WOOD Flash – EVRAZ: 3Q19 trading update – weaker product mix and price performance vs. peers

EVRAZ released its 3Q19 trading update this morning (1 November), with steel sales volumes flat qoq at 3,385kt, but with a weaker mix: semis were up 6% vs. a 3% qoq fall in finished product sales. This was due to repairs at the rail production facilities, weaker service centre demand in North America, and lower flat product production at the Palini e Bertoli facility. CIS prices were down 5% qoq vs. 1-2% qoq price declines for its Russian peers in their 3Q19 trading updates, due partly to the deteriorating mix. With the 1% increase in integrated slab cash costs, CIS steel margins should fall c.USD 30/t qoq. Coal mining volumes were down 10% qoq vs. concentrate output, which was down 5% qoq, in order to reduce large accumulated stockpiles of raw coal. However, external coal sales volumes were broadly flat qoq, with internal sales rising 4% qoq. Coal concentrate EBITDA/t fell USD 14/t qoq, but with prices falling 15% vs. cash costs that rose 6% qoq. Vanadium sales volumes rose 10% qoq and benchmark vanadium prices fell another 22% qoq, returning to close to our long-term price assumptions, after the spike in prices in 2018. Overall, we see these results as slightly negative for the stock, given its weaker price performance vs. its peers and the lower production volumes.