Alchevsk Steel stops production of hot iron due to blockade

Alchevsk Steel (ALMK UK) of Industrial Union of Donbas, located in the part of Luhansk Oblast occupied by pro-Russian separatists, stopped producing hot iron on Feb. 13, Interfax-Ukraine reported on Feb. 14 citing its sources at the plant. The plant has run out iron ore due to the blockade on the railway routes from the government-controlled part of Ukraine, the source stated. The plant had been operating one blast furnace since late November, producing 3.5-4.5 kt of hot iron daily.

Alexander Paraschiy: The blockade of the railway routes into the occupied territories by paramilitary activists does work, although there is little consistent information on the scope of the blockade. The stoppage of Alchevsk will have a direct negative effect on Metinvest (METINV), which supplied iron ore to the plant. Alchevsk accounted for about 11% of Metinvest’s external iron ore sales last year.

There is also a risk that the blockade will affect Metinvest in another, more painful, way – recall that the holding has one still mill (Yenakieve Steel) and one large coking coal mine (Krasnodon Coal) on the occupied territory of Donbas. The connection to these might also be blocked (if it has not happened yet). In such an uncertain situation, we see a risk of a price decline of Metinvest notes, while so far we believe it is too early to talk about serious consequences for Metinvest’s fundamentals from the blockade.