Metinvest steel output drops 16% qoq in 4Q19

Ukraine’s largest steelmaker Metinvest (METINV)
reported on Jan. 31 a 16% qoq drop in steel production at its subsidiaries to
1.673 mmt in 4Q19. Azovstal’s output lost 8% qoq to 938 kt in 4Q19, while
Ilyich Steel’s output plunged 23% qoq in 4Q19 to 735 kt, according to the
holding’s operational update. In 2019, Metinvest’s crude steel output rose 3%
yoy to 7.578 mmt due to a 10% yoy jump at Ilyich Steel that was partially
offset by a 2% yoy drop at Azovstal.

 

The holding’s hot iron output in 4Q19, 1.887 mmt,
dropped 8% qoq. Its 2019 hot iron production lost 3% yoy to 7.928 mmt,
according to the release.

 

The 4Q19 output of semi-finished products at Metinvest
rose 13% qoq to 912 kt as its merchant pig iron output jumped 43% qoq to 416 kt
and its slab output lost 4% qoq to 496 kt.

 

The holding’s finished product output plunged 20% qoq
in 4Q19 to 1.139 mmt due to a 17% qoq plunge in hot-rolled plate output to 715
kt, a 26% qoq loss in long product output to 137 kt, a 39% qoq drop in
galvanized coil output to 57 kt, and a 73% plunge in cold-rolled coil output to
12 kt.

 

The qoq plunge in flat steel production was due to the
planned major annual overhauls of several rolling mills at Azovstal and Ilyich
Steel, Metinvest said.

 

In 2019, its semi-finished product output gained 4%
yoy to 3.160 mmt as slab production jumped 37% to 1.896 mmt, which was largely
offset by a 23% plunge in merchant pig iron output to 1.264 mmt. Finished
product output slid 3% to 5.595 mmt, driven by a 13% drop in long product
output to 714 kt and a 39% plunge in cold-rolled coil output to 148 kt.

 

Total coke production dropped 8% qoq to 1.050 mmt in
4Q19, while merchant coke output slid 1% qoq to 445 kt. In 2019, total coke
output dropped 11% to 4.667 mmt, with merchant coke output losing 7% to 1.598
mmt.

 

Total 4Q19 iron ore concentrate production was
unchanged qoq at 7.278 mmt, whereas output of merchant iron ore products gained
9% qoq to 4.828 mmt due to a 50% qoq jump in merchant iron ore concentrate
production to 3.710 mmt that was largely offset by a 43% qoq plunge in merchant
pellet production to 1.118 mmt. In 2019, iron ore concentrate output rose 6%,
and merchant iron ore product output jumped 20%.

 

Dmytro Khoroshun: Iron and
steel FOB Ukraine prices plunged to a bottom in early November, which was the
main reason for the weak 4Q19 production volumes at Metinvest. Since then, the
prices had been rebounding for two and a half months until mid-January, which
promises a rebound in Metinvest’s production volumes in 1Q20.

 

However, China’s coronavirus situation is likely to
result in a correction in both the demand and the prices for both iron ore and
steel products in China and worldwide, which will likely negatively impact
Metinvest’s production volumes and profitability.

 

If the situation at the iron ore and steel markets
deteriorates from the end-2019 level for the most of 2020, we expect Metinvest’s
2020 steel production to drop by up to 10-15% to 6.4-6.8 mmt. The attributable
(including Metinvest’s 45.6% share of Southern Iron Ore output) iron ore
concentrate production might drop by up to 10% to 30 mmt.

 

However, if China decides, as a response to the
economic slowdown due to the coronavirus, to stimulate its construction of
infrastructure and especially residential real estate, the demand and the
prices for iron ore and steel might rebound later in 2020. This would improve
Metinvest’s production volumes and profitability.

 

We maintain our neutral view on METINV bonds.