Metinvest cuts iron ore production for third parties by 14% qoq in 3Q13

Top Ukrainian steelmaker Metinvest (METINV) reported a 2% qoq increase in steel production to 3.2 mmt and pig iron output growth by 5% qoq to 3.015 mmt in 3Q13. The company explained its accelerated pig iron production with the steel scrap deficit on the domestic market, which caused Metinvest’s steel works to increase consumption of hot iron. The resulting higher iron ore consumption caused a decline in supplies for external clients: total production of iron ore concentrate decreased 3% qoq to 9 mmt, while iron ore products for third parties dwindled 14% qoq to 4.8 mmt.

In 9M13, Metinvest’s steel output fell 1% yoy to 9.4 mmt, pig iron production grew 3% yoy to 8.6 mmt, total production of iron ore concentrate rose 2% yoy to 27.7 mmt, and output of iron ore products for third parties increased 4% yoy to 16.3 mmt.

Roman Topolyuk: Pig iron consumption per ton of steel grew to an unusually high 0.94t in 3Q13 (versus a standard average of 0.90t for converter steel production). We estimate this will affect the EBITDA margin to the downside by the end of 2013 (from 14.7% in 1Q13), both due to additional expenses for incremental pig iron production, as well as less iron ore products available for sale to third parties. This expectation of a decline in margins is also supported by weakened steel prices across the board (except for a 2% qoq increase in slab prices in 3Q13).