Metinvest partner Dniprovskyy Steel idles capacities

Dniprovskyy Steel, a Ukrainian iron and steel
producer, plans to keep idle some of its capacities due to unfavorable steel
markets, the company said in an Oct. 2 press release. In detail, the plant will
not restart, after planned maintenance, its blast furnaces Nos. 9 and 12 (total
capacity of 1.75 mmt of hot iron per year), oxygen converter No. 1 (2.4 mmt of
crude steel per year) and continuous casting machine No. 3 (1.7 mmt per year).

The plant will continue operating two other blast
furnaces, oxygen converter No. 2 (also 2.4 mmt per year) and two continuous
casting machines (total capacity of 2.4 mmt per year), according to an Oct. 2
report by Metal Expert, an industry consultancy.

Dniprovskyy Steel is supplied with raw materials (iron
ore, coke) by Metinvest (METINV), Ukraine’s largest steelmaker. Metinvest also
resells billets and long products produced by Dniprovskyy Steel.

In 2018, Dniprovskyy Steel produced 2.41 mmt of crude
steel, 77% more yoy. The plant produced 1.73 mmt of crude steel in 8M19, a 5.9%
yoy increase.

Dmytro Khoroshun: The
capacities that Dniprovskyy Steel will continue operating allow for producing
2.4 mmt of crude steel per year, or 200 kt per month, roughly the same rate as
in 2018 and in 8M19. Therefore, the news does not necessarily mean the plant
will decrease production volumes in comparison with the recent past.

However, if Dniprovskyy Steel does reduce its
production rate, it will be negative for Metinvest. This is because Metinvest
will have to redirect the iron ore volumes from Dniprovskyy Steel (about 3 mmt
per year, we estimate) to less-profitable export markets and possibly even cut
its iron ore production volumes.

We maintain our bullish view on METINV bonds.