Metinvest to invest USD 1 bln in high-value-added capacities

Ukraine’s largest steel and iron ore producer Metinvest
(METINV) plans to invest over USD 1 bln into a cold-rolled steel facility at
its Ilyich Steel plant, according to the company’s June 10 press release.

 

Over USD 800 mln will be invested in the next five years
into the first phase of the cold-rolling shop that will comprise a continuous
cold-rolling mill, a pickling line, and three coating lines (zinc, aluminium
zinc, and polymer). Once the first phase is completed in 2025, the shop will
have an annual production capacity of around 1.2 mmt of high-value-added
products, including 400 kt of cold-rolled coils, 600 kt of galvanized coils,
and 140 kt of polymer-coated coils, Metinvest said.

 

The second phase will bring the total
cold-rolled-product annual capacity to more than 1.6 mmt.

 

The cold-rolling shop will form a technological chain
with the reconstructed Mill 1700 (launched in late 2019)
and a new concasting machine (launched in early 2019),
stated Metinvest CEO Yuriy Ryzhenkov, according to the release.

 

Metinvest said that the cold-rolling shop will be its
largest construction project for the next five years. The products are intended
mainly for replacing low-quality imported steel in the Ukrainian market, but
will also be exported to CIS and Europe, according to the release. On June 10,
Metinvest signed a contract with Danieli Group in relation to this project, the
release said, adding that the emissions of harmful substances will be 1.5-3
times lower than the Ukrainian norms.

 

Dmytro Khoroshun: Metinvest
will add USD 200-400 mln per year to its CapEx for this project, more than
doubling the average amount Metinvest invested into strategic projects during
the last few years.

 

The additional investments will amount to 30-60% of
Metinvest’s average total (including maintenance) CapEx of about USD 700 mln
per year during the last decade.

 

Metinvest apparently plans to remain exposed to margins
in production of iron ore and semi-finished slabs, as follows from the fact
that this cold-rolling shop is planned to be its largest construction project
during the next five years. The addition of the high-value-added capacities
should increase Metinvest’s cash flows and make them more stable throughout the
cycle.

 

Nevertheless, it remains possible that Metinvest
modifies its product mix further via M&A, such as by acquiring a re-rolling
mill or an integrated iron and steel plant.

 

We maintain our neutral view on METINV bonds.