Metinvest steel output jumps 30% qoq in 1Q20
Ukraine’s largest steelmaker Metinvest (METINV) reported on May 4 a 30% qoq jump in steel production at its subsidiaries to 2.17 mmt in 1Q20. Azovstal’s output gained 19% qoq to 1,119 kt in 1Q20, while Ilyich Steel’s output skyrocketed 43% qoq in 1Q20 to 1,051 kt, according to the holding’s quarterly operational update. Year-on-year, Metinvest's 1Q20 crude steel output advanced 12% due to a 15% yoy jump at Azovstal that was partially offset by a 3% yoy drop at Ilyich Steel.
The holding’s hot iron output in 1Q20, 2.09 mmt, rose 11% qoq and was up 7% yoy.
The 1Q20 output of semi-finished products at Metinvest dropped 30% qoq to 637 kt as its merchant pig iron output plunged 74% qoq to 108 kt and its slab output inched up 7% qoq to 529 kt.
The holding’s finished product output advanced 38% qoq in 1Q20 to 1.567 mmt due to a qoq doubling in hot-rolled coils (HRC) output to 342 kt and a 14% qoq gain in hot-rolled plates output to 818 kt. The qoq jump in HRC production was due to the launch of the upgraded Mill 1700 at Ilyich Steel, Metinvest said.
Total coke production gained 7% qoq to 1.122 mmt in 1Q20, while merchant coke output slid 3% qoq to 430 kt.
Total 1Q20 iron ore concentrate production improved 5% qoq to 7.606 mmt, whereas output of merchant iron ore products inched up 2% qoq to 4.914 mmt due to a 36% qoq jump in merchant pellet production to 1.526 mmt that was largely offset by a 9% qoq drop in merchant iron ore concentrate production to 3.388 mmt.
In a separate May 5 press release, Metinvest reported having restarted its Italian rerolling plants, Ferriera Valsider (on Apr. 30) and Trametal (on Apr. 12). Recall, production at these plants was suspended in March because of the coronavirus.
Dmytro Khoroshun: By boosting its steel production in 1Q20, Metinvest made the most of the favorable market situation as steel prices jumped in December and January after a slump earlier in 4Q19. However, we expect a qoq decrease in steel production in 2Q20, for two reasons.
Firstly, Metinvest’s April average daily steel production rate should drop 14-31% m/m because of suspended production in Italy and various equipment shutdowns at the holding’s Mariupol plants.
Secondly, steel prices plunged 15-25% in late March and through April, which should negatively impact Metinvest’s selling volumes for May and June, as well as into at least early 3Q20.
Some of the positive aspects of Metinvest’s 1Q20 production profile, such as the increase in HRC production at Ilyich Steel as a result of completed investment projects, will continue to impact Metinvest positively.
However, we think that at least a part of the increase in Metinvest’s production volume in 1Q20 might be due to aggressive trading tactics, which preferred profits over cash and which is likely unsustainable. We think that after the recent plunge in steel prices, Metinvest will need to reverse its approach and prefer cash over profits, which might further depress its production volumes (but allow for avoiding defaulting on its debt service payments at least for the next few quarters).
We maintain our negative view on METINV bonds.