Metinvest might form JV to acquire Romanian steel plant

Metinvest (METINV), Ukraine’s largest steelmaker,
might form a joint venture with Italy’s Marcegaglia in order to acquire
ArcelorMittal Galati, a steel plant in Romania, according to Ziarul Financiar
(ZF), a Romanian news site.

ArcelorMittal Galati’s upstream yearly capacities include
2.1 mmt of coke, 8 mmt of hot iron, a converter steel shop, a slab caster of
4.4 mmt, and a bloom and billet shop of 4.3 mmt, according to ArcelorMittal’s
website. The plant’s downstream yearly capacities include a plate mill of 2.3
mmt, a hot-rolling mill of 3.2 mmt, a cold-rolling mill of 1.1 mmt, a
galvanizing line of 220 kt, and a welded pipe mill of 44 kt.

The Galati plant currently produces 2 mmt per year of
crude steel, according to ZF, which cited a source that said investments of USD
5 bln will be required to boost the plant’s steel production to 9 mmt per year.

ZF mentioned that the Galati plant was acquired by
Mittal for USD 71 mln in 2001. Other potential buyers in the upcoming
ArcelorMittal divestment of the Galati plant could be Turkey’s Erdemir and
Austria’s Voestalpine, according to ZF.

Dmytro Khoroshun: If
Metinvest acquires a stake in the Galati plant, the main value for the
Ukrainian holding will be using the Romanian downstream capacities to reroll semi-finished
slabs it produces in Ukraine. In 2017, Metinvest produced 1.34 mmt of merchant
slabs, and it looks like the Galati plant’s rolling mills, capable of producing
5.5 mmt per year, will also be capable of consuming all of that volume, and
whatever additional spare slab capacity Metinvest might have.

Following EU’s introduction of a EUR 60.5/t duty
on imports of Metinvest’s hot-rolled flat products in October 2017, Metinvest’s
management mentioned acquiring a rerolling plant in Europe as an option. It
looks much more realistic if Metinvest succeeds in refinancing and restructuring
its investment-restrictive USD 2.3 bln Eurobond and PXF debt.

In addition, Metinvest will find synergy in supplying
the Galati plant with about 3 mmt per year of iron ore products if the Romanian
plant continues smelting at a yearly rate of 2 mmt of crude steel.

We think that Metinvest and Marcegaglia making
substantial investments into the upstream, iron- and steelmaking, capacities in
Romania is less likely an outcome, at least in the next few years. However, if
the steel trade barriers continue increasing and margin permanently shifts into
steel smelting from iron ore extraction, then expanding steel production
volumes in Romania, an EU member and therefore not subject to the EU’s trade
barriers, with the aim of supplying iron ore products might become an
attractive option for Metinvest.