Metinvest steel output jumps 30% qoq in 1Q20

Ukraine’s largest steelmaker Metinvest (METINV)
reported on May 4 a 30% qoq jump in steel production at its subsidiaries to
2.17 mmt in 1Q20. Azovstal’s output gained 19% qoq to 1,119 kt in 1Q20, while
Ilyich Steel’s output skyrocketed 43% qoq in 1Q20 to 1,051 kt, according to the
holding’s quarterly operational update. Year-on-year, Metinvest’s 1Q20 crude
steel output advanced 12% due to a 15% yoy jump at Azovstal that was partially
offset by a 3% yoy drop at Ilyich Steel.

 

The holding’s hot iron output in 1Q20, 2.09 mmt, rose
11% qoq and was up 7% yoy.

 

The 1Q20 output of semi-finished products at Metinvest
dropped 30% qoq to 637 kt as its merchant pig iron output plunged 74% qoq to
108 kt and its slab output inched up 7% qoq to 529 kt.

 

The holding’s finished product output advanced 38% qoq
in 1Q20 to 1.567 mmt due to a qoq doubling in hot-rolled coils (HRC) output to
342 kt and a 14% qoq gain in hot-rolled plates output to 818 kt. The qoq jump
in HRC production was due to the launch of the upgraded Mill 1700 at Ilyich
Steel, Metinvest said.

 

Total coke production gained 7% qoq to 1.122 mmt in
1Q20, while merchant coke output slid 3% qoq to 430 kt.

 

Total 1Q20 iron ore concentrate production improved 5%
qoq to 7.606 mmt, whereas output of merchant iron ore products inched up 2% qoq
to 4.914 mmt due to a 36% qoq jump in merchant pellet production to 1.526 mmt
that was largely offset by a 9% qoq drop in merchant iron ore concentrate
production to 3.388 mmt.

 

In a separate May 5 press release, Metinvest reported
having restarted its Italian rerolling plants, Ferriera Valsider (on Apr. 30)
and Trametal (on Apr. 12). Recall, production at these plants was suspended
in March because of the coronavirus.

 

Dmytro Khoroshun: By boosting
its steel production in 1Q20, Metinvest made the most of the favorable market
situation as steel prices jumped in December and January after a slump earlier
in 4Q19. However, we expect a qoq decrease in steel production in 2Q20, for two
reasons.

 

Firstly, Metinvest’s April average daily steel production rate
should drop 14-31% m/m because of suspended production in Italy and various
equipment shutdowns at the holding’s Mariupol plants.

 

Secondly, steel prices plunged 15-25% in late
March and through April, which should negatively impact
Metinvest’s selling volumes for May and June, as well as into at least early
3Q20.

 

Some of the positive aspects of Metinvest’s 1Q20
production profile, such as the increase in HRC production at Ilyich Steel as a
result of completed investment projects, will continue to impact Metinvest
positively.

 

However, we think that at least a part of the increase
in Metinvest’s production volume in 1Q20 might be due to aggressive trading tactics,
which preferred profits over cash and which is likely unsustainable. We think
that after the recent plunge in steel prices, Metinvest will need to reverse
its approach and prefer cash over profits, which might further depress its
production volumes (but allow for avoiding defaulting on its debt service
payments at least for the next few quarters).

 

We maintain our negative view on METINV bonds.