Output at Metinvest Mariupol-based plants falls 15% m/m in July

Crude steel output at two Mariupol-based steel mills
of Metinvest (METINV) fell 12.3% m/m to 542 kt in July, according to Concorde
Capital’s analysis of separate news reports by Interfax-Ukraine. This implies
their daily average output was 17.5 kt in July, a decrease of 15.1% m/m. Steel
output at Ilyich Steel (MMKI UK) increased 2.0% m/m to 8.77 kt per day, while
output at Azovstal (AZST UK) dropped 27% m/m to 8.7 kt per day in July. In
7M17, Mariupol-based steel mills produced 4.2 mmt of crude steel (9.7% yoy
growth).

Andriy Perederey: The results
of Mariupol-based steel mills are unexpectedly weak. The only explanation for
reduced output at Azovstal is possible overhaul works at the plant. It could be
related to the installation of PCI equipment to improve its energy efficiency
and reduce coke use by its blast furnaces (#2 or #3), as was announced in
Metinvest’s 2016 annual report. Last year, the holding completed installation
of PCI at Azovstal’s blast furnace #4.

While we see a risk that Metinvest won’t be able to
reach our 2017 steel output forecast for the holding (9.6 mmt, or 7% less yoy),
we are keeping our positive view on Metinvest bonds in light of strong global
steel prices.