Fitch affirms MMK BB+ rating
In its press release Fitch notes healthy performance of the main steel consuming industries in Russia, construction, automotive and pipe production, in 2011, which resulted in increase of apparent steel products consumption by 16% in 2011 y-o-y. Demand-driving factors in steel consuming industries will likely remain strong in medium-term perspective. At the same time steel products' price dynamics have been negative since May 2011, which explains the squeeze in margins for steel producers.
Despite the change in outlook, Fitch notes that: “MMK finalised in 2011 two scaled investment projects – construction of steelmaking and rolling facilities in Turkey with annual production capacity of 2.3m tons and the first stage of Rolling Mill 2000 with annual production capacity of 2.0m tons. This considerably strengthens the company’s position as a producer of high value-added steel products and improves its geographic diversification of assets and revenues”.
The agency estimates that MMK’s slab cash costs will decrease in 2012 vs. 2011 following the re-negotiating of iron ore price formula under contract with ENRC, its main iron ore supplier. This, along with the expected decrease of capex, will boost the company’s free cash flow.
MMK is among the world's largest steel producers and is one of the leaders of Russia's steel industry. The company's operations in Russia include a large steel producing complex encompassing the entire production chain, from preparation of iron ore to downstream processing of rolled steel. MMK turns out a broad range of steel products with a predominant share of higher value added products. In 2011 MMK Group produced 12.2 mln tons of crude steel and 11.2 mln tons of commercial steel products. The MMK Group's revenue in 2011 totalled USD 9.306 bln, with EBITDA at USD 1.336 bln.
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