Metinvest attributable steel output drops 2% in February

Attributable steel production at Ukraine’s largest steel producer Metinvest (METINV) dropped 2.3% m/m to 30.2 kt per day, according to Concorde Capital’s analysis of separate news reports of Interfax-Ukraine. The result is 6.4% higher than the average in 2016. It includes Azovstal (AZST UK), Illich Steel (MMKI UK), Yenakiyeve Steel (ENMZ UK) and a 49.9% portion of Zaporizhstal’s result (accounted for as a JV).

Total Metinvest’s attributable steel production was 844 kt in February, a 12% drop from, January.

Steel output at Yenakiyeve Steel was 154 kt in February, implying its average daily output was 7.7 kt (+26% m/m) in Feb. 1-20, before a shutdown. Recall, Metinvest reported on Feb. 21 it had to halt operations at the plant since it had run out of iron ore from the Ukrainian mainland due to a railroad blockade.

Andriy Perederey: The monthly result at Yenakiyeve Steel was better than we estimated a day before due to boosted steel output at the beginning of the month. That suggests that other Metinvest plants, particularly those located in Mariupol, also might have had much better output in the beginning of February, before the blockade affected their output.

Therefore, we see a risk that Metinvest’s March attributable steel production will be 20%-25% lower m/m on a daily average basis due to Yenakiyeve Steel idling and reduced steel output at Illich Steel. As we estimated before, such a decline in output may cause a decline in Metinvest’s EBITDA by up to 22%, in the worst case.

On the other hand, even in the worst-case scenario, Metinvest will be able to generate enough cash to service all its debt obligations, as well as deleverage. Also, we expect the trade blockade won’t be permanent. So we’re keeping our bullish view on Metinvest bonds.