Interpipe pipe sales plunge 30% m/m in October

Pipe sales volume at Ukraine’s largest producer
Interpipe (INTHOL) was 34.4 kt in October, a 30.2% m/m plunge, according to the
company’s monthly operational report released on Nov. 18. Railway product sales
slid 4.5% m/m to 15.4 kt, while external billet sales surged 68.5% m/m to 3.2
kt. Total sales volume retreated 21.3% m/m to 53.0 kt.

The m/m plunge in pipe sales in October was driven by
sales of line pipes (-36.9% m/m to 22.6 kt), which peaked in September due to
large deliveries to the UAE that month, the report said.

During 10M20, Interpipe’s pipe sales dropped 22.0% yoy
to 393.6 kt, driven mostly by a 53.9% plunge for OCTG pipes to 66.9 kt and a
40.4% drop for welded pipes to 68.4 kt. Railway product sales slid 2.4% yoy to
162.8 kt in 10M20, driven mostly by a 5.3% loss for wheels to 141.4 kt,
partially offset by a 32.6% jump for wheelsets to 16.4 kt.

Ukraine’s share of Interpipe’s pipe sales in 10M20
dropped 5pp from 2019 to 20%, and the share of sales in the Americas plunged
13pp to 11%. At the same time, Europe’s share in pipe sales gained 6pp to 30%,
and the share of MENA rose 9pp to 24%. The share of CIS countries in 10M20
climbed 2pp to 12%.

The share of Interpipe’s railway product sales in Ukraine
in 10M20 dropped 9pp from 2019 to 13%, while the share of sales to Europe
gained 9pp to 35% and the share of sales to CIS countries slid 1pp to 44%.

Regarding production volumes, which might be
indicative of sales volumes in future months, Interpipe’s pipe production
dropped 7.4% m/m to 38.3 kt in October, while railway product output slid 2.1%
m/m to 15.4 kt. Steel production lost 2.8% m/m in October to 62.8 kt.

Dmytro Khoroshun: The October
drop in pipes sales is negative because we estimate Interpipe makes about USD
100-125 of EBITDA in its steel segment per each ton of seamless pipes sold.
This is despite the company’s pipe segment in itself bringing in almost no
profit, as its EBITDA (before reallocation of steel segment EBITDA) was a negative
USD 2 mln in 6M20, or a negative USD 9 per ton of pipes sold.

At the same time, the stability of Interpipe’s
railway product sales volumes is positive, because this segment remains highly
profitable. Namely, in 6M20 Interpipe made USD 1,062 of EBITDA in this segment
(before reallocation of steel segment EBITDA) per ton of railway products sold.
This value might drop to about USD 700/t in 3Q20 because of the drop in product
prices, but we expect this segment will remain the main source of Interpipe’s profitability
in 2H20 and early 2021. Additionally, we estimate that the company makes about
USD 100-125 of EBITDA in its steel segment per each ton of wheels sold.