an update on the Russian steel sector (2013 results)

1. PLATTS ANNUAL STEEL MARKETS EUROPE
CONFERENCE
CIS: how do they interrelate with Europe?
Berlin
2-3 June 2014

2. DISCLAIMER
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2

3. RUSSIA: #5 CRUDE STEEL PRODUCER GLOBALLY
[3]
111
87 81 69 66
43
China Japan USA India Russia South Korea Germany
779
Source: Worldsteel Association, 2013.
million t
• 4% of global crude steel was produced in Russia in 2013
2013 RESULTS

4. RUSSIA: #6 STEEL CONSUMER GLOBALLY
Source: Worldsteel Association, 2013.
[4]
96
74 65 52 43 38
China USA India Japan South Korea Russia Germany
700
million t
• Russia accounted for 3% of apparent finished steel use in the world in 2013
2013 RESULTS

5. INDUSTRY CONCENTRATION
[5]
71%
29%
Top 4 steelmakers Other steelmakers
Median size of the plants
– below 0.5 mln tpa
output
• Over 70% of crude steel in Russia is produced by four companies
• Four largest Russian steel companies are in Top-30 of global steelmakers
69 m t
NLMK 14.6 m t
MMK 11.9 m t
Evraz 11.9 m t
Severstal 10.7 m t
TOP 4
2013 RESULTS

6. 34 35 37 39 40 41 42 41 39 38 42 44 46 46
9 9 9 9 11 11
16 19 20 16
18 19
21 21
16 16 14 14
15 15
13 12 12
6
7 7
4 259 59 60 61
66 66
71 73
69
60
67 69 70 69
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
OHF EAF BOF
CRUDE STEEL PRODUCTION BY ROUTE
[6]
4%
30%
66%
• Russian steelmakers have modernized the assets to produce steel in a more
effective and environment-friendly way
million t

7. • Surplus of steel is exported from Russia mostly as semi-finished products
• Net exports of finished steel are declining as domestic steel demand grows
attracting imports
STEEL TRADE BALANCE
[7]
15,7 13,6
15,1 12,1 14,8 13,6
6,5 11,2 7,4
5,2
4,0
3,4
0
5
10
15
20
25
30
2008 2009 2010 2011 2012 2013
Semi-finished steel net exports Finished steel net exports Exports Imports
million t
Source: Research market agencies 2013, Russian statistics, NLMK estimates

8. EXPORTS STRUCTURE BY PRODUCT
[8]
36%
21%
19%
13%
11% Slabs
Billets
HRC
Other flat products
Long products
24 m t
• Semi-finished products account for 57% of exports
• 74% of finished steel exports are flat steel products
Source: Research market agencies 2013, Russian statistics, NLMK estimates

9. KEY EXPORT DESTINATIONS
[9]
38%
21%
19%
10%
8%
4% Europe
Middle East
South-East Asia
CIS
North America
Other
24 m t
• Europe, Middle East and South-East Asia are key export destinations of Russia
Source: Research market agencies 2013, Russian statistics, NLMK estimates

10. KEY IMPORTING REGIONS
[10]
58%
20%
19%
3% CIS
Asia
Europe
Other
7 m t
• Imports accounted for 16% of steel consumption in 2013
• Imports mainly come from CIS countries
• 19% is imported from Europe
Source: Research market agencies 2013, Russian statistics, NLMK estimates

11. EUROPE AS A TRADING PARTNER
[11]
54%
4%
19%
14%
2%
7%
Slabs
Billets
HRC
CRC
Other flat products
Long products
EXPORTS TO EUROPE IMPORTS FROM EUROPE
30%
12%
24%
14%
11%
8%1%
Pre-painted sheet
Galvanized sheet
Other flat products
Sections
Rails
Other long products
Semi-finished steel
8.7 m t 1.0 m t
• Russia accounts for over 80% of European slab imports
• Europe exports high value-added flat steel and long steel in Russia
Source: Research market agencies 2013, Russian statistics, NLMK estimates
5 m t

12. 23 31 29 36
81
101
122 128
204
173
159
188 176
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
RUSSIAN STEEL SECTOR INVESTMENTS
[12]
• Significant investments in modernization, including in minimization of
environmental footprint, energy efficiency and transport infrastructure
billion RUB
Fixed asset investments of Russian steel companies
Source: Russian steel consortsium estimates, companies data
* Data for Russian steel consortsium members, excluding OMK

13. 53,5%
48,5%
43,5% 43%
2000 2005 2008 2013
RUSSIAN STEEL SECTOR MODERNIZATION
[13]
Source: Russian statistics
• Russian steel companies have substantially restructured and revamped
fixed assets
• Fixed assets depreciation has declined by 10 p.p. over the decade
Fixed assets depreciation

14. PRODUCTIVITY GROWTH AND MINIMIZATION OF
ENVIRONMENTAL FOOTPRINT: NLMK CASE
[14]
• NLMK has a track record of environmental footprint reduction
o Since 2007 air emissions have reduced by 40% and waste utilization has increased by 20%
o Zero waste water discharge at Lipetsk site achieved
• Labour productivity growth of over 2.5 times since 2001
AIR EMISSION AND WASTE WATER DISCHARGE
37,5
30,5 30,4 28,5 27,9
22,6 19,4
1,09
0,02 0
0,0
0,5
1,0
1,5
0
10
20
30
40
2007 2008 2009 2010 2011 2012 2020E
Air emissions per tonne of steel
Waste water discharge per tonne of steel, rhs
Note: NLMK Russia average. BAT = “Best available technology”.
kg/t of steel
BAT 18.9
*Russian Flat Products
LABOUR PRODUCTIVITY AND ENERGY EFFICIENCY
5
5,5
6
6,5
7
7,5
100
150
200
250
300
350
400
450
2001 2007 2008 2009 2010 2011 2012 2013
Gcal/t
t of steel
per
employee
Labour efficiency
Energy efficiency (RHS) Source: Company data

15. RUSSIAN STEEL SECTOR PROFITABILITY
[15]
Source: Companies data, Bloomberg, NLMK estimates
• Profitability margins to stagnate at single digit numbers capping ability to
expand capacity
• … and leading to capacity rationalization and restructuring
EBITDA margin of the top-4 steelmakers
0%
5%
10%
15%
20%
25%
30%
35%
2007 2008 2009 2010 2011 2012 2013 2014Е
9.5%

16. 35 36 34
17
12 11
2,1
3,0 3,1
0
1
2
3
4
0
10
20
30
40
2011 2012 2013
Net debt EBITDA Net debt/EBITDA (x-times)
RUSSIAN STEEL SECTOR DEBT
[16]
Source: Russian steel consortsium data
• Capex is expected to decline due to high debt leverage, lower profitability and
focus shift from growth to efficiency improvements
billion RUB
Debt leverage of Russian steel companies*
-35%

17. STEEL DEMAND IN RUSSIA
[17]
0
10
20
30
40
50
60
70
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
million t
Source: Worldsteel Association 2013.
• Steel consumption has increased by 2.7x times since 1994 to 43 million t
• Huge pent-up demand from the 1990-s
+2.7x

18. STEEL DEMAND FUNDAMENTALS
[18]
PASSENGER CARS PER 1000 PEOPLE
Source: Rosstat, BPIE, World Bank, Avtostat
• Strong fundamentals for steel demand growth in the mid-term
o Low motorization rate and aged car fleet
PASSENGER CAR FLEET AGE
750
510
432 423 420
301
233
USA
Germany
Poland
Czech
Republic
Canada
Hungary
Russia
12%
15%
23%
50%
< 3 years 3-5 years
5-10 years > 10 years

19. STEEL DEMAND FUNDAMENTALS
[19]
FLOOR SPACE PER CAPITA
Source: Rosstat, BPIE, World Bank, Avtostat
65
42 39
23
US South
Europe
Central and
Northern…
Russia
sq. m per capita
36%
42%
22%
Built before 1970
Built in 1970-1995
Built after 1995
• Strong fundamentals for steel demand growth in the mid-term
o Infrastructure underdevelopment
o Scarce and obsolete housing stock
HOUSING STOCK AGE STRUCTURE

20. 25% 27%
49%
68%23% 16%
7%
2%
16%
14%
17%
8%
36% 43%
27% 22%
USA Europe BRIC Russia
Other
Machinery&Equi
pment
Automotive
Construction
PRODUCT MIX DEMAND CHANGING
[20]Source: NLMK estimates, bank reports
• Gradual shift is expected to the more value added products demand
o Machinery and equipment
o Automotive steel
o Sophisticated tubular solutions
Steel demand breakdown by sector

21. 0,6
0,7
0,8
0,9
1
1,1
2012 2013 2014Е 2015Е 2016Е 2017Е
Crude steel output Steel exports
• Crude steel output is expected to decline as competition on the global
markets intensifies
• Steel exports to decrease driven by domestic demand growth and decline in
steel output
RUSSIAN STEEL FORECAST
[21]
Index, 2012 = 1.0
Source: Russian steel consortium estimates

22. • Russian steel sector is highly self-sufficient in raw materials
o 43% of coking coal, 22% of scrap and 15% of iron ore are exported
RUSSIA: SELF-SUFFICIENCY IN RAW MATERIALS
Source: Research market agencies 2013, Russian statistics, NLMK estimates
[22]
101,5
93,2
14,8
6,5
49,9
30,4
21,5
2,0
23,3
18,2
5,1
Iron ore* Coking coal Scrap**
* Iron ore concentrate and sinter ore, 62% Fe equivalent
** Obsolete and prompt scrap
million t

23. RAW MATERIALS RESERVES
Source: US Geological Survey 2014, BP Statistical Review of World Energy 2013
[23]
17% 12%
21%
11%
20%
9%
15%
6%
14%
3%
27%
24% 21%
Iron ore Coal*
RoW
USA
India
China
Brazil
Australia
Russia
700
14 billion t 49 billion t
* Anthracite and bituminous
• Russia has large raw materials reserves
o Top 3 – iron ore
o Top 5 – coking coal

24. RUSSIAN SCRAP MARKET
[24]
4,7
5,8 5,8
5,1
2010 2011 2012 2013
SCRAP EXPORTS SCRAP DEMAND GROWTH
39%
24%
16%
21%
Other
South Korea
Belarus
Turkey
18,2
23,1
4,9
Scrap consumption
2013
Scrap needs
growth*
Scrap consumption
when new
capacities on stream
• Scrap demand to grow as new EAF capacities come on stream
• Scrap shortage to drive substitutes use: pig iron, slag and DRI/HBI
Source: Research market agencies 2013, Russian statistics, NLMK estimates
* Assuming 85% capacity utilization and no use of scrap substitutes
million t million t

25. SUMMARY
[25]
779
• Russian steel sector used super cycle profits to modernize and improve
products quality
• Capital structure and “new normal” profitability caps further capital outlays
• Cost optimization and de-leveraging will remain in the focus
• Further restructuring / capacity rationalization
• Sustainable demand driven by fundamentals will increase steelmakers’
domestic market focus, leading to improved service and increased share of
value added products sales

26. [26]
779
Sergey Takhiev, Head of Investor Relations
Sergey Takhiev is head of investor relations having joined NLMK
team in April 2005 as a market research analyst. He is heading
NLMK Department from 2008.
A member of Russian Steel Information and Analysis Commission, a
Russian steel industry organization and think-tank. A member of
World Steel Association working group responsible for Russian steel
sector analysis.
Sergey gained the #4 position in the Extel European Metals and
Mining Ranking in 2013.
He holds an MBA and master’s degree in Economics.
Contacts:
D: +74954117710 ext. 72225
M: +79857605574
tahiev_sa@nlmk.com
http://www.linkedin.com/in/takhiev