Metinvest sales director reviews 2017 results, discusses plans

Dmytro Nikolaenko, the sales director of Ukraine’s
largest steelmaker Metinvest (METINV), reviewed the holding’s 2017 results and
discussed its near-term plans in a Feb. 20 interview with Metal Expert, an
industry consultancy.

Nikolaenko emphasized that the introduction of a EUR 60.5/t anti-dumping duty for hot-rolled flat products
by the European Commission (EC) in October 2017 was a major negative
development for Metinvest in the past year. He also revealed that the EC
recently rejected Ukraine’s proposal to replace the duty with a minimum import
price mechanism, and that Ukraine plans to provide further comments to this
recent EC decision. However, Nikolaenko admitted that should the EC
definitively decide to maintain the duty for Ukraine’s hot-rolled flat products
imports into the European Union, this market would practically close for
Metinvest, and the holding will have to find other, more distant markets for
these products.

Another negative development for Metinvest in 2017 was
the loss of control over Yenakiyeve Steel
in March, which resulted in the loss of the holding’s long products capacity,
Nikolaenko said. However, he also noted that Metinvest signed a partnership agreement with Dniprovskyy Steel
to sell the plant’s billet, rebar, and wire rod products, which allowed the
holding to keep its positions in the key domestic market for long products.

Among the positive developments was Metinvest’s
success in redirecting its iron ore products
to the nearby, high-margin European market, Nikolaenko said. He also disclosed
that Metinvest succeeded in having contracted iron ore product sales to Europe
for all of 2018, and even for the next three years for some of its customers.
This fully compensated for the loss of substantial volumes at the domestic
market. However, he also noted the increase in Ukraine’s iron ore export
volumes resulted in major problems with railroad logistics, and confirmed that
Metinvest is countering this problem by purchasing 1,800 railcars.

Dmytro Khoroshun: A major
near-term risk for producers of high-quality iron ore products, Metinvest included,
is a substantial decrease in the premiums that steelmakers, particularly
Chinese, pay for iron ore product quality (lump, pellets, and high iron
content). Therefore, it is encouraging that Metinvest was able to strengthen
its position at the European iron ore market, provided that the pricing
mechanisms in its European contracts are adequate for situations of both the
high- and low-premiums for iron ore quality.

The global steel market is under a risk of substantial
disruptions and share reallocations in light of the U.S. considering barriers for steel imports.
Therefore, Metinvest’s sales force will have to continue growing its domestic
steel product sales (currently under 25%) and to adapt to the volatile export
steel market environment.

We are keeping our neutral view on METINV Eurobonds.