Metinvest plans to boost steel production to over 8 mmt in 2018

Metinvest (METINV),
Ukraine’s largest steelmaker, plans its 2018 steel production will exceed 8 mmt
in 2018, CEO Yuriy Ryzhenkov announced on Apr. 24, according to the minprom.ua
news agency. The holding plans to produce more than 9 mmt of pig iron in 2018,
according to Ryzhenkov.

 

Ryzhenkov also noted
that railway service with Mariupol has improved recently, allowing for 20
trains per day in March. However, Metinvest needs 26-28 trains per day in order
to load its Mariupol-based assets, Azovstal and Ilyich Steel, with raw
materials, he
said. In March 2017, city officials said Mariupol was able to receive only
16-17 trains per day at the time.

 

Ryzhenkov also
revealed that Metinvest plans to file for a review of the EUR 60.5/t
anti-dumping duty on imports of hot-rolled coils (HRC) from Ukraine introduced by the EU in October
2017. The
filing will become possible once a year has passed since the introduction of
the duty, according to Ryzhenkov, who said that Zaporizhstal, a Metinvest joint
venture, used to export about 700 kt per year of HRC to the EU, with Ilyich
Steel supplying 150-170 kt per year.

 

Ryzhenkov also said
that Metinvest might be interested in acquiring
rerolling capacities in the EU, particularly some of those that ArcelorMittal might be
obligated to sell as a pre-requisite for its acquisition of Italy-based Ilva,
according to uaprom.info.

 

Dmytro Khoroshun: The supply of raw materials to
Mariupol directly limits
Metinvest’s pig iron production volumes (the raw materials are transformed into
pig iron first), whereas steel production volumes might be boosted at the
holding’s significant discretion by reducing its sales of merchant pig iron
(2017: 1.4 mmt) and boosting pig iron’s transformation into steel. During 1Q18, Metinvest produced pig iron at a
rate of 23.7 kt per day, a notable 9% improvement over the 2017 average rate of
21.8 kt per day. Producing 9 mmt, or 24.7 kt per day, of pig iron in 2018 will
require Metinvest boosting its production further by 5% to 25.0 kt per day in
April-December 2018. This looks feasible, considering that Ukrzaliznytsia
planned to perform railway maintenance to debottleneck the Mariupol route already
in April.

 

Achieving 2018 steel
production of 8 mmt will require Metinvest producing 22.5 kt per day in
April-December, 12% higher from 20.1 kt per day during 1Q18. The holding has
the capacity to achieve this, and the markets, particularly semi-finished
slabs, currently look strong enough to absorb this rise in Metinvest’s output.

 

If Azovstal and
Ilyich Steel produce 8 mmt of steel in 2018, it would be a 9% yoy increase from
the 2017 level of 7.36 mmt. For Metinvest, which until February 2017 also
included production volumes by Yenakiyeve Steel (halted on Feb. 20, 2017), the
2018 level of 8 mmt will be a 5% yoy boost from 7.63 mmt produced in 2017.

 

However, until more
news surfaces on the raw material supply throughput for Mariupol and
Metinvest’s actual production, we are sticking to our estimate of 7.3 mmt of
steel output in 2018, or 4-5% less yoy.

 

We are also skeptical on Metinvest’s prospects to remove the EU trade
barriers for its HRC products because the worldwide trade protectionism trend
seems to be getting stronger.