Metinvest's key coke plant suspends production

Metinvest announced last Sunday that its key coke-making plant, Avdiivka Coke, suspended operations after an intense artillery attack on Saturday. All four high-voltage lines supplying electricity to the plant were cut, and the plant's coke and coal preparation shops were heavily damaged. This was the second incident of a massive shelling of the plant; the first attack on 21 May, which caused heavy damage to Avdiivka Coke's railway and the repair and mechanical shops, killed one worker and injured two others. While management has not yet reported the estimates of the extent of damages to the railways and electricity lines, they have stated that they are accessing alternate supplies from other Ukrainian and foreign coke producers if necessary. Currently, Avdiivka Coke is the key supplier of Metinvest's steel mill, Mariupil Illich Steel, and also supplies Metinvest's other steel mill in Mariupil, Azovstal.

Investment implications: With Avdiivka Coke's operations suspended, Metinvest may still satisfy its coke consumption with internal supplies, which we estimate at 80-90% of the total coke-making capacity of the holding and its parent, SCM, should Metinvest's pig iron production remain at March-April 2015 levels. If Metinvest's steel production recovers to April-March 2014 levels, or up 30-40% from current volumes, the company will need access to alternate coke providers to satisfy 15-20% of its coke needs. Overall, we estimate that Ukraine's production of pig iron at April 2015 levels, 1.7mt, requires 85-89% of domestic coke-making capacity excluding Avdiivka Coke and coke-making plants located in the separatist-controlled territories. However, as reorganizing logistics and launching idle coke-making capacities may require some time, Avidiivka Coke's shutdown should inevitably cause a slowdown in Metinvest's production recovery. Therefore, the company's plans to restore its steelmaking capacity utilization to 65-75% in 2015 remains under threat and its crude steel production may fall by more than 15-20% to 7.2-7.6mt this year.

Источник: ICU