Metinvest CEO talks about COVID-19 impact, prices, Zaporizhstal outlooks, and acquisition of a plant in Poland

Metinvest CEO talks about COVID-19 impact, prices, Zaporizhstal outlooks, and acquisition of a plant in Poland

18.06.2020
Metinvest

Head of Metinvest Group Yuriy Ryzhenkov has shared his views of the pandemic impacting the steel industry and the outlooks for the company in 2020. NV Business brings you the key takeaways of his online press conference. 

Today the media have had a virtual tour around Ilyich Iron and Steel Works in Mariupol (part of Metinvest Group), where Metinvest CEO Yuriy Ryzhenkov shared the first operating results of the Group's companies during the COVID-19 lockdown and the outlooks for 2020. He also answered some questions of NV Business and other journalists. Here are the key points made by the head of Ukraine's biggest mining and metals group owned by businessman Rinat Akhmetov and MP Vadym Novynsky.

Impact of COVID-19 lockdown on modernisation and investment

In Q1 2020, the company invested nearly $150 million in facility upgrades. The funds were allocated to maintain the core facilities and complete the current strategic investment projects.

The 2019 CAPEX were the highest in history of the company.

Our capital investment planning was driven by the looming crisis of 2020, which became apparent in the second half of last year. Thus, we focused on several aspects:

1.    overhauls and maintenance;
2.    environmental initiatives;
3.    completion of strategic projects that we commenced last year.
4.    We haven't planned any big launch of new strategic projects, but we are planning an extensive preparation for such initiatives: designing and ordering equipment that takes long to manufacture.

Thus, the investment programme [for 2020] will be much smaller than last year. The first quarter is roughly indicative of our investment programme (-25%, NV Business note).

Metinvest Group in 2020 and possible debt restructuring

We target the same steel production output as planned and as we outlined early this year. As of today, we do not plan on cutting our investments. The programme is going to be carried out.

We do not plan to restructure the debt, but we keep an open dialogue with our investors. There are various deal options to refinance our debts. This is business as usual though, same as last year. We refinanced some of our debt with the new longer and cheaper instruments. Of course, we would like to see such deals this year as well.

Changes in global prices of rolled steel

Steel prices were actually really low last November and December. Our understanding at the time was that we effectively passed the bottom of the steel market crisis. [In early 2020] they increased by about 10 to 15 percent, followed by a small retracement. However, the prices never went down to the end of last year's level. Compared to Q1, we saw price reduction of around 5 to 7 percent.

Now we see some stabilisation on the steel market, as the prices have stopped falling. We even expect a certain growth, especially on the market of semi-finished products and hot-rolled coils. The demand for heavy plates recovers quite slowly for now, because many bigger projects have slowed down because of the pandemic.

Nonetheless, we hope that the stimulus packages offered by many countries, first of all China, the United States, and the EU, will help restore the demand and the market.

Changes in commodity structure and geography of sales

The market that was hit the most by the coronavirus pandemic was the European market. This also includes Ukraine and Russia, which are major markets for Metinvest. Unfortunately, the slowdown of business and construction activity significantly narrowed our sales opportunities for higher value-added products.

At the same time, the fast recovery of China from the pandemic has allowed us to quickly switch to semi-finished products such as slabs and pig iron.
In fact, the full fleet of our equipment is at work right now. The portfolio focus, however, has shifted from the high value-added products to semi-finished goods and hot-rolled coils.

Zaporizhstal steelworks outlook without new basic oxygen furnace shop to replace the open-hearth furnaces

One of the most relevant and substantial undertakings for the company, and one of the most difficult at that, is the reconstruction of steelmaking facilities at Zaporizhstal and the subsequent shutdown of the open-hearth production.

Last year, we nearly completed our basic oxygen furnace shop project. Unfortunately, it was hindered by the global recession, other countries' safeguard actions against the Ukrainian rolled steel, and now the coronavirus pandemic. All that is affecting this process.

It is very difficult to attract the required investments right now. We are talking almost $1.5 billion for construction of the new basic oxygen furnace shop. So today the fate of this massive project remains unclear.

The shutdown of the open-hearth furnaces without new steelmaking facilities in place will result in serious consequences both for the whole Zaporizhia region and the Ukrainian economy. If steelmaking stops, this will actually cause rolling production and many energy enterprises to shut down, many other processing pipelines will stop. Effectively, two-thirds of the jobs will have to be cut, which will significantly increase the unemployment rate and reduce revenues of the national and local budgets.

At the same time, let's be optimistic. The company is looking for the ways to finance and complete the project. We are hopeful that the global economy will recover after the crisis and the investment sector will come to life.

Potential bid in privatisation of Huta Stali Czestochowa (Poland)

We have shown interest in bidding. We have requested guidelines from the competition authorities of both the EU states and other countries. The previous privatisation call for Huta had no bids.

We didn't participate either, mostly because we didn't have permits to concentration at the time from the Polish Office of Competition and Consumer Protection (UOKiK). As of now, the court has ordered a new bidding with a bid submission deadline on 27 July.

We have not yet reached a final decision on whether to bid. Everything will depend on the terms and conditions of bidding.

UAH to USD exchange rate optimal for the industry

Any that is predictable!

Biggest risks for Metinvest Group

The core risk today is still the pandemic and its effects in terms of both the production and the global economic downturn, which will lower the demand for steel by implication.
 
Editor: Artem Ilin