Metinvest CEO discusses investment plans

Yuriy
Ryzhenkov, the CEO of Ukraine’s largest iron ore, coking coal and steel
producer Metinvest (METINV), discussed the holding’s decarbonization
perspectives in an interview with Metal Expert, an industry consultancy.

 

Metinvest
published the interview on its website on Dec. 31 and disclosed this fact in a
regulatory filing the same day.

 

Regarding
the next few years, the holding plans to focus on development of high-quality
product capacities at its existing facilities, including large investments
related to decarbonization at Northern Iron Ore, according to the interview.
Metinvest plans to keep its CapEx at USD 1.3-1.5 bln in the next three to four
years, Ryzhenkov said, adding that the holding plans to finalize its
technological strategy by the end of 2022.

 

In
the next few years, one of Metinvest’s large projects is to invest close to USD 1 bln into a cold-rolled steel facility at Ilyich
Steel, with the first production planned by the end of 2024.

 

Its
second large investment project for the near future is the construction of a
hot-rolling mill in Italy with a capacity of more than 2.5 mmt per year,
Ryzhenkov disclosed.

 

Its
third project for the next few years is the construction of a new pelletizing
machine at Northern Iron Ore with an annual capacity of 5 mmt of direct
reduction (DR) pellets at a cost of almost USD 1 bln.

 

In
the longer term, Metinvest plans to produce some of its steel via DR pellets,
DR iron (DRI) and electric arc furnaces (EAFs). This will help the holding to
reduce its carbon dioxide emissions by more than 90% by 2050.

 

As
a result, some of Metinvest’s sintering plants and blast furnaces will cease
production, although the holding will continue to use this production route at
least until 2030 (and possibly longer) at least at Ilyich Steel, Ryzhenkov
said.

 

The
DRI-EAF steelmaking capacities might eventually be constructed to allow for
maintaining finished product volumes at around 9 mmt per year at its two
Mariupol plants (Azovstal and Ilyich Steel), Ryzhenkov said.

 

Metinvest’s
first DRI-EAF facility will be constructed at either Zaporizhstal or in
Mariupol, and will use as the raw material the DR pellets that will, by that
time, be produced at Northern Iron Ore.

 

Zaporizhstal’s
future has not been determined yet because it is a joint venture in which
Metinvest has only 49.99%, and Metinvest does not see the willingness of the
other large shareholder to participate in the development of the plant,
Ryzhenkov said. The options for Zaporizhstal include (1) also switching it to
the DRI-EAF steelmaking route and (2) eventually ceasing steel production, but
continuing producing pig iron at about 2-2.5 mmt per year (less than about 4
mmt per year currently).

 

If
Zaporizhstal continues producing steel in the long term, Metinvest is
discussing a capacity of 4-4.5 mmt of steel per year at that site.

 

If
the DRI-EAF capacity is not constructed at Zaporizhstal, Metinvest might take
on eventually introducing these technologies also (in addition to the Mariupol
site) at its recently acquired Dniprovskyy Steel assets.

 

The
construction of a 4-4.5 mmt per year DRI-EAF capacity costs at least EUR 2 bln,
Ryzhenkov said.

 

In
order to completely decarbonize most of its processes, Metinvest will need USD
15-20 bln, Ryzhenkov said. Government support will be needed for such a
transformation, especially if it is to be undertaken within the next decade,
according to the CEO.

 

In
spring 2022, Metinvest might make public a decarbonization roadmap.

 

Dmytro
Khoroshun: Metinvest needs to obtain noteholder consent in order to be
able to plan substantial investments at its two joint ventures, Zaporizhstal
and Southern Iron ore.

 

We
also do not exclude that a substantial amount of dividends will be paid in the
next one or two years to allow Metinvest to focus on investing later on. To
have the flexibility of localizing in time its returns to shareholders,
Metinvest also needs to obtain noteholder consent to certain terms and
conditions of its notes, which we think should happen in early January.

 

Investing
into increasing the share of high-value-added products, which Metinvest
apparently prioritizes for the next few years, will allow the holding to
finance its decarbonization investments that will be concentrated in the later
years, we think.

 

Nevertheless,
developing the expertise and the capacities for DR pellets (as Ryzhenkov
reminded in the interview, Central Iron Ore already has 2.3 mmt of such annual
capacity) will allow Metinvest to have immediate decarbonization impact
globally (albeit at its Scope 3 level) and prepare itself for the
decarbonization of its own steelmaking.

 

Regarding
the USD 1.5 bln per year CapEx level, which Ryzhenkov already mentioned in September, it looks feasible for the
next few years unless China substantially increases its net steel exports
(which will depress steel prices) or substantially decreases its own steel
consumption (which will be negative for iron ore prices).

 

We
maintain our neutral view on METINV bonds.