Avdiivka Coke reports net profit in 1H13

Avdiivka Coke (AVDK UK) reported net profit of USD 3.6 mln in 1H13, compared to a USD 77 mln net loss a year ago. EBITDA turned positive to USD 26 mln from minus USD 72 mln in 1H12, even though revenue dropped 21% yoy to USD 460 mln.

In 2Q13, the company managed to break even, with USD 1 mln profit, even though its EBITDA decreased 43% qoq to USD 9 mln.

Roman Topolyuk: The improvement in Avdiivka’s bottom line happened due to a 27% plunge in average cash cost per ton, which coincided with a 24% yoy decrease in local prices for coking coal in 1H13. The company’s average selling price was more resilient – it decreased just 12% yoy to USD 235/t, which altogether led to a positive margin of USD 22/t of coke sold in 1H13, compared to negative USD 26/t a year before.

Avdiivka’s input cost decline matches global trends: owing to excessive supply, global contract prices for hard coking coal fell 32% yoy in 1H13 to USD 168.5/t. The global trends were exacerbated by 10% lower coke production in Ukraine in 1H13, as well as by the implementation of PCI projects at local steel mills that, on average, decreased coke consumption at a given steel enterprise by 20%.

We believe that Avdiivka may enjoy another quarter of profitability in 3Q13. Global coking coal prices have been contracted by major steel makers and coal miners for 3Q13 at rates that are 15% lower qoq, which may influence Ukraine’s local pricing. But by the end of the year, the company’s positive margin may wane due to presumably higher coking coal prices, we expect.