Metinvest iron, steel output might drop 7% m/m in July

The hot iron and steel daily production rate at
Ukraine’s largest producer Metinvest (METINV) might retreat 7% m/m in July,
according to Concorde Capital’s analysis of data on freight train traffic to
Mariupol, as provided by the Center for Transport Strategies (CFTS) on its
website.

In the first 28 days of July, a daily average of 19.6
freight trains traveled the Komysh-Zorya–Volnovakha railway section towards
Mariupol, according to the CFTS website, which is 7% less m/m.

In June, the daily average number of freight trains
heading to Mariupol was 21.2, or 23% more m/m. The same month, Metinvest’s
daily hot iron production advanced 29% m/m and its daily steel output jumped 33% m/m.
Both of Metinvest’s steelmaking plants are located in Mariupol.

Dmytro Khoroshun: The 7% m/m
drop in freight train traffic volume suggests Metinvest’s daily production
rates might retreat m/m in July, but will remain above their average 2019
levels by 10-15%.

The relationship between freight train traffic, which
brings raw materials (iron ore, coal and coke, fluxes, steel scrap) to
Mariupol, and Metinvest’s production volumes is imperfect. Daily freight train
traffic should be related more to Metinvest’s hot iron production than to that
of steel. This is because its steelmakers have the discretion of using hot iron
for producing either merchant pig iron or downstream steel products.
Metinvest’s steelmakers have the further option of storing as inventory some of
the raw materials supplied by the trains.

Conversely, the steelmakers might deplete their raw
material inventory for producing hot iron and steel to levels above the volumes
produced from fresh supplies by train. Finally, the volume of raw materials
supplied by a train depends on the number of railcars, which might vary.

We maintain our neutral view on METINV bonds.