Intepipe sees revival of North American market not earlier than 2H16

Interpipe’s sales to the Russian market, which used to consume up to one-third of the company’s products, are not economically viable currently due to the Russian ruble’s devaluation and a 19% import duty imposed since 2H13, the company’s economic and finance director Denys Morozov said in a Nov. 2 interview to the uaprom.info news site. Pipe prices denominated in rubles failed to increase at the same pace that the ruble depreciated and the rate of the ruble should remain below 60 RUB/USD in order for the Russian market to become attractive again, he said. Currently, the ruble trades at 63.8 RUB/USD and reached 71 RUB/USD in August. Hence, Interpipe’s sales to Russia plunged by as much as 7x, having sold only 3 kt of pipes monthly in 1H15, working off inventory, while previously the company sold around 20 kt per month.

Ukraine’s largest steel pipe producer is gradually increasing sales to the EU, Morozov said, though he didn’t disclose exact numbers. A 13.8% EU import duty also limits the profitability of sales to that market.

Morozov admitted to a very weak North American market as well, as the number of oil rigs decreased 3x and pipe producers and traders were left with huge unsold inventory. He sees chances for recovery in the region not earlier than 2H16.

All in all, pipe production capacity load is around 30-40%, Morozov said, while the capacity load of railway wheel output is around 45-50%. In a geographic breakdown of the company’s wheel sales, he said 40% of wheels are sold to Europe, 30% to Russia, 15% to Ukraine and 15% to other regions. He doesn’t see much potential in the Ukrainian market after output at local railcar producers dramatically fell in 2014-2015. Interpipe aims to ramp up exports of its wheels to distant markets and needs to implement an investment program to improve the mechanical reprocessing of its wheels.

Roman Topolyuk: Morozov has offered quite a dim outlook for Interpipe’s main business segments. Constantly worsening market conditions are one of the key reasons why the restructuring of Interpipe’s total debt, including its Eurobonds (INPIP) maturing in 2017, has been repeatedly delayed since 2013. A possible review by the EU of its import duties for seamless pipes, and possibly boosted wheel exports to distant markets such as Latin America, are among the few upsides for Interpipe. Until the plunging oil market, and demand for steel pipes along with it, find firm ground, there will be no certainty on when the company can return to servicing its debt and to what extent.

Источник: Конкорд Капитал