Metinvest steel output rises 5.3% yoy in 1Q17

Total attributable steel production at Ukraine’s largest steel producer Metinvest (METINV) fell 3.4% m/m to 815 kt in March, but rose 5.25% yoy to 2.616 mmt in 1Q17, according to Concorde Capital’s analysis of news reports of Interfax-Ukraine. Average daily output declined 12.8% m/m to 26.3 kt per day. The figures include subsidiaries Azovstal (AZST UK), Ilyich Steel (MMKI UK), Yenakiyeve Steel (ENMZ UK) and a 49.9% portion of Zaporizhstal’s result (accounted for as a JV).

On the other hand, the two Mariupol-based steel mills boosted crude steel production by 20% m/m in March to 653 kt. This implies their average daily output was 21 kt in March, an 8.4% m/m increase. This figure includes Ilyich Steel, where steel output rose 18% m/m to 8.5 kt per day, and Azovstal, where output grew 3.3% m/m to 12.5 kt/day. Zaporizhstal, in which Metinvest has a 49.9% stake through a joint venture, produced 10.5 kt per day of steel, which is flat m/m. Production was halted at Yenakiyeve Steel as of Feb. 20.

Andriy Perederey: The holding’s March results were better than we expected. We estimated that March attributable steel production would be 20%-25% lower m/m on a daily average basis due to Yenakiyeve Steel idling and reduced steel output at Ilyich Steel. But daily attributable steel production decreased 12.8% m/m only owing to Yenakiyeve Steel idling. The two Mariupol steel mills boosted their production in March.

This means that Metinvest resolved its bottlenecks with supplies of coke and some other raw materials. Therefore, the company will have a stable operating performance and there’s lower risk that declining output may weigh on Metinvest’s EBITDA.

All in all, the holding will be able to generate enough free cash flow for all its creditors at current steel and iron ore price levels. And we are keeping a positive view on Metinvest bonds, which are now trading at 94% of par.