Metinvest iron, steel output might jump 15-25% m/m in June

The hot iron and steel daily production rate at Ukraine’s
largest producer Metinvest (METINV) might advance 15-25% m/m in June, 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 June, a daily average of 21.2
freight trains traveled the Komysh-Zorya–Volnovakha railway section towards
Mariupol, according to the CFTS website, which is 23% more m/m.

In May, the daily average number of freight trains
heading to Mariupol was 17.2, or 6% more m/m. The same month, Metinvest’s daily hot
iron production advanced 13% m/m and its daily steel output jumped 20% m/m.
Both of Metinvest’s steelmaking plants are located in Mariupol.

Dmytro Khoroshun: The 23% m/m
jump in freight train traffic volume suggests Metinvest’s daily production
rates might improve significantly in June, exceeding their average 2019 levels
by 5-15%.

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 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 negative view on METINV bonds.