Metinvest to shut down mill 1700 at Ilyich for modernization

Ukraine’s largest steel producer Metinvest (METINV)
plans to shut down rolling mill 1700 at Ilyich Steel for a six-week modernization
starting from Aug. 17, according to a July 8 report by Metal Expert, an
industry consultancy. The modernization will allow Ilyich Steel to increase the
maximum hot-rolled coil (HRC) size to 27 t and eventually to 32 t, as well as
to increase the maximum coil thickness to 16 mm from the present 8 mm.

Currently, Mill 1700 is able to produce coils of up to
16.5 t, according to a July 8 report by mariupolnews.com.ua, a local news site,
which said that Ilyich Steel’s total investments in Mill 1700 modernization
amount to USD 85 mln.

Metall Expert said that production volumes of pig iron
(which are currently down due to repairs of several blast furnaces) and HRC
should rebound in 4Q19, after several repairs and modernizations have been
completed.

Dmytro Khoroshun: We continue
to expect Metinvest’s 2019 steel production to reach 8.0-8.3 mmt, up 9-14% yoy.
The management’s guidance for 2019 was 8.32 mmt
(up 14% yoy).

However, we currently see Metinvest’s 2019 steel
production barely reaching the lower bound of our range, 8.0 mmt, on the
condition that the company’s steel production remains flat m/m at 17.5 kt per
day in July, rebounds to 20 kt per day in August, and bounces back to its high
of 24 kt per day in September-December.

In order for its 2019 production to reach 8.3 mmt,
Metinvest will have to produce at rates around 26 kt per day in the last four
months of the year, we estimate, or 9.5 mmt annualized. We think that this
level is too close (to be continuously sustainable) to the 9.6 mmt per year
Metinvest announced as its crude steel capacity in its 1Q19 presentation.

We maintain our bullish view on METINV bonds.