Nikita, please go ahead.
Good afternoon, ladies and gentlemen. This is Nikita Klimantov from Severstal's investor relations team. Thank you for joining us today for our conference call to discuss our operating and financial performance in the third quarter of 2021. Before giving the floor to company's CFO, Alexey Kulichenko, let me remind you that our materials and comments during this call can be forward-looking and based on management's best view of the market at the moment. If these projections change, we do not take responsibility for immediately updating the call's participants on that. Now I am happy to hand over to Alexey Kulichenko for the market and financial highlights overview. After that, we will be happy to answer your questions. Thank you.
Yes. Hello. I am Alexey Kulichenko, CFO of the company. Let me start a review of presentation. I will be ready to answer your question afterwards. Let's start with health and safety section. Though our safety on slide two, you see that our safety system is in general improving, which you can see as a long term LTIFR dynamics. Due to the scale and complexity of our investment project, we still have issues. In Q3, our LTIFR for both staff and contractors unfortunately increased by 40% quarter-on-quarter to 0.88, while LTIFR just for our staff grew by 63% to 0.93. We had two fatalities among our staff in Q3 in 2021. We conducted investigation for each of these cases and took all possible actions to prevent similar accidents in the future.
As for our long-term goals, health and safety remain our key priority, and we remain committed to eliminate all work-related fatalities and reduce our LTIFR by 50% by 2025. With that, let's move to slide three. Few words about market situation. Our steel demand hasn't changed significantly. Currently, we expect steel demand in 2021 to increase 4.5% year-on-year due to ex-China performance. Chinese market is affected by steel production restrictions, which on one hand supports steel prices. However, Chinese property market cooling creates the risk of weakening of steel demand. Russian demand we expect likely to increase by 2.4% in 2021. As for the next year outlook, we expect global steel prices to grow by 2.2%, driven by mostly again ex-China production. Demand in Russia will likely increase by 3% in 2022. Turning now to price dynamics.
Iron ore fell to almost $100 per ton CFR China due to softening of Chinese demands as China limits their steel output. Iron ore steel prices decrease also led to a decline in steel prices from the record levels of second quarter. Steel prices in Russia were under pressure too. In Russia, temporary 15% export duty has caused domestic HRC prices to fall below its parity net of duty. The expected removal of export duty starting from January 2022 is a positive factor for the domestic market. Let's look at the average quarterly price dynamics. We see that decrease in HRC prices in dollar terms exceeded the falls of the iron ore cost base, making further significant steel price correction unlikely. Let's continue with our outlook on page four.
I would like to point out that we expect new tax mechanism to affect our performance in 2022. As you know, Russian authorities have confirmed a new tax regime that will replace export duty. That will impact Severstal financial performance. Our efficiency programs and the planned expanding across all business units will help us to partially offset growth of inflation costs. Now let's go to slide number five, which summarizes Severstal's operating performance in the first quarter of 2021. Steel output grew by 4% quarter-on-quarter to 2.9 million tons due to completion of seasonal repairs at the blast furnace shop. Consolidated steel sales were up by 1% quarter-on-quarter. They amounted to 2.7 million tons, driven mainly by robust pig iron and slab sales. Semi-finished product shipment increased by 54%.
High valued sales decreased by 12%, mainly due to softening of steel demand in Russia on the back of clients' expectation of further rise in steel prices. High valued share in product portfolio fell to 43%. If you won't take that into account, the increase in pig iron shipments, the high valued share in the product portfolio hasn't changed significantly quarter-on-quarter. As for consolidated raw material sales, coal sales decreased by 55% quarter-on-quarter to 0.13 million tonnes, driven by repositionings of our longwall. Sales of iron ore products were lower by 17% quarter-on-quarter for two reasons. First, Karelsky Okatysh decreased iron ore production due to equipment maintenance. Secondly, we decreased our consumption to meet the growth of our crude steel output. On page six, we see that steel prices on Russian market decreased to 49%.
As I have said above, the main reason of this was temporary softening of steel demand in Russia. In this environment, we redirected our sales to export markets. That is why we see significant increase in revenues from regions of North America, where we mainly sell pig iron to, and from the Middle East, 2 x growth as well. Let's now move to page seven and talk about our financials. Our revenue increased 9% to $3.2 billion. EBITDA rose by 5% to $1.7 billion, so our EBITDA margin is reaching 54%. At the same time, net debt to EBITDA ratio was 0.21 at the end of the quarter. Our free cash flow reached a new record level of $992 million, up by 6% quarter-on-quarter, which allow us to recommend a solid dividend of RUB 85.9 per share for third quarter of 2021. Let's move to page eight.
A few words about our cash flow dynamics. I already said that our free cash flow increased to $992 million, driven by high EBITDA. Cash CAPEX grew by 4% to $284 million. Working capital buildup amounted to $58 million, mainly related to inventory growth, both related to export share increase, and also related to softening of demand, where we now have more stock in our supply chain in the Russian market as well. Partly, that was offset by our increased amount of accounts payable and received advances. As a result, net working capital for last 12 months revenue ratio improved to 9.4%. Let's move to page nine, which summarizes our liquidity position. Our cash at the end of the period decreased to $281 million on the back of dividend payment and bond repayment.
At the same time, we reduced our total debt by 22% to $1.8 billion, and reduced our net debt to EBITDA ratio to 0.29. Overall, our liquidity position remain very strong with $281 million in cash and almost $1.2 billion in unused committed lines, which makes us feel comfortable with our structure of debt. On slide 10, I'll give some color of the main CAPEX projects which were completed in the reporting period. Our key project was a workshop and casting machine upgrades, which allow us to increase the number of casts to 86 per day, resulting in annual capacity growth of approximately 0.5 million tons. We also achieved full load of our new pickling line, which resulted in the total elimination of wastewater pollution from the metal pickling workshop.
As of our CAPEX guidance, we still plan to spend $1.35 billion in 2021, meaning that we will see significant increase in spendings in our fourth quarter compared to our previous quarters. Finally, let's look at our cost performance on slide 11. You see that our total non-integrated cash cost of slab per tonne in Cherepovets increased by 11% to $505 per tonne, affected by high input of material costs, and integrated cash cost of slab also grew 29% quarter-on-quarter due to increase of external coal consumption followed by coal price growth. At the resources division, cash cost of coal concentrate in Vorkuta reached $102 per tonne, which is a 13% increase, and cash cost of iron ore pellets increased by 3% to $34, and of our concentrates up to $28, which is 4% growth in our Olkon mine.
That concludes my summary of our performance and our view on the market. With that, I am ready to take your questions.
Thank you very much for the presentation. We will now start the Q&A session. If you are dialed in via the telephone, please press star two on your keypad and wait for your name to be called. That's star two. If you are dialed in via the web, you may also ask a voice or a text question. We'll now give a moment or so for the questions to come in. Thank you. Our first question comes from Mr. Yuriy Vlasov from Sova Capital. Please go ahead, Sir.
Many thanks. Alexey, two questions on the third quarter results. One is, well, first one is not really on the third quarters, but about 2022. Could you give us a bit more details on the new taxation for steel and also for coal and iron ore products? How it's going to be calculated and how much do you expect to pay more? The second question is about your market update and outlook. You're stating that Chinese steel market is affected by steel production restrictions, which is positive for price sentiment. In that sense, what do you see more as a stronger factor? What will impact your finances more? Chinese domestic steel prices or seaborne iron ore prices? Thank you.
Okay. Thank you. Thank you for your question. First of all, on 2022 new taxation. It's still at the moment, the new law is being finalized and prepared, and there are a lot of technical or, say some technical elements which are under discussion. But the main idea I think is clear. We will have increase of Mineral Extraction Tax duties from next year for both iron ore and coking coal. The new percentage. We will also have the change of the base of calculation of this mineral tax. For coking coal, it will be 1.4% of a benchmark price of hard coking coal, which will be taken the price of FOB Australia, as far as I remember. The same will be for iron ore, where it will be 4.8% from the benchmark price of CFR China 62% iron ore concentrate.
That will be adjusted to the actual quality or actual grade of ferro, depending what kind of deposit you have, and the new amount of tax will be calculated. On top of that, it will be steel excise, new tax introduced from 1st of January. It will be paid from 2.7% from the benchmark price, which will be a price of slab of FOB Black Sea. The taxation base will be liquid steel of Russian steel producers. At the moment, there are a number of discussions how this base will be determined and so on, but generally, the rules are supposed to be close to that. So it could be, again, some adjustments, I think, during finalization phase of the law, but I do not expect any major moves there.
If we apply that new rules to us, and take, for example, consensus of the markets going forward for next year, we could expect incremental tax charges of roughly $280 million-$290 million for Severstal. That does not take into account excise base of this year, which we are paying for export. I am just comparing really existing mineral tax with Mineral Extraction Tax, with the new taxation of mineral extraction and excise. That will be an incremental impact of that size.
Okay.
Of course, I mean, difficult to see what really the prices will be, but I am just taking at the moment a consensus view of next year.
Alexey, sorry, before we move on, an extra question on how would you be converting your coking coal, which is grade turze into hard coking coal Australia?
At the moment, law doesn't go into that level of details. Maybe that will be clarified later, but at the moment, it is just whatever you produce, they take 1.5% of the price and then they apply it to your production. That is how it works.
Oh, very clear. Understood. Thank you. Thank you very much.
For second question on market of China, what would depend more on steel prices or on iron ore? I think those are somewhat connected. For us, of course, I would say as an integrated producer, we are definitely benefiting from growth of iron ore prices and vice versa. I do not think it will be actually the steel price will be too much disconnected from that. I think it will be still eventually be based on a certain spread logic. The lower iron ore prices, the more pressure we could expect eventually on steel prices. But at the moment, again, we see that price range at the moment on iron ore is again, found some level of support around $120 per ton. We still believe that price levels will remain quite strong, and will be adjusted further with, again, according close to consensus.
I would say both to some extent. I cannot really say what is really more influencing our performance.
Okay. Many thanks.
Mm-hmm. Okay, next question, please.
Okay. Thank you very much. Our next question comes from Mr. Nikolay Sosnovskiy from Prosperity Capital. Please go ahead, Sir. Your line is open.
Yes. Hello. Can you hear me?
Yes, please go ahead.
Yes.
Excellent. I had a question on the domestic consumers. Do you think any demand softening in construction, whether it is based on the fact it is autumn months and we are going into winter or because of periods of high prices and for many, these high prices became prohibitive. Any color on your major consumers would be very helpful.
Well, the short answer is yes, we see. We used to have quite strong quarters, both first and second, but in the third quarter because of a number of reasons and I think mostly because of a reverse of the trend on the market. We definitely see the position of customers really to delay their purchases as much as possible and as a result, we see a steel demand decrease for that period. The one which is shipments really from the steel mills. I will not tell you if it really determines the activity for that period. We see definitely where some infrastructure projects are shifted to later periods because it took really then time for them to readjust to new pricing reality, and they are restricted by a lot of budget limitations and so on. But we do not see that this demand disappeared.
We just really think that it is more like a shift story. In terms of construction, I would say again, we see really the period of lower sales for Q3 from the local market. But I mostly, I would say, apply that to really change of the market trends rather than the activity of them themselves. I cannot differentiate it at the moment. Generally, again, we expect for the market around 2% growth year-over-year, and I think that will be more or less reflecting the real performance of consumer industries.
Mm-hmm. Okay. Many thanks. My second question is on your strategy considering the material price increase and earnings improvement and also these taxation changes locally and the dividend debate. Will you adjust anything to your midterm and long-term strategy in terms of capital allocation, kind of CAPEX dividends, new projects, M&A? Any new thinking arose out of the situation or everything just intact?
Well, the short answer is our CAPEX decisions are made based on fundamentals and our, I would say, outlook, which we are able to produce for the period of the expected investment project. From that perspective, of course, for example, new taxation has an impact on that because it adds a new element of the tax outflows, which brings more challenges to the financial attractiveness or, let's say, fundamentals of those projects. From that perspective, it definitely would influence. Other than that, I would say no, definitely. Yes, I know there are a lot of discussions, I mean, of link of dividend stories and investments, which to be honest, looks quite weird. We do not take that into account at the moment.
But as we said, on parallel, we work definitely on updates of our strategy and of our potential CAPEX plans, and we will present them later. From that perspective, the thing which is definitely more influencing our plans is, for example, CO2 discussion and story of decarbonization and optimization of our environmental footprint. Those elements definitely we expect to influence new update of our CAPEX program. Other than that, probably, it is just an economical rationale to which new taxation bring more challenges. But again, we still hope that we will find opportunities to still find the good projects in terms of further company improvement.
Okay, great. Many thanks.
Mm-hmm. Okay.
Thank you. Thank you very much. Our next question comes from Elena Germanova from Goldman Sachs. Please go ahead. Your line is open.
Good day. Thank you very much. My first question relates to fourth quarter. Can you give a very near-term outlook on fourth quarter volumes, networking capital? The second question relates to next year's CAPEX. What is your guidance on CAPEX, and what are the key projects that you will be working on, and what efficiency gains do you expect next year? Last question is a follow-up to Nikolay's discussions on the strategy update. Can you advise on the timeline when we can hear on this strategy update? Thank you.
Yeah. I think it was quite a lot of questions. Let's start with fourth quarter. I would say generally we see it being in line, in terms of volumes, with previous quarter. Definitely, we expect some destocking. I am speaking like maybe in a range of a few hundred thousand tons, which we accumulate during Q3. We expect to sell them during Q4. That is probably the only element which could influence. If we will be able to do that successfully, then we will end up with slightly higher volumes and lower net working capital as a result of inventory reduction by the year-end. We will also see how consolidation affects port duties, will correlate with the overall price environment and potential price decline on the market, which kind of generally expected by the market.
We will see what is the best month for sale, like in terms of January or December. From that perspective, we could have some, I would say, short-term decisions, should we sell in December or keep on stock and sell in January, that relates, for example, to export. That will be subject to real price environment of next two months. In terms of CAPEX for 2022, it is too early to say. We are at the moment finalizing our program. You know that we usually provide guidance for the CAPEX closer to the year-end. Maybe this year we will combine it with our strategy update, which we also plan to do. Usually, we do it on our capital market date. The previous one was scheduled in March. We did not finalize, I think, the date for the new one. Or we do? Yeah. But yeah.
I think very likely it will be somewhere in the beginning of next year. That will be a good moment, first of all, to introduce to you our update of strategy, and secondly, the details of our CAPEX 2022 on top of what we already announced, like in terms of additions. From that perspective, that will be more appropriate. At the moment, it is too early for me to give you any guidance.
Thank you. Thank you very much. That is it from my side. To the next panelist.
Okay, thank you.
Thank you very much. Our next question comes from Mr. Sergey Donskoy from Sberbank CIB. Please go ahead, Sir.
Yes. Hi. Can you hear me?
Yes, yes, Sergey. Hi.
Yes. Hi. Thank you very much. Some of my questions have been answered. I have three short ones. First of all, regarding the developments of your working capital. In Q3, I think there was an unusual decline in accounts receivable, kind of a counterintuitive considering increase in your top line, which helped limit increase in the working capital overall. I wonder, was there any specific reason for that, and what should we expect for the working capital in Q4? I have two more questions, but they are on the mining segment performance.
Okay. On accounts receivable, generally, situation is ongoing. We do not have any major change in terms of conditions. There are some contracts with longer dates in the bay, like in the previous quarters, which now kind of behind. That slightly improves the structure of networking capital on one hand. So it's more like, for me, the return to the normalized level rather than, I would say, something lower than usual. But the elements probably which is the most influencing the accounts receivable level, we try to use extensively opportunities of financial markets. So where we see opportunities to sell our accounts receivable on non-recourse-able basis, we use it. From that perspective, we keep developing that direction of our, let's say, trade finance support. From that perspective, that also reflects the growth of that area. So we plan to develop that further.
Of course, it's subject to specific agreements with both customers and our financial partners. But our approach is, if we see these opportunities, we use them. We see that the trend is also improving, that we find more opportunities actually to sell our accounts receivable.
Mm-hmm. I suppose we shouldn't be expecting a further increase or significant increase of working capital into Q4?
No, we don't.
Okay.
I would personally expect some improvement of network and capital, but it's subject to specific situation with inventories, as I said, between December and January and our, I would say, port decisions in terms of better periods for sales. Secondly, I think it was specifically one prepayment, the big prepayment which was done in September. The range, I think, is around $90 million. From that perspective, it's more like a specific contract base rather than ongoing event. From that perspective, that could play the other way. If we will not have the same one in December, then we will have differences in networking capital for the prepayment.
Mm-hmm. Understood. Thank you. As I said, two more questions on the mining side. One is on Yakovlevsky GOK. It is ramping up, but it seems like the growth there is a little bit behind of maybe what at least we were expecting. I wonder if you could provide any guidance here on the medium term or longer term, or when you think the mine is going to reach capacity, or what production level you expect next year. Secondly, it's about relative cost performance at Karelsky Okatysh and Olkon. I understand that both mines have been affected by higher MET royalties this year. But for some reason, cash costs at Karelsky Okatysh in the last two quarters stood at roughly 40% higher versus average for the last year, whereas at Olkon, the growth was only about 13%.
I wonder if it's just kind of a temporary divergence or there is some fundamental behind it.
Okay. Let's start with Yakovlevsky Mine. We are definitely behind our schedule in ramping up of Yakovlevsky. It is a young, I would say, entity, and we see that from maturity of processes, of practices, of people behavior perspective. We see that not everything going as smooth as it was in business plan. We still definitely have growth, and significant growth of Yakovlevsky Mine, and especially in this price environment, it deliver a good financial result. We are still working in how to make it more, I would say, stable and fast eventually. I would say generally more mature in terms of management practices and operational practices going forward. For next year guidance of volumes, we still believe that we will We set some ambitious targets ourselves. I am not ready to be honest.
Before I also see, I would say, good improvements or stable, I would say, track records of improvements in Olkon to promise that to the market. I definitely think that we will be between three million and four million of production next year. This year, I think we very likely will be around 2.5 million. Taking into account that when we acquired it was less than one million, I think it is a good growth, but definitely not what we eventually think. I think we still have, by 2023, to reach five million, which we kind of set for us as the initial target, is still quite a good perspective. Let's see. I think next year, in a large extent, will determine if we are already there or not. I would say my guidance is between three million and four million at the moment. Say 3.5 million.
In terms of Karelsky Okatysh and Olkon, you are definitely right. First, we have higher costs, and the main driver of cost growth is Mineral Extraction Tax. In terms of Karelsky Okatysh, on top of that, we have higher level of maintenance costs. Difficult for me to say how stable it is. We really try to have Volumes in this situation is actually definitely a preferable KPI to fulfill.
As a result, we kind of see that we have from time to time, a higher maintenance cost and higher repairs cost. Is it something ongoing? We still, I think, need to investigate. I think it will be a good point of our discussion internally for next year in terms of plans. You are right. In Karelsky Okatysh, our cost growth at the moment is, again, ahead of the trend.
Understood. Thank you very much.
Thank you very much. Our next question comes from Mr. Boris Sinitsyn from Renaissance Capital. Please go ahead, Boris. Your line is open.
Hi. Thanks. Just one question from my side. Basically, starting from January next year, you would see cancellation of export duties. The question is: do you expect the domestic HRC premium to be reinstated? Thank you.
Good question. Generally, of course, export alternative is something which eventually determines the price point on the local market. But then it very much depends on the, I would say, speed of change and some other drivers in terms of relative attractiveness of other markets. As you see, for example, this year, it was almost not any premium at all and even a negative premium. The reason was the very rapid growth of the world benchmarking. Of course, introduction of export duties kind of reduce it eventually, but we still, from that perspective, Russian market cannot catch up that fast to resume the premium. I think eventually it will happen. I personally believe that we will be able to restore the premium. But for that, we need, I would say, few periods of relatively stable price environment.
If we definitely, or for example, which I definitely less prefer, a strong reduction of the global benchmarking prices, because in this case, Russian market moves with some delay and price premium is restoring quicker. As our major base case scenario is not assuming radical changes in prices. Yes, we will see fall down of the gold prices eventually from current levels, as they are still quite high. But if it will happen, we believe it will happen smoothly and gradually, and from that perspective, I think it will require a few quarters for Russian market to catch up the premium. If price drop will be sudden, I mean a few hundred dollars in a quarter or a couple of quarters, then price premium will return quicker.
Okay, very clear. Thank you so much.
Thank you.
Thank you very much. Our next question comes from Mr. Dmitry Smolin from Sinara Group. Please go ahead, Sir. Your line is open.
Good day. Thank you very much for the presentation. I have two questions. First, on domestic coking coal prices. We are hearing from industry sources that coking coal price increase was 60% in the fourth quarter. Do you expect, first, any impact on Severstal stability in the fourth quarter? Second, do you expect that steelmakers will be able to pass this higher cost from coking coal price into domestic and export steel prices? The second question is on export and domestic steel prices. Given the current spread between China's HRC and Russian FOB Black Sea HRC of $100, do you see any upside in Russian benchmark? Do you think that cancellation of export duties starting from January could be potentially positive for export steel prices as well? Thank you.
Sorry, I missed the last one. For export steel prices or for local steel prices?
For both. Let's say for both. Cancellation of temporary export duties, could it be potentially positive for both export and domestic?
Okay, let's start with last one. I think I already answered that definitely we will see a positive support for price alternative in Russia. That was in my previous question. Speaking about export prices, it's absolutely irrelevant. I mean, nobody on the world with main markets of our products care about our levels of internal taxation in Russia. The price will really be determined by supply and demand balance. From that perspective, of course, Russian duty will just allow us to have more money from export because we will not pay duty from our export anymore. That's kind of quite arithmetical clear difference. The price itself will be driven by other drivers. In terms of your other questions, in terms of coking coal prices, yes. Prices are going up, definitely reflecting [NVS numbers, which you're told is quite how we see them as well.
Definitely it will have impact for every company who is not integrated into coking coal. We are partly integrated into coking coal, so we'll have exposure for the remaining part. But of course we will have. Second, answer to your second part of the question, no, I don't think it will be possible for steel makers to put this price increase into prices because again, prices will be determined more by supply-demand balance, and they're already quite high. I think there is plenty of spread for steel makers to actually absorb that. I don't think in this current environment, steel makers will go and complain that their costs are too high, and they require higher prices eventually. So I think it's just reality of growth of one of the commodity elements in our cost of sales.
In terms of your second question, steel prices opportunities versus China and Russian export a bit. I don't think it's actually a lot of opportunities here. Prices are quite clear. I think for us, market will be more determined by situation with prices on markets closer to us, like Middle East mainly and partly Europe. So from that, I think we're utilizing opportunities of this market already. I don't think there is a lot of upside on top of it. Yes, in China, situation is also specific, but our logistic difference, distance, and cost of freight basically don't give me, how to say, enough foundation to consider any unrealized potential here.
Thank you very much. Just one more quick question. You said you partially integrated into coking coal. What is your current self-sufficiency in coking coal, for example, in third quarter or in fourth quarter of this year? Thank you.
No, with current performance of Vorkutaugol, I think we're around 50%. When they will ramp up, depending on Vorkutaugol performance, our integration varies from 50% - 80%. I think now we're closer to 50%. Yeah, of course, we always try to make it the higher, the better. But at the moment, I think it's around 50%.
Okay. Thank you.
Thank you very much. Our next question comes from Mr. Nikolai [inaudible] from VTB Capital. Please go ahead, Sir, your line is open.
Yes, good afternoon. Thanks for presentation. One follow-up on capital allocation from me, please. Considering the continuous rise in CAPEX almost each year, push from government for investments and the vast amount of ESG projects in the pipeline, should we expect some reconsideration of the normalized CAPEX that we use for dividends calculations?
Very likely. I think it's a good question. We're also thinking about it ourselves. Definitely. Well, first of all, we also have inflation, of course, on our CAPEX side. It's not coming only from our revenue, but it's kind of reaching us in other elements as well. Secondly, you're right. I think overall, I would say revision of how we plan to invest in ESG and I would say decarbonization, but also other elements, including pollutions and waste and so on. Definitely something which we kind of considering it, you can treat it as definitely it's a new project, but it's hardly a project with some financial clear, I would say output rather, I would say our current reality and need to invest in that areas. I think we will make it part of the update of our strategy and CAPEX program as part of it as well.
I see a few elements which makes me think that we maybe need to, how to say, revisit the normalized level of CAPEX in this environment.
Yeah. Thank you.
Okay. Thank you very much. Our next question comes from Mr. Artem Bagdasaryan from Wood & Company. Please go ahead, Artem, your line is open.
Yes. Hi, can you hear me?
Yes.
Thank you for your presentation. I have a, well, relatively small question concerning the chip shortages. There was several news in some of the media outlets that chip shortages are affecting the local car output in Russia. My question is, do you see any slowing down on this front from your side? Do you see this in general as a risk for Russian domestic steel demand in general and maybe whether-
Sorry, I missed the point. Can you reiterate what component you are talking about?
There was some news on chip shortages which is-
Art.
Yeah, which is negatively affecting Russian domestic car output. On that front, do you see it as a risk for Russian domestic steel demand? Do you see anything from your side in terms of demand from the automakers?
Well, first of all, yes, it's a well-known problem, I would say, problem of supply chain of semiconductors on the market. I am not aware to which extent it's slowing down the Russian production, but even if it is, a share of it in our portfolio is relatively low, and I don't think it will have any material impact on Severstal sales. As for our company itself, except for the thing that now the lead time of some of our IT equipment became longer, it's not obvious to me any other input at the moment.
Okay, good. Thank you.
Thank you. Thank you very much. Our next question comes from Mr. [Alessandro Abate] from JP Morgan. Please go ahead. Your line is open.
Thank you very much. I have a question on coal volume. Actually, we've seen a deceleration in the utilization rate at your coal assets. Could you please elaborate how this corresponds to your actual targets by 2023 to increase coal production by up to almost 3 million tons? Thank you.
Can you remind me, increase of 3 million tons? I cannot recall this number. I know that we are planning to ramp up Vorkutaugol to some extent, but 3 million tons looks like a number I cannot recognize quickly.
Up to 6 million tons. I am sorry.
Up to 6 million tons. You mean total volume of 6 million tons?
Yes. Yes.
Let us return to you. I think we will definitely see some slowdowns in Vorkutaugol performance, related mostly, as usual, to geological conditions, because Vorkutaugol is in quite a difficult deposit. But I know that we've definitely seen numbers that it's negatively influencing specifically 2021. But I'm not ready to tell right now what it will mean for 2023, what this shift. Because definitely it has to do with the shift of the longwall schedule. Let us just come back to you on that question. Our investor relations will return back to you with a little update.
All right. Thank you very much.
Okay. Thank you very much. Our next question comes from Mr. Andy Jones from UBS. Please go ahead, Sir, your line is open.
Hi, and thanks for the call. I just wanted to clarify on the coking coal side. You just responded to that question just saying you need to come back on the longer term guidance. But in terms of the guidance for the fourth quarter or for 2021 as a whole, in terms of coking coal output, could you give us a target there? Also just on the CAPEX guidance, I just wanted to just check. I had $1.35 billion as the last guidance figure I heard. Is that still the target or is there some downside potential to that, given the spending rate so far has been relatively slow versus run rate? Thanks a lot.
Okay, from CapEx guidance, yes, so far, we still believe that $1.35 billion is the right target. Yes, I understand that it brings quite ambitious expectations for Q4, but that's a detailed bottom-up discussions and eventual commitments of our CapEx team at the moment. I do not have, I would say, enough base to say that it will not happen. Of course, we will see. We know that from time to time the delays are happening, but at the moment, we still believe that we account for them, and $1.35 billion is the relevant number. In terms of Vorkutaugol volumes for this year, again, I know that we expect some recovery of Q4 performance compared to Q3, but the precise numbers I don't think I have in front of me. One second, sorry.
[Break]
Ladies and gentlemen, please stand on the line. The Severstal team is rejoining us shortly.
Hello?
Yes, please go ahead. You're live again.
Sorry. We were disconnected occasionally, my fault. Regarding our guidance on volumes, I think we will be slightly below five million on coking coal this year as a guidance. That's the short answer to your question.
Okay. Thank you.
Thank you very much. We have a follow-up question from Mr. Yuriy Vlasov from Sova Capital. Please go ahead.
Thank you. Very briefly, Alexey, you this year already sold over 1 million tons of semi-finished products, and the way you are going, you could easily exceed 1.5 million tons mark for the full year. What should change in pricing environment for you to come back to what you used to be selling 100% of raw steel? Thank you.
Sorry, can you reiterate again?
At the moment, you are selling quite a lot of semi-finished steel.
Yes. Got it. Thank you. I will answer, yeah.
Yeah. The question is-
The question is?
Yeah. The question is, what economic conditions should change for you to return to 100% finished steel sales, where you would re-roll everything?
No, it's not about economic conditions. It's our internal capacities. You know that we at the moment, one of our investment projects is upgrade of our heating furnaces, which is like the start of the rolling mill production facility. We're expanding them to make sure that first of all, we will have better quality costs and eventually volumes from that mill. But it used to be four furnaces, so we stop one, replace it with another, and then we stop next one, replace it with another one. We start this program this year, so once the furnace is actually idle, you're working with three remaining furnaces. From that perspective, you're lacking 25% of your rolling capacity. Of course, we try to upgrade the remaining one or to utilize them more and so on, but it became a bottleneck for that period.
Until we finish completely our furnaces replacement, we will have, I would say, lack of rolling capacities and excess of slab as a result of that. For that period, we will sell more slabs. Once it's completed, we expect that everything will be rolled.
All very clear. Many thanks.
Hmm.
Thank you very much. Our next question comes from Mr. Vasily Danilov from Veles Capital. Please go ahead.
Hi, can you hear me?
Yes, sure.
Congratulations on strong results. One question from our side. Are there any plans or discussions from the side of management and major shareholders on expanding Severstal's free float in order to increase company's rating in the MSCI index, maybe through an SPO?
No, we don't have current plans on changing the float size. It's not on the table. Its current shareholder percentage is comfortable for our main owner, and he plans to stay with that.
Thanks a lot.
Thank you very much. Our final question comes from Maxim Kudko. This is a text question. I will read all three of them. The first part is, what is your view on coal prices for the next six months? Second part of the question is, Chinese steel prices have been relatively stable over the last 2 months. What are the reasons for that? And the third question is, what is your outlook for local steel prices for the next six months? How likely is it to rebound?
Thank you for your questions. First of all, from the coal prices perspective, I expect next two quarters to remain high, maybe even a peak one. As you know, all our contract prices are based eventually on the situation with spots. I think it was already discussed that prices for Q4 are significantly up compared to previous levels, and I don't expect that to change quickly into Q1. So next six months, we're going to have quite strong level of coking coal prices all over the market. Secondly, in terms of Chinese steel prices, yes, they're relatively stable. I think the main reason is control of capacities. On one hand, we see softening of demand and this, I would say, fragile situation with developers.
On the other hand, we see that pressure on steel capacities for ecological reason mainly is there, and we now even see plans for winter periods, how they basically apply in some provinces, the new restrictions to the steel mills. From that perspective, I believe that is the main support of the steel prices. Well, coking coal prices definitely put pressure on that as well. But yes, coal is not that big in terms of cost as iron ore, but when the price growth is of such a magnitude, and you also know that for China it's even more because it is a bond to deliver from Australia. It is used to be, from that perspective, they have even higher prices.
From that perspective, again, that's also a cost element which put pressure on them, despite of the fact that iron ore price is on the contrary, reduced in that period. In terms of your last question, in terms of local steel prices, for next six months. Well, I don't think it's appropriate to speak about the rebound just by itself. I think it's more relevant to see how it will be in connection with global price benchmark. We see at the moment that prices used to go down, and as a result, we also see a softening on the local market and even delays of purchases waiting for further decrease. Now situation became more stable. First of all, stock level reduced and people resuming their orders. Secondly, we see that definitely signals that export duties will be canceled that are on the positive side.
Season is on the negative side. So, combination of all the drivers for me kind of give, I would say, the signal the situation will be more or less stable from the price trend perspective. If we see stable prices like it is happening now on the global prices, I do not expect any major change on a local market at the moment. And vice versa, if we will see further drop of prices, we can expect that Russian market to fall. I do not expect price growth. Who knows? But in this environment, I think Russian market will be late again with the possible catch up. And again, some driver's kind of as export duties already mentioned, are positive, but I think it will just give support for prices not to decrease further.
But we will see, depending on what will happen with export price trend or world price trend in the same period.
Okay. Thank you very much. I am seeing no further questions, so I will pass the line back to Severstal team for their concluding remarks.
Okay. Thank you. I cannot remember, to be honest, a call which would last for one hour. Already almost, I would say, two years in a row. So that means that there are a lot of interest to market, to company, and to company performance. Thank you for your feedback and for your questions. I think some of them we definitely will take to present properly on our strategy updates during next capital market day, and we will return with the questions which we put for ourselves regarding coking coal. And, yeah, thank you for your questions and time, and see you next time.
Thank you very much.
Bye-bye.
This concludes today's call. We will be closing all lines now. Thank you