Alchevsk Steel may relaunch in May - Metinvest could benefit

Alchevsk Steel (ALMK UK) which was Ukraine’s fourth largest steelmaker in 2013 is preparing for a restart of its pig iron production facilities in May 2015 after a halt last August 2014, according to report of Metal Courier. The enterprise is located on the occupied area in Lugansk oblast and as railway connection hasn’t been fully repaired yet, the enterprise may run at a reduced capacity load for the near future. The preliminary plans foresee production of around 6 tons of hot iron per day, which is equivalent to 2.2 mmt annually (the plant produced 3.8 mmt of hot iron in 2013). Steelmaking basic oxygen furnaces may be launched in June.

Roman Topolyuk: There were rumors that Alchevsk Steel would restart operations as early as January 2015, which proved wrong. At this moment, we think the odds are certain that the restart might be protracted again. Reescalation of the military stand-off in the region might be the reason for Alchevsk Steel to stay idle for another uncertain period of time.

If the enterprise does starts production of hot iron, as reported by Metal Courier, this will be a positive development for the mining division of Metinvest (METINV), which has faced a squeeze of the local iron ore market, after the war in Donbas erupted, and most of the local producers had to halt their capacities. We project that Metinvest will sell to third parties 23.9 mmt of iron ore products (+9% yoy, 14.1 mmt of iron ore concentrate and 9.8 mmt of pellets), mostly due to export sales. The sale of iron ore abroad is becoming less profitable or breaking even in certain cases, due to low iron ore prices. A relaunch of Alchevsk Steel will imply additional sales of up to 1.7 mmt of iron ore products in 2015 for Metinvest with pricing to be more favorable for the holding.