Metinvest iron, steel output might inch up 2% m/m in September

The hot iron and steel daily production rate at
Ukraine’s largest producer Metinvest (METINV) might inch up 2% m/m in
September, according to Concorde Capital’s analysis of data on freight train
traffic to Mariupol, as provided by the Center for Transport Strategies (CFTS)
on its website.

In the first 29 days of September, a daily average of
20.4 freight trains traveled the Komysh-Zorya–Volnovakha railway section
towards Mariupol, according to the CFTS website, which is 2% more m/m.

In August, the daily average number of freight trains
heading to Mariupol was 20.0, or 3% more m/m. The same month, Metinvest’s daily
hot iron production rose 5% m/m and its daily steel
output gained 10% m/m. Both of Metinvest’s steelmaking plants
are located in Mariupol.

Dmytro Khoroshun: The 2% m/m
rise in freight train traffic volume suggests Metinvest’s daily production
rates might remain roughly flat m/m in September, but
will remain above their average 2019 levels by 22-24%.

The relationship between freight train traffic, which
brings raw materials (iron ore, coal and coke, fluxes, steel scrap) to
Mariupol, and Metinvest’s production volumes is imperfect. Daily freight train
traffic should be related more to Metinvest’s hot iron production than to that
of steel. This is because its steelmakers have the discretion of using hot iron
for producing either merchant pig iron or downstream steel products.
Metinvest’s steelmakers have the further option of storing as inventory some of
the raw materials supplied by the trains.

Conversely, the steelmakers might deplete their raw
material inventory for producing hot iron and steel at levels above the volumes
produced from fresh supplies by train. Finally, the volume of raw materials
supplied by a train depends on the number of railcars, which might vary.

We maintain our neutral view on METINV bonds.