Steel production at Metinvest subsidiary ENMZ to fall sharply in June
22 June 2016
Metinvest’s (METINV) third-largest steelmaking subsidiary, Yenakiyeve Steel (ENMZ UK), as well as Ukraine’s other metallurgical enterprises located on the occupied territory of Donbas, have been facing logistic constraints since the beginning of June, Ukraine’s Metal Expert news agency reported on June 21. As a result, steel output may fall sharply in June.
The reason for that is as of end-May and early June, the Ukrainian state railway company Ukrzaliznytsia (UZ, RAILUA) has imposed a ban on cargo traffic to and out of the occupied territories. Its main motive was to reinstate operating control over logistics and dispatching of cargo on the occupied territories, as well as to reregister railway personnel in the occupied territories as employees of one of UZ’s subsidiaries based in Ukrainian-controlled territory.
As of June 21, railway transportation of raw materials and finished products has partly recovered in the region, according to Metal Expert, though Ukrzaliznytsia’s ban has yet to be lifted. The situation may improve in coming weeks, Metal Expert also reported, citing anonymous market insiders.
Roman Topolyuk: We now expect Yenakiyeve Steel to produce around 65 kt of steel in June, which represents declines of -67% m/m and -65% yoy. July’s results may also be negatively impacted and exact numbers are hard to estimate so far. We assume another 65 kt of steel in July, and a gradual restoration to normal production volumes going forward. Therefore, we now forecast Metinvest’s 2016 steel production at 10.2 mmt (+5% yoy), 2% lower than our previous forecast.
The logistics disruptions at Yenakiyeve Steel, combined with the current ongoing steel price correction, may bring short-term pressure on Metinvest’s bonds. We expect that by mid-summer, this logistics issue might be solved and steel prices may find grounding. Since the restructuring of Metinvest’s total debt – to be finalized in September-November – looks doable, we reiterate our positive view on METINV.
