"We live in an atmosphere of the increasing margin, improvement of financial results," describes the situation in the Russian steel making industry as of the end of 2016 the co-owner and Chairman of the Board of Directors of Evraz Alexander Abramov. The average EBITDA margin of Russian companies since the end of 2013 increased 2-fold to 26.3%. The highest rate by Severstal is 32.4%.

The ruble devaluation and rising steel and raw material prices helped. The downward trend that was observed in 2013, was replaced by growth: the global price of the iron ore increased by 79% since the beginning of the year to $80 per 1 ton, the export steel from Russia increased by 97% to $499 per 1 ton and coking coal from Russia is 2.5 times up to $248 per 1 ton.

The causes are the disruptions in exports from China, where the road was washed away in Shaanxi province, limiting the number of working days in the Chinese mines to 276, as well as the weather conditions in Australia, which led to the decrease in coal and iron ore shipments, said the director of corporate ratings of ACRA Maxim Khudalov.

After the increase in raw material prices and steel, the capitalization of mining and metallurgical companies has also risen. From the beginning of the year, the capitalization of Severstal, NLMK and MMK doubled (to $12.3 billion, $10.8 billion and $6.1 billion respectively), Mechel has risen in price by 4 times (up to $1.6 billion) and Evraz by 3 times (up to $3.9 billion). Capitalization growth of the last two companies is also associated with the solution of debt problems, and the transfer of loan payments.

But the improvement in the market is only temporarily, in the medium term, prices will fall, believes the head of analytical department of BCS Kirill Chuiko. The growth of financial indicators is directly related to the control of costs, say the representatives of NLMK, Evraz, MMK and Severstal. The average rate of the dollar against the ruble rose by 2 times since the beginning of 2013, while the average administrative and operating expenses decreased by exactly half, as follows from the companies' reports. Most of all, by 61%, reduced the costs of MMK. Since 2013, all steelmakers reduced their investment (an average of 89%). This, as well as price increases helped to reduce the debt burden in the industry from the average 3.2 EBITDA in 2013 (including EBITDA 6.8 at Mechel) to EBITDA 1.8 at the end of September 2016, while at NLMK, MMK and Severstal the value became less than 1, says Khudalov.

Over the past two years, the companies revised their dividend policy, increasing payments, but still in their accounts as of the end of September 2016 there was a significant cash cushion: Severstal had $1.1 billion, NLMK — $527.3 million, MMK — $192 million (the latter reduced its total debt by $1 billion in the 3Q).

The companies are unwilling to spend the accumulated reserves. "We have no plans for the acquisition and a significant increase in capacity," said the representative of Severstal. MMK and NLMK will invest in improving operational efficiency and Evraz will reduce the debt burden (currently 3.3 EBITDA).

Metallurgical companies in the following two or three years should expect the fate of the "cash cows", says Chuiko: the debt burden is low, and investing in new capacity during the global overproduction does not make sense; China as a driver of the metallurical global growth has already made its contribution and there are no other possible variants. In addition, export markets are being closed (for example, Europe has already adopted custom fees). In such a situation the only remaining option is to pay high dividends to shareholders, he believes.