Metinvest steel production rises 28% m/m in October

The three steelmakers of Metinvest increased steel output 28% m/m to 524 kt in October, as indicated by production reports released separately by the enterprises. Production at Azovstal (AZST UK) rose the highest, or 40% m/m to 306 kt in October. Yenakiyeve Steel (ENMZ UK) produced 25 kt of steel compared to zero output in September. Ilyich Steel’s (MMKI UK) production was almost flat m/m at 193 kt, but hot iron output increased 37% m/m to 266 kt. Altogether, Metinvest produced 7.98 mmt of steel in 10M14 (-24% yoy), we estimate.

Roman Topolyuk: The two steel plants located in the city of Mariupol, Azovstal and Ilyich Steel, improved their output in October, but further recovery of their operating performance is capped by logistical hurdles as railroads in the region are still being destroyed and shelling continues. Yenakiyeve Steel managed to restart two out of its three blast furnaces in October, and may produce around 125 kt of steel in November (half of normal volumes previously).

Thus, we expect all the subsidiaries will produce around 620 kt of steel per month in November-December (60% of average monthly volumes in 2013). As of now, there are no signs Metinvest will increase steel production any further than that. Hence, we maintain our EBITDA forecast of USD 1.6 bln in 2015, and net operating cash flow of USD 967 mln. Assuming next year’s CapEx at USD 450 mln and given a USD 1.3 bln scheduled debt redemption, we estimate the holding’s liquidity gap next year will be about USD 900 mln.