Russian Steels - Structural Change Shakes Up Seasonal Patterns

China's campaign to tackle air pollution by addressing overcapacity in the steel industry has come as a blessing for steel producers elsewhere. It has boosted margins and buoyed hopes that the era of cheap steel is finally over. Further transformation of China's steel industry, which will include more capacity cuts over the winter, is likely to offset slowing demand. It will also shake up the typical seasonal pattern of declining prices in the winter months - we anticipate a much milder market correction this winter than usual. We expect all Russian producers to easily beat the consensus, not just for 2017 earnings but for 2018 too, though valuation-wise we see upside only in Evraz (target price raised to $5.46, or GPB4.05 per share).