WOOD Flash – EVRAZ: 4Q18 and FY18 trading update
EVRAZ reported its 4Q18 trading update this morning (31 January), which should be taken as marginally positive by the market, in our view. Steel sales fell 7% qoq, although finished product sales were down only 2%, implying an improvement in the mix qoq. 4Q is usually a seasonally weak quarter, so this should not be a surprise, in our view. Coking coal concentrate and iron ore output rose 8% and 2% qoq, respectively, with raw coal mining volumes growing 15% qoq, so this is a positive. Steel prices fell 7% in CIS (more than the c.5% fall recorded by MMK and SVST), but US prices dropped less, so the overall price trends should be similar to those of the other Russian steels that have reported so far. Cash costs in the two main divisions, CIS steel and coal, fell 7% and 6% qoq, respectively, which should help to offset the declining prices in the P&L. Vanadium prices continued to climb in 4Q, up another 27% qoq, meaning that prices in 2018 averaged at USD 81.3/kg, +149% yoy. 4Q18 vanadium sales fell 18% qoq and full-year 2018 output was down c.19% from the 2017 levels, but the price increase should still translate into EVRAZ gaining an extra c.USD 0.5bn of extra revenue (and at least that in EBITDA) vs. 2017, contributing to EVRAZ’s strong performance in 2018.Evraz engages in the production and distribution of steel and related products and coal and iron ore mining. Co. also produces vanadium products. Co. has four segments: Steel, which includes production of steel and related products at all mills except for those in North America, and includes the extraction of vanadium ore and production of vanadium products, iron ore mining and enrichment and certain energy-generating companies; Steel, North America, which includes production of steel and related products in the U.S. and Canada; Coal, which includes coal mining and enrichment; and Other operations, which includes energy-generating companies, shipping and railway transportation companies.
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