Metinvest discloses more marketing and investment plans

Roman Kurashev, the
marketing director of Ukraine’s leading steel holding Metinvest (METINV), has
revealed more about its mid-term marketing and investment plans, as reported by
various media over the last week. In particular, last year Metinvest purchased the
fixed assets of AG Steel, a Mariupol-based maker of welded pipes, according to
Kurashev, as reported by the hromadske.ua news site. These fixed assets include
two electric resistance welding (ERW) mills BTM-160 and BTM-520. The fixed
assets of AG Steel are already working as a unit of Ilyich Steel, according to
hromadske.ua’s sources.

In addition,
Metinvest is considering investing into pre-painted galvanized iron (PPGI)
capacities, according to Kurashev, as reported by the uaprom.info site. One of
the possibilities is constructing two PPGI lines, each with capacity of 120-150
kt per year. Metinvest might either paint hot-dip galvanized (HDG) steel it
produces at existing capacities, or choose to install an additional HDG line
with a capacity of 300 kt per year. Kurashev estimates the Ukrainian PPGI
demand at 300 kt per year, and expects it to increase to 400 kt per year in a
few years.

Dmytro Khoroshun: The news about the acquisition of
AG Steel’s capacities might explain the increase in pipe production volumes at
Ilyich Steel: from 50-60 kt per year in 2012-2015 to 88 kt in 2016 and already
144 kt in 11M17, according to Metal Expert, an industry consultancy. The assets
acquired likely include a strip-making shop with a capacity of 360 kt per year
that was launched by AG Steel in 2005.

Even though it was
not clear at which site Metinvest is considering constructing PPGI capacities,
we think it is also Ilyich Steel (a less likely alternative would be
Zaporizhstal, a Metinvest’s joint venture).

The markets for the
main products of Metinvest, in particular for semi-finished products, are
currently strong enough to allow the holding to invest in downstream capacities
such as welded pipes and PPGI. 

We think such
investments are the right strategic moves (provided the costs of such
investments are adequate) that would make Metinvest’s sales portfolio more
diverse and robust.

We are keeping our
neutral view on METINV Eurobonds.