Metinvest halts operations at Yenakiyeve Steel and Krasnodon Coal

Metinvest (METINV) has halted operations at its third largest steelmaker, Yenakiyeve Steel (ENMZ UK), and second largest producer of coking coal, Krasnodon Coal, according to the holding’s announcement on Feb. 20. Production at the Makiyivka branch of Yenakiyeve Steel will terminate on Feb. 25, the announcement said. The stoppage was a result of interrupted shipments of iron ore to Yenakiyeve due to the blockade of the railway connection between the occupied territory of Donbas (where the plant is located) and the rest of Ukraine. For the same reason, shipments of coking coal from Kransodon (also located on the occupied territory) are impossible to the rest of Ukraine.

As a positive development for Metinvest, the government reported this morning that electricity supply to Avdiyivka, the site of the holding’s largest coke plant, has been restored.

Andriy Perederey: Yenakiyeve Steel produced 22% of Metnvest’s total steel products in 2016 (excluding the results of Zaporizhstal), so this number shows the size of the possible decline in Metinvest’s total output if the railway blockade continues. Krasnodon Coal was much less important for Metinvest’s production cycle in 2016 (it supplied 10% of the total coking coal needs of the holding). We estimate that without Yenakieve and Krasnodon, Metinvest’s consolidated revenue will decrease by 6%, everything else being equal. This includes a roughly 9.4% loss of revenue from Yenakiyeve itself, which would be partially compensated by the re-direction of Metinvest’s iron ore and coke deliveries from Yenakieve to external buyers. The effect from idling Yenakiyeve and Krsanodon on Metinvest’s consolidated EBITDA will be more pronounced – a decrease of about 17%, we estimate. Thus far, we expect that the blockade won’t last for long, so the total losses of Metinvest this year will be moderate. Nevertheless, the current situation poses a high price risk for Metinvest bonds.