MMK Group operational trading update for Q1 2011

• Crude steel output in Q1 2011 amounted to 3,092 th. tonnes which is 12% higher q-on-q.
• MMK finished steel products output in Q1 2011 amounted to 2,707 th. tonnes and increased by 8% q-on-q.
• MMK-Metiz finished steel products output in Q1 2011 amounted to 123 th. tonnes and increased by 2%        q-on-q.
• Total MMK Group finished steel products output in Q1 2011 amounted to 2,735 th. tonnes, 11% higher y-on-y.
• The level of MMK Group higher value-added products (HVA) output in Q1 2011 stayed at the level of Q4 2010 and increased by 28% y-on-y.
• Coking coal concentrate output in Q1 2011 amounted to 766 th. tonnes.
• In-house production of iron ore in Q1 2011 amounted to 1,277 th. tonnes which is 5% higher q-on-q.

This year the seasonal factor hasn't influenced MMK’s domestic shipments volumes. This was to a large extent possible due to MMK strengthening positions in segments which are the least exposed to seasonal demand volatility. MMK also continues increasing HVA products volumes which allows the company to strengthen its positions in the domestic market by means of the import replacement strategy.

• MMK average domestic steel price grew by 17% q-on-q, while average export price grew by 14% for the same period.

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* - OJSC «MMK» - hereafter ММК, with subsidiaries – MMK Group
** - incl. products made from MMK steel

Steel segment
MMK

*- including shipments to CIS

• Finished steel products output in Q1 2011 rose by 8% q-on-q and amounted to 2,707 th. tonnes. Domestic shipments stayed almost flat while export shipments increased by 40% q-on-q. This growth was due to traders’ intent to replenish stocks ahead of season opening in export markets. Despite the significant growth of export shipments in Q1 2011, the share of domestic shipments remains impressive and exceeds 70% (77% in Q4 2010).
• HVA products output in Q1 2011 remained at the level of Q4 2010 and amounted to 931 th. tonnes.
• Export slab shipments growth was driven by favourable market conditions, which allowed increasing slab production volumes and sales.
• Significant increase in flat hot-rolled products shipments in Q1 2011 (12% q-on-q) is driven by export shipments growth, where the share of flat hot-rolled products is about 80%.
• Long steel shipments in Q1 2011 grew by 6% q-on-q and 59% y-on-y thanks to some recovery of construction.
• Commercial thick plate output at Mill 5000 amounted to 307 th. tonnes in Q1 2011 which is 4% higher q-on-q. The fluctuation is driven by products mix changes. Mill 5000 operates at full capacity, providing pipe manufacturers with rolled products for large-diameter pipes output.
• Formed sections production in Q1 2011 rose by 32% q-on-q due to significant growth of demand from railroad carriage works, which implement the programme of the railroad cars fleet renewal.
• Q1 2011 average realized price per ton of steel products amounted to $760, which is 14% higher q-on-q. The average realized price growth was due to growing domestic and export demand for MMK steel products, increasing share of HVA products in the production portfolio and passing on increasing costs to customers.

MMK-Metiz

• MMK-Metiz (MMK Group hardware producer which processes MMK long steel products) is a leading hardware producer in Russia. The company’s product mix includes wires, railroad and construction fastening, calibrated steel products, cold-rolled band, bimetal steel products, welded meshes and nettings, steel ropes, electrodes for welding, etc.
• MMK-Metiz finished steel products output amounted to 123 th. tonnes in Q1 2011 which is at the level of Q4 2010. This is due to stable demand of major hardware consuming industries (steelmaking and car-making).

MMK-Atakas

• Finished steel products output at MMK-Atakas in Q1 2011 amounted to 28 th. tonnes.
• MMK plans to produce about 150 th. tonnes of steel products in Q2 2011 and above 800 th. tonnes in 2011 at its production facilities in Turkey.

Mining segment
COAL
Belon

• Production of coking coal concentrate amounted to 766 th. tonnes in Q1 2011 which is 9% lower q-on-q. The decrease is attributable to planned change of walls which is scheduled for Q1-Q2 2011.   

At present Belon is one of key suppliers of Zh-grade coals in the Russian market with the 10% market share in 2010.
At the end of 2010 MMK completed sale of the steam coal production business at Belon for $285 mln within the strategy of MMK to dispose of non-core assets.

IRON ORE

• Captive iron ore consumption increased by 5% q-on-q and 22% y-on-y. The growth is driven by revamping of slag processing facility Amcom-1 and commissioning of Amcom-2 and Amcom-3 in 2010.
• Consumption of iron ore coming from Bakal amounted to 346 th. tonnes in Q1 2011, which is flat q-on-q.
• Consumption of iron ore produced at MMK base in Magnitogorsk amounted to 395 th. tonnes in Q1 2011 which is 6% higher q-on-q.
• Output of iron-containing charge from slag processing increased by 7% in Q1 2011 q-on-q and equaled to 536 th. tonnes. The 60% y-on-y growth is driven by commissioning of new slag processing facilities at MMK.

According to the programme of iron ore production expansion MMK in-house output of iron ore is expected to grow from 4.7 mln tonnes in 2010 to 7.3 mln tonnes by 2013.

Developments at MMK key investment projects

Mill 5000
Mill 5000 is one of the key investment projects of MMK contributing to increase of HVA products share in MMK production portfolio and to growth of the company’s presence in the domestic market in Russia. In 2010 Mill 5000 reached full capacity and currently runs at 100% utilization rate.
Mill 2000
MMK continues construction of its new cold rolling complex (Mill 2000) in order to benefit from the growing market of high-strength steel types. The complex will use state-of-the-art technologies to produce high quality cold-rolled and galvanized steel products for inner and outer car-body parts as well as for use in white-goods production and in construction industry. Mill 2000 will produce 2 mln tons of finished steel products per year, including 700 th. tonnes of galvanized steel.
Phase 1 will be commissioned in July 2011 including cold rolling mill and pickling line, while full-cycle production at the facility will start by mid-2012. Construction and engineering works are advancing in line with the schedule and currently employ 3,000 specialists. At the moment construction of the shop is 100% complete, all the equipment of Phase 1 has been installed and commissioning works are in progress. 10% of phase 2 equipment has already been installed.
MMK-Atakas
In order to strengthen the footprint in the Middle East market MMK completes construction of MMK-Atakas steel-making complex in Turkey.
March 2011 saw commissioning of an electric arc furnace facility in Iskenderun. The hot-rolled mill construction is being completed and expected to be commissioned in July. It is planned that all the production facilities of MMK-Atakas complex in Iskenderun and in Istanbul be commissioned in 2011.
Acquisition of 50 percent minus one share of MMK-Atakas from the Atakas Family is expected to be completed by November 01, 2011 which will allow to fully consolidate company`s financial results.

Outlook
MMK intends to increase finished steel output by 20% in 2011 compared to 2010 (incl. 15% growth at MMK operational site in Russia). Such growth is driven by increasing demand for MMK products from major steel consuming sectors in Russia.
MMK Group Q1 2011 results under IFRS will be published in the beginning of June 2011.