* Russian steelmakers hit by weak demand, low prices in 2015
* Market recovery, output levels point to stonger Q3
* But steelmakers also face increased coal prices, costs
(Adds quotes from Evraz official)
By Jack Stubbs and Svetlana Burmistrova
MOSCOW, Oct 18 Russia's steelmakers are expected
to post higher earnings when they report third-quarter results
in coming weeks due to a recovery in prices and stronger demand.
The companies, including Russia's largest NLMK and
second-biggest Evraz, suffered in 2015 as world steel
prices plumbed 10-year lows and as the country's economic
downturn sapped domestic demand. NLMK and Evraz full-year core
earnings fell 18 and 39 percent respectively.
But steady or higher output levels in the third quarter
coupled with a recovering global market outlook point to
stronger earnings for the three months.
"We are increasingly positive on the sector outlook with
strong third-quarter earnings expected," VTB analysts wrote in a
note. "With seasonally stronger demand ahead in the fourth
quarter ... we expect further gains ahead."
Steel prices fell to their lowest level since 2004 last year
due to oversupply from China, the world's largest producer and
consumer of steel, and slack demand.
They have since recovered by around 30 percent and the World
Steel Association said last week it now sees global demand
growing 0.5 percent year-on-year in 2016, compared with a 0.8
percent fall forecast in April.
Russia's Evraz said on Tuesday its third-quarter crude steel
output rose 6 percent quarter-on-quarter to 3.4 million tonnes
after the completion of blast furnace repairs.
Severstal's production rose 6 percent in the third
quarter while MMK, Russia's third-largest producer,
said output was flat at 3.2 million tonnes.
Only NLMK recorded a fall in output, down 4 percent
quarter-on-quarter, due to planned repairs at its plant in
But the steelmakers will have to contend with higher coking
coal prices - a key component of steel production - which have
doubled since July to more than $200 per tonne on expectations
of lower supply. This will increase the steelmakers costs and
potentially squeeze profit margins.
While Severstal and Evraz are partially shielded from the
higher production costs by their in-house coal facilities, NLMK
and MMK are particularly vulnerable, VTB analysts said.
Sergei Stepanov, head of Evraz's coal division, said: "We
see that supply ... is at its limit, it all depends on China,
whether it increases production."
"But I do not think prices will fall below $150 per tonne."
Evraz said on Tuesday its capital spending would total $450
million in 2016 and around $500 million in 2017-2018, having
said in August it would be in the range of $375-400 million.
(Reporting by Jack Stubbs and Svetlana Burmistrova; Editing by
Maria Kiselyova and Jane Merriman)