Annual Report & Accounts 2013
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Key 2013 highlights

  • Russian domestic prices of bulk commodities generally follow global trends, although there is also a local component to their dynamics. Domestic coking coal prices vary according to their quality. Russian hard coking coal (HCC) is priced largely in line with the Australian and US products (such as BMA’s Peak Downs and Gregory) adjusted for the cost of rail freight and port handling. Semi-hard coal usually sells at a 10-20 per cent discount to the HCC brands. At the same time, the “2ZH” brand of high quality coking coal, which is our premium product, is priced in line with the imported alternative from the USA, which allows us to sell 2ZH at a premium to the domestic market.
  • In 2013, the Russian coking coal market mostly followed the global trend of weakening prices. According to market experts, domestic coking coal production output reached 53.2 million tonnes, 2.5 per cent higher than in 2012. Severstal’ s Vorkutaugol sold a total of 5.6 million tonnes of coking coal concentrate in 2013, that is 6.5 per cent above the level of 2012. This was due to the fact that Vorkutaugol almost exclusively supplies Russia’s high-quality coking coal (the ‘Zh’ brand), and hence has stable demand. The geography of export sales expanded through Ukrainian and European contracts.
  • In the USA, the local coking coal market contracted in 2013 due to low export prices. To preserve earnings, PBS Coals idled some of its mines producing coal for export spot supply. As a result, PBS Coals coking coal production was 1.6 million tonnes, 27 per cent below the level of 2012. The geography of export sales expanded through European, Northern African and Asian contracts.
  • Prices for iron ore in Russia moved largely in line with Chinese spot prices, with a time lag of few months. Like coking coal, domestic iron ore prices demonstrate a certain degree of inertia compared with international benchmarks. In 2013, Russian iron ore production reached 96.7 million tonnes, 2.1 per cent below the level of 2012. Karelsky Okatysh and Olkon decreased their sales of iron ore products to both domestic and international clients by 0.7 per cent to 15.1 million tonnes. The geography of export sales expanded through European and Asian contracts.
  • In 2013, cost management continued to be one of our key priorities. In 2013 we managed to keep cash costs of production across our mining assets almost flat.
  • In 2012, we completed a pre-feasibility study at the Putu Range iron ore project in Liberia, Africa, that allowed us to better assess the economic rationale for the project’s development. Also in 2012, an independent report provided increased estimates of iron ore resources at the Putu iron ore deposit up to 4.4 billion tonnes within the optimised pit shell, with an average 34 per cent iron grade. This represents a marked increase from the last year’s estimates from an independent report that measured Putu iron ore resources at 3.2 billion tonnes. We expect to complete a feasibility study of the Putu Range project by Q2 2014.

Dynamics of Severstal Resources’ sales volumes in 2013

Dynamics of Severstal Resources’ average prices in 2013

CEO statement

Our strategic goal remains the same: we aim to be a leader in value creation. In the current volatile and challenging market environment, this means the ability to generate solid positive free cash flow throughout the market cycle.

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Chairman statement

Since listing we have been committed to the highest standards of corporate Governance and aim for full compliance with the UK Corporate Governance Code.

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Performance review 2012

Severstal achieved a solid set of results in 2012, despite worsening economic conditions, maintaining the Group’s EBITDA margin at 15.0%, reflecting the resilience of the business.

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Performance review 2012 - Severstal Resources

Our strong asset base enables us to capture excellent margins and generate significant free cash flow in strong markets, but it is also resilient enough to provide positive results even in the current weak markets.

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