Metinvest JV Zaporizhstal repairing rolling mill in October-November

Zaporizhstal, a joint venture of Ukraine’s largest steel
producer Metinvest (METINV), has placed its main rolling mill 1680 under repair
from Oct. 26 until Nov. 8-9, Metal Expert reported on Nov. 7. Due to this
maintenance, total flat product shipments are expected to amount to 184 kt in
November, a 29% m/m decline. Nevertheless, after the maintenance work is
completed, the unit’s capacity utilization is expected to reach 95%, Metal
Expert said.

Recall, Zaporizhstal’s daily crude steel production dropped 19.3% m/m in October
to 9.4 kt per day, while its output of hot iron decreased 5.7% m/m to 12.0 kt
per day.

Dmytro Khoroshun: The
maintenance, which lasted 6 out of 31 days (19% of the time) in October,
explains almost all of the drop in Zaporizhstal’s crude steel output for that
month. A shutdown of mill 1680, with the capacity of 3.6 mmt p.a. of hot-rolled
coil, effectively leaves Zaporizhstal with only one option of using its hot
iron, namely, selling it in the form of pig iron.

This is because Zaporizhstal, unlike the majority of
Ukraine’s other plants, does not have continuous casting machines and instead
produces its semi-finished products (slabs) from ingots. Selling ingots, or
slabs produced from ingots, is not a viable enterprise under the current market
conditions. Also, storing ingots or slabs would require reheating them several
more times for future rerolling, which is costly. Therefore, effectively, when
mill 1680 is down, Zaporizhstal might choose not to produce crude steel at all.

It remains to be seen how well Zaporizhstal is able to
sell its hot-rolled coil after mill 1680 is relaunched in light of the recent introduction by the EU of import duties
for this Ukrainian product. We believe it’s possible that, for several months,
the order book for Zaporizhstal’s rolled products would not allow for fully
loading mill 1680, and that the plant’s crude steel output wouldn’t immediately
reach the level of pre-EU-duties.

Nevertheless, we are keeping unchanged our
expectations that Metinvest will be able to reach our 2017 steel output
forecast (9.6 mmt, or 7% less yoy), as well as our forecast for the holding’s
full-year 2017 EBITDA at USD 1.75 bln. And we are keeping our neutral view on
METINV Eurobonds as we see a high refinancing risk for the next twelve months.