Daily steel output falls 4% mom in May

Steel production in Ukraine declined 1% mom in May to 2.9 mmt, which represents a 4% decrease in daily output to 94 kt compared to April’s numbers. In 5M12, sector output slid 4% yoy to 14 mmt.

Roman Topolyuk: Though the 4% yoy decline in steel output in 5M12 is somewhat better than the 5% yoy cut in 4M12, production expectedly slowed in May on the back of macroeconomic uncertainty in key regions, primarily in the EU. We expect stabilization at a low level in June-July in terms of low production volumes and low prices. The latter, having decreased by 2-4% in May, have handed Ukrainian producers thin margins or have pushed them to operate on the brink of breaking even. As Metinvest’s (METINV) steelmakers (Azovstal (AZST UK), MMK Illicha (MMKI UK), and Yenakiieve Steel (ENMZ UK) decreased production in May at the same pace as the sector (-1% monthly), we estimate the company will continue to sell more iron ore to third parties in coming months. Notably, Metinvest’s sales of iron ore products increased 10.8% to 5.3 mmt in 1Q12 due to the redistribution of sales to third parties.