Metinvest sheds light on marketing and investment plans

Roman Kurashev, the
marketing director of Ukraine’s leading steel holding Metinvest (METINV),
commented on its mid-term marketing and investment plans, as reported by the
minprom.ua and uaprom.info news sites. The holding derived some of these plans
from its 10-year strategic development program.

 

In particular,
following the October introduction by the European Commission (EC) of a EUR 60.5/t import duty on Metinvest’s hot-rolled coils
(HRC), Metinvest has stopped the supply of this product to the European Union.
Nevertheless, Kurashev mentioned that Metinvest’s proposal to the EC – of
self-imposed restrictions on volumes and minimal prices for HRC exports to the
EU – is still under consideration by the EC. Metinvest is also redirecting its
HRC sales to markets abandoned by Chinese producers, such as North Africa,
Turkey and Pakistan.

 

Also, Metinvest is
planning to increase sales of its cold-rolled and hot-dip galvanized (HDG)
products to the United States. This will become possible after their quality is
improved sometime in 2019, following the planned reconstruction of Mill 1700
(CapEx: USD 85.3 mln) and the construction of continuous casting machine No. 4
(CapEx: USD 150 mln) with a planned capacity of 2.5 mmt of slabs per year at
Ilyich Steel. One of the two hot-dip galvanizing lines at Ilyich Steel will
also be modernized during 2018-2020.

 

Already in 2018,
Metinvest plans to transform Ilyich Steel’s cold-rolled coils (CRC) into HDG
via a tolling scheme at Unisteel, a Ukrainian hot-dip galvanizing plant with a
100 kt per year capacity. Unisteel is to start producing this month after a
six-year down time, and should produce about 60 kt of HDG in 2018, according to
Kurashev.

 

Generally, Metinvest
plans to specialize in flat products, and in particular to focus on hot-rolled
plate products, a market in which Metinvest claims to be one of the Top Five
producers.

 

Metinvest’s strategy
foresees increasing capacity utilization at Azovstal and Ilyich Steel.
Metinvest is working with Ukrzaliznytsia on debottlenecking the
Kamysh-Zarya-Volnovakha raw material supply route. Once this problem is solved,
capacity utilization at the two Mariupol plants should increase from the
current 70-80%. The holding also plans to invest into its blast furnaces and
convertors in order to improve the quality of its products further downstream.

 

In early October,
the uaprom.info website reported Kurashev describing Metinvest’s plans to
invest USD 8.8 bln during the next 10-15 years, of which USD 5.7 bln were
allocated to metallurgical assets, and USD 3.1 bln to mining assets.
Metinvest’s vision was that the industry’s profits are shifting from raw materials
to steelmaking. However, Kurashev also noted that the world’s steel capacity
utilization is at a very low level of 70%.

 

Dmytro Khoroshun: One of the risks of Metinvest’s
strategy is that the profit of both its steelmaking and raw material production
remain depressed for a long time. Because Metinvest’s steelmaking capacities
are somewhat outdated, and because it cannot rely on a sizeable domestic steel
market and therefore faces trade barriers and has to incur shipping costs and
netbacks, it might have difficulties fighting a prolonged steelmaking
efficiency competition, especially if the holding does not deleverage during
the good times.

 

However, right now,
with Chinese steelmaking margins near their record highs, and with
high-Fe-content iron ore concentrate (which Metinvest produces and sells)
commanding high premiums, Metinvest’s strategic plans seem reasonable and the
holding’s ability to implement them appears realistic.

 

We are keeping our neutral view on METINV Eurobonds.