Metinvest crude steel output falls 2.3x yoy in August

The three steelmakers of Ukrainian vertically integrated metals & mining holding Metinvest (METINV) reported on Sept. 4 sharp decreases in their operating results in August. Steel output dropped at Ilyich Steel (MMKI UK) (-42% m/m, -55% yoy to 205 kt), Azovstal (AZST UK) (-21% m/m, -45% yoy to 213 kt) and Yenakiyeve Steel (ENMZ UK) (-81% m/m, -82% yoy to 46 kt). Altogether, Metinvest’s steelmakers produced 464 kt of steel in Aujust (-46% mom, -57% yoy), we estimate. In 8M14, Metinvest manufactured 7.046 mmt of steel (-16% yoy).

Roman Topolyuk: The reported figures are close to the preliminary plans of the enterprises. Yenakiyeve Steel has underperformed its two other peers ever since halting production after bombardment. Azovstal and Ilyich Steel significantly reduced their volumes after reduced delivery of raw materials prompted by damaged infrastructure in the Donetsk region.

For September, production looks to be even worse as Yenakiyeve may stay idle and raw materials delivery for Azovstal and Ilyich Steel is only getting worse. The adverse 3Q14 operating result may be partially compensated in 4Q14. Such a scenario may fulfill our EBITDA forecast of USD 2.4 bln in 2014 and gross debt-to-EBITDA ratio of 1.4x vs. a Eurobonds covenant of 3.0x. However, our upbeat projection is based on a ceasefire between Ukraine and Russia, which is a highly uncertain prospect.