Metinvest Azovstal might depend on iron mixer that needs overhaul

The Azovstal plant of Ukraine’s largest steelmaker
Metinvest (METINV) has been operating its stationary hot iron mixer No. 2 for
almost four years, according to the July 11 issue of Inhulets Herald, the
corporate newspaper of another Metinvest asset. The turnover of mixer No. 2
during this period was a record 12.6 mmt of hot iron, several times over the
maximum guaranteed durability of 3.5 mmt, according to the newspaper.

Azovstal ordered a stationary mixer to be supplied by
Novokramatorsk Machinery Plant (NKMP) in 2019, according to NKMP’s 2018 annual
report.

According to several postings on social media,
Azovstal’s stationary hot iron mixer No. 1 that experienced an accident on July 12
was a new, recently installed mixer.

Dmytro Khoroshun: Azovstal
operates two stationary hot iron mixers of 2.5 kt volume each, which supply hot
iron from its blast furnaces to its oxygen converters. From the news flow, we
conclude that Azovstal has just replaced mixer No. 1 and was about to perform a
long-overdue major overhaul of mixer No. 2 when the July 12 accident happened.

If the above is the case, then Azovstal might need to
choose whether to rely on using the only remaining mixer No. 2 even beyond its
record four-year run. In such a situation, we see a risk of Azovstal
experiencing another accident if it continues running mixer No. 2 without an
overhaul. Conversely, if Azovstal shuts down mixer No. 2 for an overhaul before
it repairs mixer No. 1, it risks finding itself without any stationary hot iron
mixer for a period of time. Recall, Azovstal is expected to present the timeline
for mixer No. 1 repairs by the end of July.

We calculate that during its four-year run, the
average daily hot iron turnover of mixer No. 2 amounted to 8.6 kt, higher than
the 7.5 kt we estimated previously.
The 8.6 kt hot iron per day turnover corresponds to 9.5-10.5 kt of crude steel
per day, we calculate.

We expect Metinvest’s 2019 steel production at 7.3-7.7
mmt, or 0-5% up yoy, provided that Azovstal continues operating at least one
stationary hot iron mixer.

We maintain our bullish view on METINV bonds.