Zaporizhstal plans to boost pig iron production 15% yoy in 2018

Zaporizhstal (ZPST
UK), a joint venture of Metinvest (METINV), Ukraine’s largest steelmaker, is
planning to boost its 2018 pig iron production by 15% in 2018, CEO Rostyslav
Shurma announced on Apr. 25, according to the minprom.ua news agency. The
plant’s steel production will rise 3-5% yoy in 2018, Shurma said.

Shurma also said
that Zaporizhstal used to sell up to 1 mmt per year of rolled products to the
EU before its introduction of a EUR 60.5/t
anti-dumping duty
on imports of hot-rolled coil (HRC) from Ukraine in October 2017. The company
is trying to find alternative sales venues for these steel volumes, including
both traditional (Middle East and North Africa) and exotic (Far East, Asia)
markets.

However, the
logistics of selling to the Far East reduces the netback achieved price by
almost USD 50/t in comparison with the EU, Shurma said. Zaporizhstal is also trying
to maximize its production of cold-rolled products that are not subject to the
EU duty, Shurma added.

Dmytro Khoroshun: The announced yoy dynamics will
result in the production of 4.36 mmt of pig iron and about 4.08 mmt of steel in
2018, close to 100% utilization of Zaporizhstal’s capacity for both materials.
This means that the plant plans to redirect the EU volumes to other markets in
full.

Shifting the HRC
sales from the EU to more-distant markets will, in itself, negatively
impact Zaporizhstal’s
EBITDA by up to USD 30 mln, according to our estimates. Metinvest reported
Zaporizhstal EBITDA of USD 270 mln for 2017, but the price for Ukraine’s HRC
exports surged in 2H17 to USD 600/t from USD 450-500/t in 1H17, more than
compensating the USD 50/t logistics loss Shurma discussed.

Therefore, if the plant is able to maintain sales volumes at 2017
levels, the combined effect of the 2H17 price increase and the redirection of about 0.7 mmt from the EU
to more-distant markets might bring Zaporizhstal’s 2018 EBITDA in line with the
2017 level.