Metinvest postst 32% decrease in steel production in 1H15

Ukraine’s leading steel holding Metinvest (METINV) reported a 32% qoq recovery in steel output to 2.2 mmt in 2Q15, according to its July 31 report. All three steel mills contributed to the qoq increase, including Yenakiyeve Steel (ENMZ UK) which produced 563 kt in the quarter, or 2.2x compared to 1Q15 when it was idle for more than a month.

In 1H15, operating results of Metinvest were weak as compared to relatively peaceful 1H14: -32% yoy in steel production to 3.9 mmt.

Partial easing of the operating and logistic bottlenecks in 2Q15 and higher production of hot iron and steel helped Metinvest to increase total production of steel products 16% qoq to 2.2 mmt. In 1H15, output of steel products decreased 33% to 4.0 mmt.

Total output of Metinvest’s iron ore concentrate increased 12% qoq to 8.4 mmt in 2Q15, driven by higher internal consumption. Output of marketable iron ore products grew 13% qoq to 5.4 mmt in 2Q15. In 1H15, total output of iron ore concentrate decreased 12% yoy to 15.8 mmt, output of iron ore products slid 4% yoy to 10.2 mmt.

Roman Topolyuk: Operating results of Metinvest in both metallurgical and mining divisions came in close to our projections. Lower than we projected steel production at Yenakiyeve Steel has been compensated by higher than we expected result of Ilyich Steel, and currently Metinvest is on track to meet our forecast of steel output of 7.5 mmt in 2015 (-19% yoy).

Iron ore production in 1H15 is in line with our current projection of sales to third-parties of 20.7 mmt in 2015 (-6%). Profitability of iron ore division is the key uncertainty to us. Prices of iron ore fines are USD 53/t in China (CFR) today, just couple of dollars above Metinvest’s production costs, we estimate (sales of concentrate to third parties represented 40% of Metinvest’s total concentrate output in 1H15). Profitability of pellets looks more secured, as they are sold at premium to fines. Nevertheless, we estimate that if iron ore prices go down below USD 50/t for an extended period of time, Metinvest will have to halt certain part of iron ore concentrate producing capacities.