Metinvest iron, steel output might rise 5% m/m in May

The hot iron and steel daily production rate at
Ukraine’s largest producer Metinvest (METINV) might increase 5% m/m in May,
according to Concorde Capital’s analysis of data on freight train traffic to
Mariupol, provided by the Center for Transport Strategies (CFTS) on its
website.

In the first 28 days of May, the daily average of 17.2
freight trains traveled the Komysh-Zorya–Volnovakha railway section heading to
Mariupol, according to the CFTS website, which is 5% more m/m.

In April, the daily average number of freight trains
heading to Mariupol was 16.3, or 25% less m/m. The same month, Metinvest’s
daily hot iron production dropped 24% m/m and its daily steel output plunged 33% m/m.
Both of Metinvest’s steelmaking plants are located in Mariupol.

Dmytro Khoroshun: The 5% m/m
uptick in freight train traffic volume suggests Metinvest’s daily production
rates will improve only modestly in May, far from fully compensating for the
plunge in April.

The relationship between freight train traffic, which
brings raw materials (iron ore, coal and coke, fluxes, steel scrap) to
Mariupol, and Metinvest’s production volumes is imperfect. The daily freight
train traffic should be related more to Metinvest’s hot iron production than to
that of steel. This is because its steelmakers have the discretion of using hot
iron for producing either merchant pig iron or downstream steel products.
Metinvest’s steelmakers have the further option of storing as inventory some of
the raw materials supplied by the trains. Conversely, the steelmakers might
deplete their raw material inventory for producing hot iron and steel above the
volumes produced from fresh supplies by train. Finally, the volume of raw
materials supplied by a train depends on the number of railcars, which might
vary.

We maintain our negative view on METINV bonds.