Worker strikes cripple ArcelorMittal, Metinvest, Ferrexpo assets

Ukrainian steel and mining producers located in Kryviy
Rih, Ukraine’s eighth-largest city, lost a third of their daily output on May
16 due to strikes launched by the locomotive workers of Ukrzaliznytsia, the
uaprom.info news site reported on May 17, citing Serhiy Belenkiy, the head of
Ukrainian Steel and Mining Federation. He said the strike started on May 14 and
Kryviy Rih mining companies were unable to send 63 kt of iron ore during the
first three days. Ferrexpo Poltava Mining, the main asset of Ferrexpo (FXPO LN,
FXPOLN), is also experiencing problems with moving its product because of
striking workers near Kremenchuk, Belenkiy told the rbc.ua news agency on May
18.

The Kryviy Rih assets of Metinvest (METINV) and
ArcelorMittal Kryviy Rih (AMKR, KSTL UK) lost 15-20% in turnover on May 16,
according to uaprom.info, which cited Serhiy Kaplin, the head of Ukraine’s
parliamentary committee on social policy.

ArcelorMittal Kryvyi Rih faces a financial crisis and
might be unable to pay salaries in June, according to a company press release
that cited the company’s CFO Serhiy Plichko, who said that AMKR’s railway
workers have followed their counterparts at Ukrzaliznytsia in starting a strike
of their own. The strike at AMKR is likely to have an especially heavy impact
after the company experienced several equipment malfunctions in the last few
months. Cash flow in April was at negative UAH 600 mln (USD 23 mln), and the
losses for May might exceed USD 55 mln, according to the CFO.

Plichko blamed an unnamed member of Ukraine’s
parliament for instigating and manipulating the strikes as part of campaigning
for presidential elections, scheduled for March 2019.

Ukrzaliznytsia workers have four demands, according to
a May 14 report by kg.ua, a Kremenchuk news site. They are salary hikes to
European levels, changes to retirement rules, safety improvements, and firing
Ukrzaliznytsia’s top management. Meanwhile, AMKR’s railway workers are
demanding a EUR 1,000 monthly salary and safety improvements, Interfax-Ukraine reported
on May 17.

Dmytro Khoroshun: The
situation is still unfolding, and it is not yet clear how large are the
negative risks for AMKR, Metinvest and Ferrexpo. It is not usual for a top
manager of a Western-owned company to blame politicians directly, as Plichko
did, and we interpret this as AMKR having firm evidence that the strikes indeed
aim to destabilize the political situation in Ukraine. As these events show,
the election campaign season promises to last a very long one-and-a-half years,
increasing both Ukraine’s sovereign and specific company risks.