Stock prices for major Russian metallurgical companies, including Severstal, MMK (Magnitogorsk Iron and Steel Works), and NLMK (Novolipetsk Steel), have taken a significant downturn recently, prompting analysts to investigate the causes behind this decline.
On the last trading day of January 2025, Severstal's stock plummeted by 5.3%, as reported by the Moscow Exchange. Meanwhile, MMK and NLMK saw their share values drop by 2.73% and 2.08%, respectively. This downward trend continued on 3 February, with Severstal dropping another 2.26% and NLMK declining by 2.14% by 10:53 AM Moscow Time.
The primary reason for Severstal's stock price decrease appears to be the anticipation of unfavorable financial results for the fourth quarter of 2024. Analysts predict a staggering 25.4% decline in the company's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) compared to the previous quarter. Revenue projections indicate a drop of 7.3%. Such forecasts have cast doubt on Severstal's ability to issue dividends for the last quarter. Analysts from Veles Capital have suggested the company may forgo dividends altogether, whereas Dmitry Smolin of Sinara Investment Bank believes the company will still issue dividends of 20-25 rubles per share, equaling just 2% dividend yield.
Global steel prices have influenced these figures significantly, dropping by approximately 11% recently to between 505-600 dollars per tonne. This price drop, combined with subdued demand and record exports from China, has raised concerns about the outlook for Russian metallurgical firms.
MMK is facing challenges as well, primarily due to adjustments in the domestic market following the end of preferential mortgages and the rise of high credit interest rates. The ripple effect is stark: fewer residential construction projects mean diminished steel demand. Analysts from Finam have communicated concerns particularly about MMK, indicating it might face severe challenges, with no dividends expected for at least until 2027.
Conversely, NLMK may be positioned slightly more favorably to weather the current economic climate. The company could potentially offset domestic losses through greater export volumes. Yet, the revenue from exports, denominated in foreign currencies, faces direct influence from fluctuations on the currency market. A strengthening ruble, for example, diminishes NLMK's revenue, hampering its stock valuation.
Analysts predict 2025 will be turbulent for the metallurgical sector. Investment brokers BCS Global Markets have issued negative forecasts for these stocks but retained target prices for the year. Severstal is projected to reach 1400 rubles; NLMK is expected to hit 160 rubles; and MMK around 40 rubles.
The decline of these stocks underlines the broader challenges facing the Russian metallurgical industry, driven by fluctuated commodities prices and changing domestic economic conditions. For investors monitoring this sector, the projected revenues and dividend payouts become fundamental indicators of how companies navigate through these tumultuous times.