Metinvest steel output flat qoq in 1Q17

Ukraine’s largest steelmaker Metinvest (METINV) reported almost flat qoq (2.07 mmt) steel production at its subsidiaries in 1Q17, according to operating results published on April 28. Azovstal and Ilyich Steel boosted production 15% qoq each, while Yenakiyeve Steel operating results plunged 45% qoq to 269 kt owing to a shutdown of its furnaces, rail blockage and a loss of control over its enterprise.

Metinvest’s output of merchant semi-finished products dropped 18% qoq to 454 kt owing to its loss of control over Yenakiyeve Steel to the separatist government and a decline in merchant  pig iron output at Ilyich Steel (-18% qoq, to 784 kt), which was partly offset by increasing output at Azovstal (by 18% qoq, to 953 kt).  The holding’s output of finished products decreased 3% qoq to 1,586 kt (6% yoy growth). Long-product output fell 25% qoq to 355 kt, driven mainly by Yenakiyeve’s decline, while flat products output increased 7% qoq to 1,182 kt.  Its output of sellable iron ore products slid 1% qoq to 3.62 mmt.

Andriy Perederey: The holding revealed a strong operating performance, even with all the troubles at Yenakieve Steel, which was seized in March. As the subsidiary was operational for almost half of 1Q17 (till Feb. 20) and won’t operate any more for Metinvest, we expect its results will be worse in 2Q17. At the same time, we expect the holding will compensate for the loss to boost steel production on its two Mariupol-based mills (Azovstal and Ilyich Steel) later this year.

All in all, we see Metinvest’s 2017 total attributable steel production (including JVs not disclosed in the production report) at 9.5 mmt (-7% yoy). We are keeping our positive view on Metinvest bonds, which are now trading at 95-96% of par, seeing their fair price at 98% of par.