MMK announces operational trading update and 9 months results

Key Operational Highlights

· Crude steel production rose by 3.8% to 10.309m tn in comparison to 9 months 2007;
· Commercial steel products output rose by 3% to 9.369m tn in comparison to 9 months 2007;
· MMK hot-rolled coil price grew by 53% in 9 months 2008 in comparison to 9 months 2007;
· Domestic sales share (in tonnage) grew to 74% in Q3 2008 (69% in Q2 2008).

Key Financial Highlights

· Revenue rose by 39% to RUR 198.279bln (RUR 142.956bln in 9 months 2007);
· Operating income rose by 38% to RUR 55.881bln (RUR 40.368bln in 9 months 2007);
· Net income¹ grew by 29% to RUR 41.765bln (RUR 32.333bln in 9 months 2007).

Q4 Production Outlook

Global economic conditions have impacted the steel sector worldwide, resulting in decreased demand for some steel products. Given the economic slowdown, MMK has decided to adjust its production plans accordingly and to reduce its output in October 2008 to 850 thousand tons. In addition, the production portfolio will be optimized to reduce the share of products with low-added value. 9 months results are supported by strong Q2 and Q3 production figures which should serve as a solid basis for full year operational results.
MMK is still confident of its plans. Two main projects - the plate mill 5000 and CCL #2 (colour coating line) - will be completed in 2009. The schedule of operating repairs has been adapted to meet production capacity.
Commenting on the results, Victor Rashkinov, the Chairman of MMK Board of Directors said:
“Global economic change is affecting the whole of the Russian steel sector, and MMK is no exception to that trend. We have therefore taken the decision to lower production levels to reflect market conditions. Despite the challenging environment, MMK remains financially strong and we are confident in the company’s long term strategy”.

¹ Net of long-term investments revaluation.

Appendix:

1. Production

Crude steel production rose by 3.8% to 10.309m tn and commercial steel products output rose by 3% to 9.369m tn in comparison to 9 months 2007.
Crude steel and finished products output amounted to 3.293m tn and 2.935m tn accordingly in Q3 2008. Minor changes to volume output are accounted for by the commencement/completion of planned repairs and maintenance works in these periods.
EAF (Electric Arch Furnace) steel production increased in Q3 2008 by 7.4%, with full EAF capacity reached in August 2008. The construction of HDGL #2 (hot deep galvanizing line) was completed in July 2008 with the capacity of 450 thousand tons a year. It allowed an increase in galvanized steel production by 38 thousand tons in Q3 2008.

2. Average prices (FCA)

The prices are indicative and do not consider either steel grade quality characteristics or sales markets. Average prices calculation is based on division of revenue by volume.

Steel prices reached the highest levels in July 2008. Seasonal market slow-down and vacation period in August 2008 coupled with tougher economic environment and liquidity problems in the banking sector took prices to lower levels in September 2008.