Fitch: CIS Metals and Mining 2013 Outlook Remains Stable

Fitch Ratings-London/Moscow-17 December 2012: Fitch Ratings says in its 2013 outlook report that the healthy performance of steel-consuming industries in the region, cost competitiveness and pro-cyclical ruble movements support a stable outlook for the CIS metals and mining sector in 2013.

Link to Fitch Ratings' Report: 2013 Outlook: CIS Metals and Mining

Domestic demand will continue to be more important for Russian producers in 2013 than exports, and in contrast to Western Europe Fitch expects Russian demand to be robust. Rising incomes will boost construction and car sales, while the need to replace old pipelines will also support solid demand.

Major CIS steel producers will continue to operate with high capacity utilisation rates as cash costs of their upstream operations will continue to be 25%-35% below the global average. Next year Fitch expects continued support for non-integrated companies' margins as the relative price of steel raw materials against finished steel products moves lower.

Export-focused Ukrainian producers will be more exposed to the mild contraction expected in the EU in 2013 compared with Russian producers. Ukrainian producers' dependence on lower-value-added semi-finished steel products leaves them vulnerable to any demand downturn in 2013.

Cash generation is expected to improve in both sectors. For miners, this is a function of steady funds flow from operations (FFO) and reduced capex leading to increased free cash flow (FCF). For steel producers, FFO will rise due to improvements in the ratio of raw material inputs to output prices.

The full report, "2013 Outlook: CIS Metals and Mining" is available at fitchratings.com.

Based on Fitch information