Severstal agrees that the aggregate demand for steel in the Russian economy will grow, but not by 5 percent, as predicted by VTB Capital, but by a maximum of 3 percent. The general director of the company Alexander Shevelev announced this on his Facebook page. He specified that Russian demand for steel will grow by 2-3 percent annually until 2025.
“We believe that the CAGR (annual growth - ed.) of demand for steel will be 2-3 percent by 2025. At the same time, we must admit that we have revised our internal forecast upward (previously - 1 percent CAGR for 5 years). We do not expect a significant change in the balance of the steel market as a whole, since the increase in demand is likely to correspond to the increase in capacity, "Shevelev said.
He explained this by the fact that the list of national projects is preliminary and many of them are not ready for launch, and government investment in infrastructure can lead to crowding out private investment, since the same resources (construction capacity, labor etc.).
“Serious funding is required, the sources of which, in general, are understandable, but depend on the macroeconomic situation and the ability to attract private capital,” Shevelev said. “We do not expect a significant change in the balance of the steel market as a whole, since the increase in demand is likely to correspond to the increase in capacity.”
According to VTB Capital analysts, the implementation of national projects with a total budget of 400 billion US dollars (approximately 25.8 trillion rubles) in 2019-2025, approved as part of the May decree of President Vladimir Putin, will increase the demand for steel and bring additional 2 billion in pre-tax profit (EBITDA) in 2025.
Recall that in 2018 EBITDA of the entire steel industry in the Russian Federation amounted to 10 billion US dollars.
According to VTB Capital, infrastructure projects worth $ 170 billion will have a direct impact on the steel market, and support for industrial exports and construction of real estate will have an additional effect. The forecast indicates that due to this, the demand for steel in the Russian Federation will grow by 5 percent from 2019, and by 2025 will increase by 14 million tons per year.
Most of all, according to the bank's analysts, Severstal of Alexei Mordashov and Magnitogorsk Iron and Steel Works (MMK) of Viktor Rashnikov will benefit the most from this, since for them the Russian market is key, and value-added products occupy a large share in their supplies. Evraz of Roman Abramovich and partners and Novolipetsk Steel (NLMK) of Vladimir Lisin are also expected to benefit from the infrastructure boom, but to a lesser extent.
