Metinvest steel output drops 3% m/m in March

Steel production at Ukraine’s largest producer
Metinvest (METINV) was 23.2 kt per day (or 719 kt per month) in March, a 2.5%
m/m loss, according to Concorde Capital’s analysis of separate news reports by
Interfax-Ukraine.

Ilyich Steel reported an 8.2% m/m increase in steel
production to 12.1 kt per day, while Azovstal’s output dropped 12.1% m/m to
11.1 kt per day in March. The holding’s hot iron output gained 6.2% m/m to 23.8
kt per day.

In 1Q20, Metinvest’s steel output was 2.17 mmt (23.8
kt per day), or 11.9% more yoy.

Dmytro Khoroshun: We
tentatively expect Metinvest’s steel production to remain flat yoy in 2020 at
7.6 mmt (20.8 kt per day). However, the plunge in Ukraine’s export steel prices in March
and early April, amid the
decreasing steel demand worldwide (especially outside China), is very likely to
result in Metinvest’s steel production shrinking yoy in 2020.

Although the March-April plunge in prices is likely to
be reflected in Metinvest’s order books only in May-June, and not in April, we
note that the holding’s steel production volume might drop already in April due
to planned repairs. Namely, Metal Expert reported on Mar. 24 that Ilyich Steel
planned to shut down its basic oxygen furnace (BOF) No. 2 (with capacity of 1.3
mmt per year) on Apr. 1 for a 21-day major overhaul. Ilyich planned to continue
operating its two other BOFs, Nos. 1 and 3 (also 1.3 mmt per year each), during
the repairs. Because of Ilyich’s BOF No. 2 maintenance, Metinvest’s daily steel
production might drop to 20 kt in April, down 14% m/m.

Metinvest’s April steel production volumes might drop
even further – to as low as 16 kt per day (31% less m/m) – because of possible decreases in merchant slab production at Azovstal,
in part due to a coronavirus-related suspension of operations at the holding’s
Italian rerolling plants.

During a recent conference call with investors,
Metinvest’s CEO said the holding expects a 5-8% yoy increase in steel
production in 2020 to 7.9-8.2 mmt (21.6-22.4 kt per
day).

We maintain our negative view on METINV bonds.