Interpipe railway product sales jump 39% m/m in December

Railway product sales volume at Ukraine’s largest
producer Interpipe (INTHOL) was 17.1 kt in December, a 39.0% m/m jump,
according to the company’s monthly operational report released on Jan. 20. Pipe
sales soared 37.2% m/m to 44.1 kt, while external billet sales skyrocketed 5.7x
m/m to 4.8 kt. Total sales volume swelled 45.8% m/m to 66.0 kt.

 

The m/m jump in railway product sales in December was
driven by sales of wheels (+54.3% m/m to 15.1 kt), which were partially offset
by a drop in wheelset sales (-30.6% m/m to 1.2 kt).

 

The m/m rally in pipe sales in December was led by a
surge in line pipes (+75.0% m/m to 28.3 kt), driven by a recovery of
consumption in key markets, MENA and the U.S., following the rally of steel
commodity prices, the report said. An offsetting factor was a 34.1% m/m drop in
welded pipe sales to 4.7 kt, driven by an unfavorable market environment across
all regions, Interpipe said.

 

During 2020, Interpipe’s pipe sales dropped 21.0% yoy
to 469.9 kt, driven mostly by a 52.2% plunge for OCTG pipes to 83.2 kt and a
28.0% drop for welded pipes to 80.1 kt. Railway product sales slid 5.4% yoy to
192.4 kt in 2020, driven mostly by an 8.5% loss for wheels to 166.4 kt, and
partially offset by a 32.0% jump for wheelsets to 19.5 kt.

 

Ukraine’s share of Interpipe’s pipe sales in 2020
dropped 3pp to 22% from 2019, and the share of sales in the Americas plunged
13pp to 11%. At the same time, Europe’s share in pipe sales gained 5pp to 29%,
and MENA’s share rose 9pp to 24%. The share of CIS countries in 2020 climbed
1pp to 11%.

 

The share of Interpipe’s railway product sales in
Ukraine in 2020 dropped 8pp to 14% from 2019, while the share of sales to
Europe gained 9pp to 35% and the share of sales to CIS countries slid 2pp to
43%.

 

Regarding production volumes, which might be
indicative of sales volumes in future months, Interpipe’s pipe production
inched up 2.5% m/m to 38.4 kt in December, while railway product output jumped
27.6% m/m to 16.5 kt. Steel production gained 11.0% m/m in December to 61.8 kt.

 

The yoy drop in pipe sales in 2020 were driven by a
1H20 drop in oil prices, according to Interpipe’s Jan. 20 press release on yearly
operational results. A bright spot was an increase in the company’s pipe sales
in the Middle East to customers in Turkey, the UAE and Qatar, the release said.

 

Interpipe boosted its railway product sales to Europe
by 29% yoy to 67 kt in 2020 by increasing sales of new products in the cargo
segment and by entering the passenger segment, in particular, for the
high-speed Deutsche Bahn trains, according to Interpipe’s press release.

 

Dmytro Khoroshun: We estimate
Interpipe’s railway product sales might slow down further in 2021 by 6-12% yoy
to 170-180 kt. This is because in 2020, the company’s average sales volume was
18.8 kt per month in January-May (before the June 2 reinstatement of a 34.22% duty
on imports into Russia), but fell to 14.0 kt per month in June-December
(including 15.1 kt per month in 4Q20).

 

Even though the 34.22% duty for imports of Ukrainian
railway products into Russia is set to expire on Jan. 22, there is a risk it
will be reinstated in some form if Interpipe boosts its Russian sales volumes.

 

Furthermore, if Russia bans completely
the imports of Intepipe’s railway products, which remains a risk, then the
company’s sales volumes might experience a much deeper plunge in 2021.

 

The company’s pipe sales will remain related to oil
prices (and thus to the coronavirus situation), and we tentatively expect
Interpipe to be able to at least maintain its 2020 sales volumes in 2021.

 

At least in the first few months of 2021, and possibly
longer, Interpipe’s business will experience the effects of the recent surge in steel prices.
We expect this price surge to lift some pipe prices and therefore to be
positive for Interpipe’s revenue and profitability.