OREANDA-NEWS. October 16, 2009. NLMK (Novolipetsk Steel) (LSE: NLMK) today announces the following regular trading update for Q3 2009.

NLMK Group: Q3 2009 operating highlights 1
- Production:
o Crude steel: 2.9 million tonnes (+11% quarter-on-quarter)
o Finished products: 2.8 million tonnes (+10% quarter-on-quarter )
- Sales:
o Finished products: 3.1 million tonnes (+37% quarter-on-quarter ), including
- Slabs: 1.0 million tonnes (+28% quarter-on-quarter)
- Flat products: 1.4 million tonnes (+29% quarter-on-quarter)
- Billets: 0.06 million tonnes (+6% quarter-on-quarter)
- Long products: 0.3 million tonnes (+31% quarter-on-quarter)
- Metalware: 0.06 million tonnes (+21% quarter-on-quarter)

Outlook

We believe that NLMK’s financial performance in Q3 2009 will demonstrate significant sequential improvement. According to our preliminary estimates, the Q3 2009 sales revenue will
be up 20% quarter-on-quarter. The Q3 2009 EBITDA margin is expected to reach 20-25%. In Q4 2009, we are not expecting a significant decline in production volumes or sales revenue despite a softer pricing environment.

NLMK Group operating review

In Q3 2009, NLMK Group produced 2.9 million tonnes of crude steel, an increase of 11% quarter-on-quarter. This performance is also 1% higher than in Q1 2008 and 3% above Q3 2008, which demonstrates that the company has returned to its pre-crisis production level. In Q3 2009, Group capacities were run at approximately 95%, including our main production site in Lipetsk, where utilization rates reached 99%, and the companies of the long products division, where utilization rates increased to 80%.

In Q3 2009, demand improved followed by increases in prices from the low levels early this year. This improvement allowed us to expand sales volumes across the board including our export sales, which comprise 72% of total sales volumes or 2.2 million tonnes. NLMK steel sales stood at a record level of 3.1 million tonnes, a 37% increase quarter-onquarter and 17% growth year-on-year driven by higher production volumes and lower stocks.

An additional factor contributing to the higher sales volumes was the consolidation of Beta Steel
from November 2008. Slab sales to Duferco JV sequentially increased 1.7 times in Q3 2009 and reached 338,000 tonnes or 31% of total slabs sales. Total sales of slabs to the Duferco JV companies in 9M 2009 totaled 819,000 tonnes.

Our sales geography remained largely unchanged from Q2 2009. Sales to Europe grew modestly as a result of increased level of slab supplies to Duferco JV. Sales to South East Asia were lower quarter-on-quarter.

Main production site in Lipetsk

In Q3 2009, production in Lipetsk grew to 2.3 million tonnes, or 5% quarter-on-quarter. Run
rates increased sharply reaching 99%.
In Q3 2009, Lipetsk site steel sales volumes increased 30% quarter-on-quarter, and 11% higher year-on-year. Lower sales volumes of transformer steel were attributable to temporary stoppage of its production at the Lipetsk production site in April 2009 that was restarted in September. Domestic demand for flat products has continued to improve driven by a seasonal factor allowing us to increase sales to all consumers except for automotive and machinebuilding.

Sales of hot-dip galvanized steel and pre-painted steel improved due to an increase in demand from the domestic construction sector. By the end of the quarter run rates of pre-painting lines reached maximum levels. Growth of export sales of slabs and cold-rolled steel have made the major contribution to the total increase of exports. We registered aldo a quick recovery in demand for commodity type products such as pig iron, slabs and hot-rolled steel, the profitability of which remained high due to the low cost of production.

DanSteel A/S

In Q3 2009, sales of thick plates decreased due to low demand from consuming industries. Moreover, the company completed scheduled annual maintenance works in Q3 2009. Low demand for thick plates has put additional pressure on prices which were lower quarter-onquarter.

Beta Steel Corp.

Beta Steel Corp. sales increased due to demand from pipe and tube industry and service centers.
In Q3 2009, the company increased the run rate at its steelmaking facility to reach 88%. An increase of slabs supplies to Duferco Farrell, a rolling asset of the Duferco JV represented additional driver for the higher level of capacity utilization. Hot-rolled steel sales prices recovery took place during the quarter.

VIZ-Stal

In Q3 2009, the transformer steel market improved primarily due to restocking by consumers and service centers coupled with better production volumes at final customers, allowing the company to double its sales. The demand increased both in the domestic and export markets, while domestic demand almost reached its pre-crisis level. An additional factor that drove utilization rate of VIZ-Stal facilities to 73% was a transfer of orders from Lipetsk transformer steel plant to VIZ-Stal facilities due to the temporary stoppage of the former. Prices remained largely flat quarter-on-quarter.

Stoilensky

In Q3 2009, run rate of Stoilensky reached 100%. The quarter-on-quarter decrease in sales of iron ore concentrate and sinter ore by respective 22% and 11% was driven by sales of stocks in Q2 2009. We expect that sales volumes will remain stable in Q4 2009.

Altai-koks

Q3 2009 sales increased driven primarily by an increase in steel production at the Lipetsk plant to which 70% of products were sold. That factor led Q3 2009 utilization rates to 80%. The quarter-on-quarter growth of coke prices was driven by increased demand after recovery of production in steel sector.

Long products division

The Q3 2009 production volume reached 478,000 tonnes, a 10% increase quarter-on-quarter. Run rates at production facilities reached approximately 80%. Across the board price recovery driven by a seasonal pickup in demand from the construction sector as well as export markets improvement allowed us to increase sales quarter-on-quarter.

The share of high value added products has increased, thus wire rod and metalware sales grew by 51% and 21% respectively quarter-on-quarter. This growth was attributed to seasonal demand from the construction sector and trading companies, which also contributed to better rebar sales leading to a sequential growth of 9% (reached 252,000 tonnes). Exports accounted for 26% of total Q3 2009 sales of our long products division.

The growth in scrap sales in Q3 2009 was driven by higher consumption and higher collection during the summer season coupled with a seasonal restocking by NLMK Group companies.

Outlook

We expect that the market environment will not demonstrate any significant deterioration in Q4 2009. However, some decline in demand and, hence, prices, may take place which is traditionally driven by seasonality in construction sector. We believe that our Q3 2009 financial performance will demonstrate significant sequential improvement. Our targeted revenue is expected to increase 20% quarter-on-quarter, while the EBITDA growth rate will outpace revenue increase. According to our preliminary estimates, EBITDA margin will be in the range of 20-25%. This improvement in financial performance will be driven both by the growth in sales volumes and an upswing in prices for our products. A sustainably lower production cost in   2009 will be an additional driver to support profitability improvement.