Metinvest steel production might drop 10% in October due to coal shortage

Azovstal, one of three steelmaking plants of Metinvest
(METINV), experienced a dip in production of merchant slabs in October due to
problems with coke supplies, according to a Nov. 9 report by Metal Expert, an
industry consultancy.

 

Azovstal plans to boost its merchant slab output 67%
m/m in November to 287 kt (9.6 kt per day), Metal Expert said, which implies
that in October Azovstal produced 172 kt of merchant slabs (5.5 kt per day),
according to Concorde Capital calculations.

 

In 10M21, Azovstal produced and exported about 2.5 mmt
of slabs (8.2 kt per day), according to Metal Expert. In September, it planned
to produce 230 kt (7.7 kt per day) of merchant slabs.

 

Recall, Metinvest cited raw material shortages as a
reason for the 3Q21 drop in its coke production.
Pokrovske Coal, Metinvest’s only producer of coking coal in Ukraine, might
increase its raw coal production in October 15-20% m/m to 14.5-15 kt per day
and launch a new longwall in November after its production volumes
remained low in September following significant drops in August and July.

 

Svyato-Varvarynska Enrichment Plant LLC reported that
it was preparing for processing raw coal at an hourly rate of 1.2 kt, according
to an Oct. 29 interview by Artyom Savchenko, Svyato-Varvarynska’s deputy CEO
for operations, to Orbita, a local TV station. This amounts to 28.8 kt per day
and 10.5 mmt per year, according to Concorde Capital calculations.

 

Svyato-Varvarynska processes almost exclusively the
raw coal mined by Pokrovske Coal, whose recent high in average daily production
rate was 21.8 kt of raw coal in November 2020. Svyato-Varvarynska’s capacity
amounts to 8-8.5 mmt of raw coal per year, according to company data and
Concorde Capital estimates.

 

Dmytro Khoroshun: Metinvest
might decrease steel production to about 25.7 kt per day in October, or about
10% less m/m, we estimate. These volumes include production at Metinvest’s two
Mariupol plants and at Dniprovskyy Coke.

 

Looking ahead, Azovstal’s plans to boost production in
November suggest that the problems due to coal shortage might abate after their
October peak. Furthermore, Svyato-Varvarynska’s preparations to enrich at rates
25-30% above its capacity suggest that the increase in Pokrovske Coal’s mining
rates following the launch of its new longwall might be substantial.

 

Therefore, the coal shortage might indeed subside from
November, in which case Metinvest’s steel production will rebound to at least
29-30 kt per day.

 

We maintain our neutral view on METINV bonds.