AMKR workers win salary hikes, raising Ukraine cost risks

ArcelorMittal Kryviy Rih (AMKR, KSTL UK), the largest
steel mill in Ukraine, agreed to hike its 2018 salary budget by 37% to UAH 4.1
bln (USD 158 mln) from USD 3.0 bln (USD 115 mln), Interfax-Ukraine reported on
May 24. Worker salaries will rise as of May 1, Interfax-Ukraine said, with
another increase possible in October.

The move follows recent strikes that
crippled Ukrainian steel and mining assets for more than a week.

Dmytro Khoroshun: This win
for Ukrainian metallurgical workers risks to substantially inflate costs for
Metinvest (METINV) and Ferrexpo (FXPO LN, FXPOLN).

AMKR’s salary hike amounts to a
whopping 55% on a monthly basis if the UAH 1.1 bln increase in its salary
budget is spread over only the remaining eight months of 2018. This increase amounts to USD 63 mln yearly, or 2.6%
of AMKR’s 2017 revenue.

We calculate that Metinvest spent at
least USD 276 mln on salary and social expenditures in 2017. This is USD 5.8K
per worker on average, close to AMKR’s 2017 spending of USD 6.1K. A 50% salary
hike for Ukrainian workers would cost Metinvest USD 140 mln each year,
approximately, which is 1.5% of the holding’s
2017 revenue.

We estimate that Ferrexpo spent USD
4.6K per worker on salary and social expenditures in 2017, less than Metinvest
(by 22%) and AMKR (by 26%). A 50% salary hike would set Ferrexpo back by USD
20-25 mln each year, which is 1.7-2.1% of the
company’s 2017 revenue.