Metinvest steel output rises 6% qoq in 4Q17

Ukraine’s largest steel maker Metinvest (METINV)
reported on Jan. 31 a 6% qoq increase in steel production to 1.906 mmt at its
subsidiaries in 4Q17. Azovstal’s output jumped 10% qoq to 1.100 mmt in 4Q17,
while Ilyich Steel’s output remained flat qoq at 0.806 mmt, according to the
holding’s operating update.

During 2017, crude steel output fell 9% yoy to 7.63
mmt at Metinvest’s subsidiaries due to an 86% yoy plunge in output at
Yenakiyeve Steel to 0.27 mmt (production at Yenakiyeve Steel was halted on Feb.
20), which was partly offset by a 15% increase at Azovstal and a 13% rise at Ilyich
Steel. The holding reduced its output of iron and steel products by 2% to 8.566
mmt during 2017.

Production of semi-finished products improved 22% yoy
to 2.761 mmt during 2017, owing to slab output rising by 83% yoy to 1.343 mmt
and pig iron output climbing by 14% yoy to 1.403 mmt. On the other hand,
Metinvest’s 2017 production of square billets, which used to be produced by
Yenakiyeve Steel, plummeted 95% yoy to 0.015 mmt.

The holding’s finished products output decreased 10%
yoy (to 5.805 mmt), including a 52% drop in long products (to 0.912 mmt) as
Metinvest had to arrange new supplies of billets (to replace intra-group sales
from Yenakiyeve Steel) for re-rolling at its Promet plant. The substantial drop
in long products was partially offset by a 7% increase in flat products to
4.675 mmt. Furthermore, the holding boosted pipe production by 69% yoy to 0.150
mmt in 2017, noting capacity expansion as the reason.

Total iron ore concentrate production declined 7% yoy
to 27.464 mmt at Metinvest’s subsidiaries during 2017. Production of merchant
iron ore concentrate (for sale to third parties) dropped 15% yoy in 2017 to
9.325 mmt, while output of merchant iron ore pellets decreased 7% yoy to 5.742
mmt.

Dmytro Khoroshun: During
2017, Metinvest increased its reliance on the production and sale of
semi-finished products, the prices of which were strong during the fourth quarter.
At the same time, the holding is expanding its capacities for high-value-added
products such as pipes and is
planning further investments that would improve
the quality of its steel products. The markets for iron ore products continue
remaining strong, providing Metinvest with cash it needs to implement its
investment plans. Furthermore, the holding has the potential to boost
production of both steel
and iron
ore products if domestic logistics bottlenecks are
removed.

Nevertheless, the holding must export a very
substantial 75-80% share of its steel products, and the global trend of increasing trade protectionism poses a significant risk to the future utilization
of Metinvest’s capacities.