Mariupol's'kyi MK im Illicha VAT : Metinvest announces 1Q 2017 operational results

[Attachment]Metinvest B.V., the parent company of a vertically integrated group of steel and mining companies (jointly referred to as 'Metinvest' or 'the Group'), today announces its operational results for the first quarter ended 31 March 2017.

OPERATIONAL HIGHLIGHTS

('000 tonnes)	1Q 2017	4Q 2016	∆ '000 t	∆ %	1Q 2017	1Q 2016	∆ '000 t	∆ %
Crude steel	2,070	2,058	12	1%	2,070	1,998	72	4%
Iron ore concentrate (total)	6,680	6,692	-12	0%	6,680	7,911	-1,231	-16%
Coal concentrate (total)	792	732	60	8%	792	799	-7	-1%

METALLURGICAL SEGMENT

Hot metal production

('000 tonnes)	1Q 2017	4Q 2016	∆ '000 t	∆ %	1Q 2017	1Q 2016	∆ '000 t	∆ %
Hot metal	1,984	2,211	-227	-10%	1,984	2,059	-75	-4%
Azovstal	953	805	148	18%	953	678	275	41%
Ilyich Steel	784	959	-175	-18%	784	902	-118	-13%
Yenakiieve Steel	247	447	-200	-45%	247	479	-232	-48%

Crude steel production

('000 tonnes)	1Q 2017	4Q 2016	∆ '000 t	∆ %	1Q 2017	1Q 2016	∆ '000 t	∆ %
Crude steel	2,070	2,058	12	1%	2,070	1,998	72	4%
Azovstal	1,085	946	139	15%	1,085	783	302	39%
Ilyich Steel	716	620	96	15%	716	714	2	0%
Yenakiieve Steel	269	492	-223	-45%	269	501	-232	-46%

In 1Q 2017, the Group's hot metal output decreased by 10% q-o-q to 1,984 thousand tonnes amid a drop in production at Ilyich Steel and Yenakiieve Steel, which was partly offset by greater output of hot metal at Azovstal. Yenakiieve Steel's hot metal output declined by 200 thousand tonnes due to the shutdown of blast furnaces in February, given a rail blockade in the zone between the territory controlled by Ukraine and the non-controlled area, and the subsequent loss of control over the enterprise from 15 March 2017. Ilyich Steel's hot metal output decreased by 175 thousand tonnes due to a scheduled major overhaul of blast furnace no. 3 for seven days and irregular coke deliveries caused by unstable operations at Avdiivka Coke. Azovstal's hot metal output increased by 148 thousand tonnes in 1Q 2017, following low production due to a scheduled major overhaul of blast furnace no. 2 in 4Q 2016.

In 1Q 2017, Metinvest's steel production rose by 1% q-o-q to 2,070 thousand tonnes, driven by increases of 139 thousand tonnes at Azovstal and 96 thousand tonnes at Ilyich Steel, which were offset by a decline of 223 thousand tonnes at Yenakiive Steel. The rise at Azovstal was due to greater hot metal output, while that at Ilyich Steel was the result of lower merchant pig iron production and the redistribution of hot metal to steelmaking. The drop at Yenakiieve Steel was caused by the reasons mentioned above.

Compared with 1Q 2016, the Group's hot metal output dropped by 4% y-o-y, driven by falls in production of 232 thousand tonnes at Yenakiieve Steel and 118 thousand tonnes at Ilyich Steel, which were partly compensated by a rise of 275 thousand tonnes at Azovstal. The declines at Yenakiieve Steel and Ilyich Steel were due to the reasons mentioned above. The increase at Azovstal was caused by the re-launch of blast furnace no. 4 in February 2016 following a lengthy major overhaul.

Compared with 1Q 2016, the Group's steel production increased by 4% y-o-y amid increases of 302 thousand tonnes at Azovstal and 2 thousand tonnes at Ilyich Steel, partly offset by a decrease of 223 thousand tonnes at Yenakiive Steel. The rise at Azovstal was due to greater hot metal output, while that at Ilyich Steel was the result of a redistribution of hot metal from merchant pig iron production to steelmaking. The decline at Yenakiieve Steel was caused by the reasons mentioned above.

Metal product output [1]

('000 tonnes)	1Q 2017	4Q 2016	∆ '000 t	∆ %	1Q 2017	1Q 2016	∆ '000 t	∆ %
Semi-finished products	454	553	-99	-18%	454	501	-47	-9%
Pig iron	138	349	-211	-60%	138	219	-81	-37%
Slabs	301	146	155	106%	301	149	152	102%
Square billets	15	58	-43	-74%	15	133	-118	-89%
Finished products	1,586	1,640	-54	-3%	1,586	1,496	90	6%
Flat products	1,182	1,103	79	7%	1,182	1,031	151	15%
Long products	355	474	-119	-25%	355	437	-82	-19%
Railway products	16	7	9	129%	16	7	9	129%
Tubular products	33	56	-23	-41%	33	21	12	57%
Large-diameter pipes	1	32	-31	0%	1	2	-1	-50%
Other pipes	32	24	8	33%	32	19	13	68%
TOTAL	2,040	2,193	-153	-7%	2,040	1,997	43	2%

In 1Q 2017, the Group's output of merchant semi-finished products dropped by 18% q-o-q to 454 thousand tonnes. This was due to a decrease in merchant pig iron production of 211 thousand tonnes amid lower output of hot metal and its redirection to steelmaking at Ilyich Steel, which was partly compensated by production of merchant pig iron at Azovstal. Output of merchant slabs increased by 155 thousand tonnes, as Azovstal increased its steel smelting volumes. Merchant billet production dropped by 43 thousand tonnes due to the shutdown at Yenakiieve Steel for the abovementioned reasons.

In 1Q 2017, output of merchant semi-finished products dropped by 9% y-o-y. This was driven by decreases of 118 thousand tonnes in square billet production, caused by the abovementioned shutdown of Yenakiieve Steel, and 81 thousand tonnes in merchant pig iron output at Ilyich Steel, due to a shift in output in favour of higher-margin finished goods. Merchant slab production soared by 152 thousand tonnes, as Azovstal boosted its output in response to favourable market conditions.

In 1Q 2017, the Group's output of finished products decreased by 26 thousand tonnes q-o-q to 1,586 thousand tonnes.

Output of flat products rose by 79 thousand tonnes q-o-q to 1,182 thousand tonnes. Amid a revival in demand, Azovstal increased its production by 82 thousand tonnes and the EU re-rollers by 19 thousand tonnes, while Ilyich Steel reduced its output by 22 thousand tonnes.

Output of long products dropped by 119 thousand tonnes q-o-q to 355 thousand tonnes, driven mainly by a slump of 109 thousand tonnes at Yenakiieve Steel due to the abovementioned reasons. In addition, Promet Steel reduced its output by 21 thousand tonnes due to lack of square billet from Yenakiieve Steel, while Azovstal boosted its production by 11 thousand tonnes.

In 1Q 2017, rail output increased by 9 thousand tonnes q-o-q, as orders from Ukrainian Railways (Ukrzaliznytsya) were fulfilled.

Output of tubular products rose by 5 thousand tonnes q-o-q, due to an increase in production of other pipes by 8 thousand tonnes following the expansion of production facilities at Ilyich Steel. At the same time, output of large diameter pipes at Khartsyzk Pipe was ceased following the loss of control over the enterprise from 15 March 2017.

Compared with 1Q 2016, output of finished products increased by 6% y-o-y.

Output of flat products rose by 151 thousand tonnes y-o-y amid a revival on the market. This was mainly due to increases in plate production at Azovstal (170 thousand tonnes) and Ilyich Steel (8 thousand tonnes), as well as in coil production at the EU re-rollers (17 thousand tonnes). That growth was partly offset by lower coil output at Ilyich Steel (42 thousand tonnes) and a decrease in plate output at the EU re-rollers (2 thousand tonnes).

Long product output dropped by 82 thousand tonnes y-o-y. The main reasons were the shutdown at Yenakiieve Steel (63 thousand tonnes) due to the aforementioned reasons and a slump in output at Promet Steel (41 thousand tonnes) amid a lack of billet from Yenakiieve Steel for re-rolling. There was some compensation from greater output of long products at Azovstal (22 thousand tonnes).

Rail output increased by 9 thousand tonnes y-o-y, driven by orders of Ukrzaliznytsya.

Output of tubular products rose by 12 thousand tonnes y-o-y, as Ilyich Steel boosted production of other pipes by 13 thousand tonnes due to the abovementioned reasons.

Coke production [2]

('000 tonnes)	1Q 2017	4Q 2016	∆ '000 t	∆ %	1Q 2017	1Q 2016	∆ '000 t	∆ %
Coke production (total)	977	1,009	-32	-3%	977	1,124	-147	-13%
Coke (dry)	210	233	-23	-10%	210	272	-62	-23%

In 1Q 2017, Metinvest's coke output dropped by 3% q-o-q to 977 thousand tonnes, driven by lower production at Avdiivka Coke, which was partly compensated by greater output at Azovstal. The decline at Avdiivka Coke was due to intensified military action from the end of January. In the reporting period, Avdiivka Coke operated coke shops nos.1 and 2 only, while nos. 3 and 4 were hot-mothballed due to electricity supply disruptions. The rise at Azovstal stemmed from more stable coal deliveries in 1Q 2017.

Compared with 1Q 2016, coke output fell by 13% y-o-y. This was driven by production declines of 160 thousand tonnes at Avdiivka Coke and 5 thousand tonnes at Azovstal, which were partly compensated by an increase of 18 thousand tonnes at Zaporizhia Coke, as coking chambers at coke shop no. 2 were commissioned.

On average, the Group consumed around 79% of its overall coke output in 1Q 2017.

MINING SEGMENT

Iron ore concentrate and pellet output [3]

('000 tonnes)	1Q 2017	4Q 2016	∆ '000 t	∆ %	1Q 2017	1Q 2016	∆ '000 t	∆ %
Iron ore concentrate (total)	6,680	6,692	-12	0%	6,680	7,911	-1,231	-16%
Iron ore products	3,617	3,664	-47	-1%	3,617	4,858	-1,241	-26%
Iron ore concentrate	2,456	1,965	491	25%	2,456	3,432	-976	-28%
Pellets	1,161	1,699	-538	-32%	1,161	1,426	-265	-19%

In 1Q 2017, overall production of iron ore concentrate dropped by 12 thousand tonnes q-o-q to 6,680 thousand tonnes. The main drivers were declines of 91 thousand tonnes at Central GOK and 52 thousand tonnes at Ingulets GOK, which were compensated by an increase of 131 thousand tonnes at Northern GOK. The decrease at Ingulets GOK was due to a change in production aimed at increasing overburden removal. The drop at Central GOK due to reduced volumes of concentrate from sands as a result of the retirement of iron-bearing sands. The rise in concentrate output at Northern GOK followed a shutdown at the plant for 60 hours in October 2016 for maintenance and repairs.

In 1Q 2017, the Group's merchant iron ore product output decreased by 1% q-o-q to 3,617 thousand tonnes. Production declined by 47 thousand tonnes, as output of merchant pellets fell by 538 thousand tonnes, while that of higher-margin merchant concentrate rose by 491 thousand tonnes. That rise was driven by lower own consumption of overall concentrate to produce pellets (506 thousand tonnes), compensated by a decline in total concentrate output (12 thousand tonnes), and an increase in own consumption of total concentrate (3 thousand tonnes).

In 1Q 2017, merchant pellet production plummeted by 538 thousand tonnes q-o-q. A decline of 614 thousand tonnes at Northern GOK was partly compensated by a rise of 76 thousand tonnes at Central GOK, following the completion of the scheduled overhaul of roasting machine ОК-324 in 4Q 2016. The drop at Northern GOK was the result of lower sales volumes to third parties due to low margin generation by pellets, the cessation of shipments to certain customers in the non-controlled territory of Ukraine, and an increase in own consumption of 101 thousand tonnes.

Compared with 1Q 2016, the Group's output of iron ore concentrate dropped by 16% y-o-y, amid a drive to catch up with overburden removal work.

Merchant concentrate output fell by 28% y-o-y to 2,456 thousand tonnes, due to lower overall output of concentrate and the redistribution of concentrate to pellets for own consumption.

Merchant pellet output dropped by 19% y-o-y to 1,161 thousand tonnes, due to low margin generation by pellets and the cessation of shipments to certain customers in the non-controlled territory of Ukraine.

Coal concentrate production [4]

('000 tonnes)	1Q 2017	4Q 2016	∆ '000 t	∆ %	1Q 2017	1Q 2016	∆ '000 t	∆ %
Coal concentrate (total)	792	732	60	8%	792	799	-7	-1%
Coal concentrate	178	360	-182	-51%	178	422	-244	-58%

In 1Q 2017, the Group's coal concentrate production equalled 792 thousand tonnes, up 8% q-o-q. Output at Krasnodon Coal's mines dropped by 61 thousand tonnes due to the rail blockade between Ukrainian territory and the non-controlled area, as well as the loss of control over the enterprise in March 2017. Coal concentrate output at United Coal's mines increased by 121 thousand tonnes to cover intra-group needs. This was driven by the launch of new production sites at the Hackney Surface and Tilley Contract mines (18 thousand tonnes) and the Affinity mine (32 thousand tonnes), an increase in output at the existing Huffman HWM and Hackney Creek Hag sites (31 thousand tonnes), and additional shifts at the second site of the Сarter Roag mine (40 thousand tonnes).

In 1Q 2017, Metinvest's coal concentrate production dropped slightly by 1% y-o-y. Coal mining at Krasnodon Coal dropped by 72 thousand tonnes due to the abovementioned reasons. This was compensated by an increase in production of 65 thousand tonnes at United Coal to cover intragroup needs, resulting from a rise of 72 thousand tonnes at the Wellmore mines and a fall of 7 thousand tonnes at Carter Roag.

[1] Excludes intragroup sales and intragroup utilisation, data for the 1Q 2016 were updated

Pig iron -merchant pig iron

Flat products include rolled plates, hot-rolled, cold-rolled and hot-dip galvanised sheets and coils

Long products include hot-rolled sections (light, medium, heavy), rebar, merchant bars and wire rod

Rail products include light and heavy rails and rail fasteners

Large diameter pipes are LSAW (longitudinally submerged arc-welded) large-diameter pipes

Other pipes include other ERW (electric resistance-welded) pipes and seamless pipes

[2] Merchant coke production figures exclude intragroup sales and consumption

[3] Figures for production of iron ore materials exclude intragroup sales and consumption

[4] Coal concentrate (total) production figures present coal production in equivalent of coal concentrate. Merchant coal concentrate production excludes intragroup sales and intragroup utilisation.