How metallurgists made money on the market and paid for it

One of the central topics in 2021 was the rise in prices for metal products, which affected a variety of industries – from construction to the automotive industry and energy. The rise in metal prices on the world market began in the IV quarter of 2020 – against the background of the gradual abolition of cavid restrictions. Russian prices have risen after the world ones.

According to the rating agency “Rusmet”, the cost of fittings in early 2021 reached 68,653 rubles. per 1 ton, at the end of February the price dropped to 52,923 rubles, and from the second half of March the price rose again and rose until mid-summer. The peak fell on June 18 – 79,127 rubles. per 1 ton on the world market, the price of hot-rolled steel (FOB China) since the beginning of the year increased by 12% to $ 752.5 / t (in May the price exceeded $ 1000 / t), aluminum – by 40% to $ 2800 / t (in October the price exceeded $ 3000 / t), copper – by 25% to $ 9620 / t (in October it was above $ 10 600 / t), nickel – by 21% to $ 19 980 / t (at its peak in November reached $ 21,100 / t), according to the London Metal Exchange (LME). Following the rise in metal prices, the revenue of metallurgical companies grew. In the first nine months of 2021, Severstal increased its IFRS revenue by 63%, NLMK by 69%, and MMK by 87%.

Developers were the first to complain about expensive metal in November-December 2020. According to them, the rise in prices for new buildings is largely due to the cost of fittings. The share of steel in the cost of housing is in the range of 6-7%, told “Vedomosti” investment strategist “Arikapital” Sergei Suverov. The owner of the development company S. Holding Alexei Shepel estimated it at 4-5%, the president of GC “Osnova” Alexander Ruchiev – at 10-12%.

The rise in prices for metals and prices for cars has affected. In June, the president of Avtovaz, Nicolas Moore, spoke about the rise in metal prices and the inevitable rise in price of cars. The share of metal in the cost of a new middle-class car reaches 35-40%, said “Vedomosti” SBS Consulting expert Dmitry Babansky.

The jump in metal prices affected freight car manufacturers, where the share of metal in the cost, including components is 65-75% (IPEM data). Vladimir Gutsenev, First Deputy Chairman of the Union of Machine-Builders of Russia, drew attention to this. Affected by rising metal prices for shipbuilding. And the head of “Rossetei” Andrei Rumin said in October that the rise in price of metals could create serious difficulties in the electrification of BAM and Transsib.

As a result, the government paid attention to the profitability of the industry. In late May, First Deputy Prime Minister Andrei Belousov told RBC that the metallurgists had “pushed” the state by 100 billion rubles. The government has decided to move to higher taxes. From August 1 to December 31, 2021, temporary export duties were introduced for metallurgists. The state expects to receive 163-164 billion rubles from them. And in the fall it was decided to increase the tax burden for metallurgists from January 1, 2022 for three years. The tax on mining (PZKV) was tied to quotations of raw materials on world markets, explained Finance Minister Anton Siluanov. An excise tax on liquid steel will also be introduced. Due to this in 2022-2024. the government plans to exclude more than 500 billion rubles.

Metallurgists said the expected loss of revenue. MMK estimates the effect in 2022 at $ 200-250 million, Metaloinvest – at 20 billion rubles. ($ 270 million), Severstal – $ 280-290 million, Evraz – $ 250-300 million, NLMK – $ 300-550 million.

According to the general director of “Rusmet” Andrei Zelenin, metal prices in 2021 have largely increased due to the global printing press. In the most likely scenario, prices in 2022 will decrease, their volatility will increase, but from 2023 the upward trend may begin again. Zelenin noted that his main factors are the mortgage crisis in China, where steel production has been falling since July, rising energy prices, rising metal costs, the trade war between China and Australia, which is backed by a political crisis. The growth of PZKV and excise duty on steel will not fundamentally affect domestic market prices, he said. Daniil Karimov, head of the Metallurgy sector of analytical management of Discovery Research, agrees. The impact on the profitability of EBITDA of metallurgical companies, to a greater extent – steel, he added.

According to Finam analyst Alexei Kalachev, steel prices in 2022 will be stable at current levels or slightly lower, and prices for non-ferrous metals will remain highly volatile. The dynamics of steel prices in the domestic market will largely depend on the dynamics of housing construction and government measures to stimulate it, as well as the progress of infrastructure projects, he added.

The introduction of export duties has affected domestic steel prices, Karimov said. According to “Rusmet”, in late July the price of steel reinforcement went down, at least 2021 was marked in October. As of December 21, its average value is 62,343 rubles. / T. The impact of duties on prices for non-ferrous metals in Russia was virtually absent, as they depend mainly on quotations on the LME and the dollar against the ruble, said Karimov. As the ruble exchange rate showed low volatility, the price of non-ferrous metals followed the world situation.

Dmitry Glushakov, head of the metallurgical and mining department of VTB Capital, notes that in 2022 the situation on the markets of most metals will be normalized and prices will be corrected. According to his estimates, the price of nickel will remain at $ 20,000 per 1 ton due to high growth in sales of electric vehicles and the transition to a new generation of batteries. The correction of prices for coke coal and iron ore in 2022 will lead to lower steel prices by the end of the year. Copper, according to Glushakov, is now traded at 50-60% above the cost of marginal producers, in 2022 there may be a reduction in prices by about 20%. The price of aluminum now determines the cost of production of Chinese companies working on coal energy, says the expert. By the spring, a significant reduction in coal prices is expected due to the growth of its production, which will negatively affect the price of aluminum, he predicts.

According to the forecast of “Discovery Research”, world prices for steel and non-ferrous metals in 2022 will adjust downward due to market balancing. In the case of steel, demand in Europe (the main export destination from Russia) is declining amid problems with automakers who have accumulated metal reserves but cannot use them due to a shortage of microchips. In Discovery Research, the most significant reduction in average annual prices in 2020 is expected in the steel segment (about 20%), while average prices for non-ferrous metals will show a small negative correction to 5%.

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