Shares in London-listed steel maker Evraz (LON:EVR) have fallen off the cliff since late January, as the company proceeds with plans to demerge its coking coal business Raspadskaya to become more ESG friendly.
The overall concept is in line with what ESG-orientated investors are interested in – a pulling out of coal and a higher level of environmental, social and corporate governance – but with the sabre-rattling over Ukraine the timing couldn’t have been worse.
LSE:EVR quotes by TradingView
Since the start of the year, shares in the mining giant, which is 30% owned by Roman Abramovich, owner of Chelsea FC, have dropped 53.72% to trade at 283.40 pence. In the last five days alone shares have lost more than 11% following a court decision approving Evraz’s plan to spin off its coking coal production in Raspadskaya into a separate business. Investors were less than enthusiastic about the move because the company doesn’t have enough finances to cover the demerger and will have to raise additional finance in a relatively unfavourable situation.
While Evraz produces some steel in the US and has sites in Italy, Kazakhstan and the Czech Republic, most of its output is in Russia. As tensions over Russia and Ukraine ratcheted up, they increased concerns over how the company will be able to export its steel, iron and vanadium products to international clients. Now that presidents Biden and Putin seem to have reached some form of in principle agreement to start talking about Ukraine, the markets have slightly calmed down and the sell-off seems to have slowed down.
But despite the price drop Evraz is actually in a better shape than it has been in a while. The sales of most of the company’s products have increased in the fourth quarter, mostly because demand has picked up from a Covid-induced slump.
Steel and Vanadium prices on the rise
Steel prices have shot up during the summer 2021 and although they have lost some ground since then they are still comfortably above pre-Covid levels. Prices of vanadium, a minor metal used in the production of specialty steels, have also risen dramatically since last October.
Judging by the global manufacturing PMI numbers demand from industrial production in Europe and the US will remain strong while demand in China is likely to show only little progress. PMI, or the purchasing managers index, is a good indicator of whether an industry is expanding or not, with a number over 50 indicating growth and a number under 50 indicating contraction. Europe’s PMI stood at 58.7 in January and 55.5 in the US, with China’s January PMI at just over 50.
Evraz shareholders set to gain?
Evraz made a leap in sales on two fronts; the sale of iron or products to China increased by nearly 60% from Q3 after the company started exporting through Ust-Luga, a port in the Gulf of Finland, and the sale of its vanadium products jumped up 30% because of an increase in demand in Europe and the US.
Once the Raspadskaya demerger is complete Evraz shareholders will either hold shares in two companies and potentially receive dividends from both companies, or hold only shares in Evraz but compensated for the value of Raspadskaya. With the current outlook for growth in industrial production, neither option will be negative for shareholders.
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