Metinvest, Interpipe to feel effects of Russia trade restrictions

The Russian government decided on Apr. 18 to restrict
coal exports to Ukraine starting June 1, allowing such exports only under
permits issued by Russia’s Ministry of Economic Development. The decision also
adds pipes to the list of goods forbidden to import from Ukraine.

 

The restrictions on coal imports from Russia will
mostly affect steam coal, not coking coal, Interfax-Ukraine reported on Apr.
18, citing Anatoliy Starovoyt, the general director of Ukrkoks, an association
of Ukrainian coking coal consumers. The lost imports from Russia may be
substituted by imports from other countries, Starovoyt said, but these seaborne
imports may face logistical problems related to insufficient seaport capacities,
according to Interfax-Ukraine.

 

In 2018, Ukraine produced 2.4 mmt of coking coal
concentrate at its domestic mines, and imported about 6.5 mmt of coking coal
and concentrate from Russia, 4.0 mmt from the U.S. and Canada, 0.4 mmt from
Kazakhstan and 88 kt from Australia, according to Starovoyt.

 

Ukraine’s largest steelmaker Metinvest (METINV)
informed Interfax-Ukraine on Apr. 18 that it has a long-term material supply
strategy that guarantees procurement of coal and fuel in sufficient quantites.

 

As for the pipe ban, Ukrainian exports to Russia,
including by Ukraine’s largest producer Interpipe (INPIP), have been declining,
in part because of import duties already introduced by Russia, said
Interfax-Ukraine’s source in the industry.

 

Dmytro Khoroshun: We estimate
that in 2018, Metinvest consumed around 6.2 mmt of coal, including 1.2 mmt of
coal for pulverized coal injection (PCI) and 5.0 mmt of coking coal
concentrate. This matches the 43% value reported by Metinvest as its needs (at
Azovstal and Ilyich Steel) being covered by Metinvest’s own asset, United Coal
Company (UCC, 2.7 mmt of coking coal concentrate produced in 2018).

 

Pokrovske Coal, in which Metinvest acquired 25% in 2018
with an option to acquire the remaining 75%, produced around 2.5 mmt of coking
coal concentrate in each of 2017 and 2018. Production of coking coal
concentrate at Metinvest (UCC) and its close affiliate (Pokrovske Coal)
amounted to about 5.2 mmt in 2018, or about 104% of its own needs (without
considering needs in PCI coal).

 

However, Metinvest also needs coking coal for the
production and supply of coke to its joint venture Zaporizhstal (we estimate
2.7 mmt of coking coal concentrate per year) and its trading partner
Dniprovskyy Steel (1.5 mmt). Therefore, we calculate that Metinvest needs a
grand total of about 9.1 mmt of coking coal concentrate per year, of which UCC
and Pokrovske Coal together cover about 57%.

 

We conclude that more information is needed before the
seriousness of the effect of this recent Russian action on Metinvest’s
operations can be established.

 

Regarding the prohibition on pipe imports from
Ukraine, we estimate, using Ukrstat data, that in 2018 Ukraine exported 61.6 kt
of pipes to Russia, which is 9% of Interpipe’s total 2018 pipe sales.
Therefore, we think that the effect of the recent restriction on Interpipe’s
business will be moderate.