Metinvest boosts attributable steel output 6% m/m in February

Ukraine’s largest steel producer Metinvest (METINV) boosted its attributable steel production by 6% m/m and 33% yoy in February to 804 kt (including a 49.9% portion of Zaporizhstal’s output), according to our analysis of separate reports by the Interfax-Ukraine news agency. Azovstal contributed the most (+25% m/m, to 249 kt) to the improvement. The steep yoy increase occurred as Yenakiyeve Steel (ENMZ UK) produced 158 kt of steel in February 2016, compared to nearly idling in the same year-ago period due to active warfare in Donbas at that time.

Metinvest’s attributable steel output grew 8% yoy to 1.57 mmt in 2M16.

The holding increased by 1% m/m and 16% yoy its attributable production of iron ore concentrate to 2.88 mmt in February (including a 45.9% portion of Southern Iron Ore’s output), we estimate. Metinvest’s attributable concentrate output rose 3% yoy to 5.7 mmt in 2M16, which became possible due to higher concentrate processing at Metinvest’s Northern Iron Ore, which raised pellet production 18% yoy to 1.58 mmt in 2M16.

Roman Topolyuk: The enhanced operations of both of Metinvest’s divisions (metallurgical and mining) in February, after a solid result in January, coincided with an ongoing recovery in steel and iron ore product prices. We expect the company to return to positive EBITDA generation in March as a result of elevating prices and hryvnia devaluation, backed by rising production volumes. Meanwhile, the company has solid room for further improvement as its operating and financial performance remains constrained due to the ongoing warfare in Donbas. (The conflict is still active, not frozen yet.) Azovstal and Yenakiyeve operated at 56% and 60% capacity load in February, respectively – grounds for further improvement exist once real peace is established in the region. (Ilyich Steel and Zaporizhstal performed at 80% and 86% load, respectively).

We are delighted to see recovering pellet production at Northern Iron Ore, which could be explained by higher production volumes of Metinvest’s traditional local customer and buyer of iron ore, Alchevsk Steel, which belongs to the IUD group. 

We confirm our bullish outlook on Metinvest Eurobonds, based on the analyzed statistics.