prices for hot rolling.

As a result, the metallurgists are threatened with fines that can exceed $ 700 million. And the most important victim will be MMK.

Technical default

Severstal missed the payment period of interest worth $ 12.6 million after Citigroup blocked the reception of payments due to the lack of permission from the US Treasury.

Severstal wants to pay off his creditors and has the necessary funds in accounts, but they do not allow you to pay-information, this is a technical default.

If they do not calculate in a month, the cross-default mechanism will be launched - the need to immediately settle for all its debts.

Cancel dividend

Based on all this negative, the management of NLMK will recommend not to pay dividends for 4 square meters. 2021 years and 1 square. 2022 years.

Also, the company will not publish financial statements for 1 square meters. 2022, since, many market participants have no opportunity to carry out transactions with securities of the company.

Because of all the listed, dividends and prospects of metallurgical companies become more vague.

And, as many investors know, ferrous metallurgy were fat for diva themselves. profitability in the Russian market. Therefore, the decision on dividends will very much to influence the dynamics of their shares.

Investor on the news on the cancellation of dividends will be more and more turn away from metallurgists.

Dynamics of shares

We will compare with the index of the Moscow Exchange.

Since the beginning of 2022: The Mosbier index fell by 28%, Severstal - by 26%, NLMK - by 21%, MMK - by 35%.

From the opening of the market after a long pause: Mosbier's index rose by 11.7%, Severstal - decreased by 7%, NLMK - by 5%, MMK - by 4%.

And this despite the fact that world steel prices are close to their historical values ​​over the past 10 years.

In the short term there are no growth drivers for Russian metallurgists. Understanding about the prospects for Russian metallurgists will come in 3-6 months after some reporting of companies with comments will be published.

Today, thanks for your attention!

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