Metinvest increases steel output 13% m/m in January

Metinvest (METINV) increased steel production at its three subsidiaries (Azovstal, Ilyich Steel and Yenakiyeve Steel) 18% m/m to 585 kt in January 2016, according to the plants’ separate production reports cited by Interfax-Ukraine. Individual output at the plants advanced 10-26% m/m. The rebound occurred after an across the board decline in production in November-December, which Metinvest attributed to weaker demand.

Together with flat m/m steel production at Zaporizhstal of 354 kt in January (49.9% owned by Metinvest), the holding’s total attributable steel output grew 13% m/m to 762 kt, we estimate. The annualized January attributable steel output of Metinvest was 9.1 mmt in January, compared to 9.7 mmt in 2015.

Metinvest decreased output of iron ore concentrate 12% m/m (to 2.4 mmt) at its three subsidiaries (Northern, Central and Ingulets iron ore plants). Southern Iron Ore, owned by Metinvest by 46%, increased concentrate production 2% m/m to 928 kt. Total attributable iron ore concentrate production by Metinvest slid 10% m/m to 2.85 mmt. The annualized January attributable iron ore concentrate output was 34 mmt, 19% less than in 2015.

Production of iron ore pellets by Northern Iron Ore and Central Iron Ore grew 39% m/m to 1.02 mmt. Metinvest’s annualized pellet production was 12.3 mmt in Jaunary, 23% better than in 2015.

Roman Topolyuk: The ongoing hryvnia devaluation, unwinded in January, eased the production costs of Ukrainian steelmakers, and justified the reversion of their output decline. The on-going attempts of steel producers in different regions to agree on higher steel prices also add some optimism, though such efforts have yet to prove their effectiveness. Prices for some steel items inched up in February, so we estimate Metinvest will generate slightly positive EBITDA this month. Though, we expect the holding will report slightly negative EBITDA for January, as well as for December (the latter to be disclosed in February).

Steel production in January 2016 implies capacity load of 50% and 62% at Azovstal and Ilyich Steel, down from 60% and 68% in 2015. At Yenakiyeve Steel, capacity use increased to 60% in January from 55% in 2015.

We are impressed by significant output growth of Metinvest’s iron ore pellets in January. That implies Metinvest increased sales of pellets to international buyers, after domestic demand for pellets fell significantly in line with war-driven decrease of steel production. We would rather ignore the m/m decrease in total iron ore production in January so far, still expecting the holding will restore mining in the next months.