Metinvest production flat in fourth quarter

Metinvest (METINV) kept its steel production almost unchanged at USD 1.75 mmt in 4Q14 (+1% qoq) and maintained iron ore concentrate flat qoq at 8.4 mmt, according to the holding’s Feb. 5 trading update. An important change happened in its steel products mix as output of semi-finished products rose 64% qoq to 521 kt, while finished products outpu t slid 9% qoq to 1.3 mmt. Operations at the two largest Metinvest plants, Ilyich Steel (MMKI UK) and Azovstal (AZST UK), remained constrained by destroyed infrastructure in Donbas, while Yenakiyeve Steel (ENMZ UK) returned to operations in mid-October and managed to load capacities by only half.



In its iron ore segment, the holding has refocused on production of pellets (+17% qoq to 2.0 mmt in 4Q14), which generate higher profitability than concentrate. Output of merchant iron ore concentrate fell 10% qoq to 3.7 mmt as their market prices drew closer to producer costs.



For the full year, Metinvest steel production plunged 26% yoy to 9.2 mmt and steel products output slid 15% yoy owing to operating hurdles caused by the warfare in Donbass. Total production of iron ore products fell 6% yoy in 2014 to 34.9 mmt (in the concentrate equivalent) due to a decrease in Ukraine’s domestic iron ore consumption triggered by war.



Roman Topolyuk: Since there is no clear and quick solution for the Donbas war so far, the 4Q14 operating results are the best possible benchmark for the company for 2015. Therefore, we don’t expect any significant recovery in production volumes. Given continuing weakness in prices for steel products and iron ore, we expect Metinvest’s earnings will suffer, with hryvnia depreciation being almost the sole factor for improving EBITDA.



Based on an exchange rate of UAH 18/USD in 2015, we expect Metinvest will generate EBITDA of USD 1.7 bln (compared to our previous projection of USD 1.5 bln, or a 16% yoy drop. Yet that won’t help the company balance its cash flow unless a deal with banking creditors for USD 806 mln is reached and shareholders don’t scale down their dividends claims of USD 400 mln annually. We remain negative on Metinvest Eurobonds.

Источник: Конкорд Капитал