Steel consumption in Russia in 2020 may decrease by 5-7%, Aton predicts. Such expectations of experts were supported by metallurgical companies (Severstal, Novolipetsk Metallurgical Plant, Evraz and Magnitogorsk Metallurgical Plant), with which analysts spoke.
According to the optimistic scenario, the fall in steel consumption may be limited to 3% in this year. The most significant decline in demand so far is from the oil and gas sector and automakers.
“Some clients have become less active in the spot market, but none of the regular customers have canceled contracts (yet),” Aton said in a review “. – March panic and uncertainty eased as demand persists, especially outside Moscow (the epicenter of the virus).”
Demand from the construction industry persists outside the Moscow region, but liquidity concerns also there is. One of the steelmakers, according to analysts, has already managed to sell volumes of construction steel up to and including June. In March, premiums for rebar remained at good levels – about $ 100 /ton.
Analysts note that internal premiums for flat products are close to zero: companies failed to raise ruble prices in order to completely pass on the sharp weakening of the ruble.
Against the backdrop of weakening domestic demand, export markets are becoming more attractive, and producers with flexible sales are trying to redirect volumes from the domestic market. Export destinations include China, which is experiencing economic recovery.
Experts also talk about a potential reduction in capex of companies in 2020. “Although no decision has been made on this matter, the companies announced a possible reduction in investments by 20-30% compared to previous forecasts due to the postponement of the implementation of new projects, as well as partial cuts in maintenance costs,” the report says.
All companies have confirmed their intention to adhere to the current dividend policies and are not yet considering the possibility of any changes. The dividend yield for the next 12 months, according to analysts, is 8%. The companies called this forecast generally realistic, but pointed to further downside potential (to 6%) if the post-epidemic recovery is delayed.
Speaking about the commodity market, Aton draws attention to the ongoing aggressive export of coal from outside Australia. The risk of suspension of exports from this country due to coronavirus infection has decreased against the background of a significant decrease in the incidence. “If there is no significant reduction in supply, then prices will go down. Market participants believe that the level of $ 120 /ton is justified (this is also indicated by the global cash cost curve) – which is not far from the current level of $ 140 /ton,” the review says. >
Iron ore prices have a greater downside potential than growth, however, compared to coal prices, a longer decline is expected.