Metinvest sheds light on marketing and investment plans

Обзоры по компаниям и отраслям 18.12.2017 Roman Kurashev, the marketing director of Ukraine’s leading steel holding Metinvest (METINV), commented on its mid-term marketing and investment plans, as reported by the minprom.ua and uaprom.info news sites. The holding derived some of these plans from its 10-year strategic development program. In particular, following the October introduction by the European Commission (EC) of a EUR 60.5/t import duty on Metinvest’s hot-rolled coils (HRC), Metinvest has stopped the supply of this product to the European Union. Nevertheless, Kurashev mentioned that Metinvest’s proposal to the EC - of self-imposed restrictions on volumes and minimal prices for HRC exports to the EU - is still under consideration by the EC. Metinvest is also redirecting its HRC sales to markets abandoned by Chinese producers, such as North Africa, Turkey and Pakistan. Also, Metinvest is planning to increase sales of its cold-rolled and hot-dip galvanized (HDG) products to the United States. This will become possible after their quality is improved sometime in 2019, following the planned reconstruction of Mill 1700 (CapEx: USD 85.3 mln) and the construction of continuous casting machine No. 4 (CapEx: USD 150 mln) with a planned capacity of 2.5 mmt of slabs per year at Ilyich Steel. One of the two hot-dip galvanizing lines at Ilyich Steel will also be modernized during 2018-2020. Already in 2018, Metinvest plans to transform Ilyich Steel’s cold-rolled coils (CRC) into HDG via a tolling scheme at Unisteel, a Ukrainian hot-dip galvanizing plant with a 100 kt per year capacity. Unisteel is to start producing this month after a six-year down time, and should produce about 60 kt of HDG in 2018, according to Kurashev. Generally, Metinvest plans to specialize in flat products, and in particular to focus on hot-rolled plate products, a market in which Metinvest claims to be one of the Top Five producers. Metinvest’s strategy foresees increasing capacity utilization at Azovstal and Ilyich Steel. Metinvest is working with Ukrzaliznytsia on debottlenecking the Kamysh-Zarya-Volnovakha raw material supply route. Once this problem is solved, capacity utilization at the two Mariupol plants should increase from the current 70-80%. The holding also plans to invest into its blast furnaces and convertors in order to improve the quality of its products further downstream. In early October, the uaprom.info website reported Kurashev describing Metinvest’s plans to invest USD 8.8 bln during the next 10-15 years, of which USD 5.7 bln were allocated to metallurgical assets, and USD 3.1 bln to mining assets. Metinvest’s vision was that the industry’s profits are shifting from raw materials to steelmaking. However, Kurashev also noted that the world’s steel capacity utilization is at a very low level of 70%. Dmytro Khoroshun: One of the risks of Metinvest’s strategy is that the profit of both its steelmaking and raw material production remain depressed for a long time. Because Metinvest’s steelmaking capacities are somewhat outdated, and because it cannot rely on a sizeable domestic steel market and therefore faces trade barriers and has to incur shipping costs and netbacks, it might have difficulties fighting a prolonged steelmaking efficiency competition, especially if the holding does not deleverage during the good times. However, right now, with Chinese steelmaking margins near their record highs, and with high-Fe-content iron ore concentrate (which Metinvest produces and sells) commanding high premiums, Metinvest’s strategic plans seem reasonable and the holding’s ability to implement them appears realistic. We are keeping our neutral view on METINV Eurobonds.