Metinvest Azovstal plant capacity suffers from accident

The Azovstal plant of Ukraine’s largest steelmaker
Metinvest (METINV) suffered an accident on July 12 as its hot iron mixer No. 1
leaked, spilling 1 kt of hot iron, according to 0629.com.ua, a local news site,
which cited Metinvest’s press service. Metinvest plans to establish a
commission that will work out a plan for sustaining the plant’s capacities, the
company said according to 0629.com.ua.

According to a 2018 Azovstal report on the
environmental effects of a planned reconstruction of its hot iron mixing
department, the plant has two mixers with a 2.5 kt volume each.

Dmytro Khoroshun: We
tentatively estimate that the accident will limit Azovstal’s steelmaking
capacities to 8-9 kt per day, down 30-40% from the 12.9 kt per day value
achieved in April, and down 40-45% from Azovstal’s steelmaking capacity that
Metinvest reported in its 2018 Eurobond prospectus (5.3 mmt per year, or 14.5
kt per day).

Namely, we estimate that the daily turnover of the
only remaining hot iron mixer, No. 2, cannot exceed 7.5 kt, which translates
into 8-9 kt of crude steel per day.

Recall, Azovstal stopped one of its two oxygen converters
for repairs on June 11, and these repairs might last until the end of July. The
capacity limitations from the lack of hot iron mixing capacity due to the mixer
No. 1 accident will apply only if both oxygen converters are operational.

There is no data on how long will it take Azovstal to
repair hot iron mixer No. 1. It is possible that, in addition to using is
stationary mixer No. 2, Azovstal manages to store hot iron and supply it to its
two converters using movable hot iron ladles of smaller volume.

We maintain our bullish view on METINV bonds.