Metinvest steel output falls 10% qoq in 2Q17

Ukraine’s largest steelmaker Metinvest (METINV)
reported a 10% qoq decrease in steel production to 1.85 mmt at its subsidiaries
in 2Q17, according to its Aug. 1 operating update. The decline was caused by
halted production at Yenakiyeve Steel during the quarter after the holding’s
loss of control over the enterprise since March 15. Azovstal output decreased
0.4% qoq to 1.08 mmt in 2Q17, while Ilyich Steel output increased 8% qoq to 772
kt in 2Q17.

In 1H17, crude steel output decreased 6% yoy to 3.9
mmt at the holding’s subsidiaries due to a 72% yoy drop in output at Yenakiyeve
Steel to 269 kt, which was partly offset by a 20% yoy increase at Azovstal and
4% increase at Ilyich Steel. The holding’s metal product output decreased 2% to
4.1 mmt in 1H17.

Production of semi-finished products increased 12% yoy
to 1.2 mmt in 1H17, owing to slab output rising by 72% yoy to 604 kt and pig
iron output rising by 10% to 540 kt. At the same time, 1H17 production of
square billets, produced by Yenakiyeve Steel, fell 92% yoy to 15 kt. The
holding’s finished products output decreased 7% yoy, including a 7% yoy
increase in flat products (to 2.4 mmt) and a 43% yoy decrease in long products
(to 516 kt) due to a lack of square billets.

Total iron ore concentrate production declined 14% yoy
to 13.65 mmt at Metinvest’s subsidiaries in 1H17.

Andriy Perederey: The
operating performance of Metinvest’s subsidiaries is in line with what we have
observed in separate news reports of Interfax. The decline in output will be
more than offset by better steel prices (rising 16-34% yoy in 1H17) and will
result in stronger P&L in 1H17.

We continue to expect Metinest’s total attributable
steel production (including JV’s not disclosed in the production report) at 9.6
mmt (-7% yoy) and EBITDA improving 12.6% yoy to USD 1,531 mln in 2017. And we
are keeping a positive view on Metinvest bonds.