Yuriy Ryzhenkov, CEO of Metinvest Group: We are facing the toughest crisis in the past decade

Yuriy Ryzhenkov, CEO of Metinvest Group: We are facing the toughest crisis in the past decade


Yuriy Ryzhenkov, CEO of Rinat Akhmetov’s Metinvest Group, was one of the key guests at the investment forum RE:THINK held in Mariupol yesterday. 

Mariupol is a hometown for Metinvest's two biggest steel plants, Azovstal and Illich Iron and Steel Works. Moreover, Metinvest Holding management company moved de jure to the capital of Pryazovia following Donetsk occupation, and the Group's minority co-owner Vadym Novynskiy became an MP of Ukraine in one of the single-seat constituencies of Mariupol.

Yuriy Ryzhenkov did not speak at the forum held at the initiative of the President of Ukraine Volodymyr Zelensky. He signed a memorandum of cooperation with the mayors of Mariupol, Zaporizhia, and Kryvy Rih and almost immediately flew to Milan to take part in a steel conference held on the same day.

NV Business news agency took an express interview from the CEO of Ukraine's biggest mining and metals business. 
What is the current state of steel markets? We know that Dnipro Steel Plant and Dniprovsky Integrated Iron and Steel Works have suspended operations. What is the situation at Metinvest's plants?

Today not only Ukrainian but also the global steel industry is facing a challenging time. The recession began in late spring of 2019 and has continued until now. Almost all steel producers without exception have faced a challenging period. Those with no integration of raw materials have been hit the most. In Ukraine, these are the two plants you've mentioned.

They were the first to get a feel of the situation, as the raw material prices remain quite attractive, although not as high as they were in H1 2019. They have dropped by 30-40%, but are still quite sound.

Therefore, Metinvest is trying to straddle between its mining and steel assets. We are trying to prevent the shutdown of our steel businesses, as it is about both jobs and local taxes.

Yet, the market situation is very complicated and we believe that we are facing the toughest crisis in the past decade.

Could the situation be worse than in 2008?

I think it might be at the same level. In 2008, we went through a financial crisis that led to an economic recession. Today we are facing an economic recession triggered by trade wars.

What is worse: falling prices or interrupted sales?

These are interconnected processes...

Sometimes quoted price do not go down, and no one wants to buy at such prices...

The situation varies depending on the product. There are some products where the price keeps dropping, and you can’t do anything about it. We continue to sell them, but the price keeps going down. There are other products with a stable price, but we just can't sell them. No one is ready to sell at a lower price because it is unprofitable, and the buyer is not ready to pay a higher price.

You have said that the Group's steelmaking plants continue to hold out. I have talked to representatives of Mariupol business. They say Azovstal and Illich Iron and Steel Works have fully stopped payments to contractors for performed works since July-August. The plants do not want to sign side agreements required to document undertaken works. Can you confirm this?

I have heard such things. Some payment delays may happen...

Contractors are now seeing the employee churn, as skilled workers resign to leave for Poland. No payment for three month.

It is not quite true. As far as I remember, there were hardly any problems with payments in July and August. We made payments. 

Did they get a centralised instruction to save money?

A setting to save money is always in place. At the same time, our binding strategy is to work with our contractors on a long-term basis. If we do so, we can't just say:"That's about it. We will not pay you!"

May it be so that contractors' owners just passed the information on that way? 

The truth has many facets. I believe, there is one facet and second facet, and third one... I see that the market situation is quite challenging. Some delays or unsteady payments may happen. 

Nevertheless, our overall objective is to work and communicate with contractors. If we face any economic difficulty, we go into talks to agree on instalment plans and rules. At the same time, our common objective is to join efforts with contractors to go through such periods with dignity, keeping one another alive. 

VAT recovery. Do you have any problems with this now, after the new government has come to power?

We have not had any serious problems so far. There are some difficulties, unclear to me. Sometimes, the tax service declines to reimburse VAT to Azovstal, as the plant has posted loss. It seems weird to me. If a company posts losses, one should think of how to support it to help it get back to profits. Refusing to reimburse the VAT, one makes such company even more loss-making. We keep on negotiating with the tax service in a move to persuade them otherwise. Things have been set in motion.

In mid-October, you had two important events in a row. First, Metinvest announced that it had become a direct shareholder of Zaporizhstal, not through its subsidiaries as it used to be. In several days, the Group announced the change of [the plant's] CEO. Are these events interconnected?

No, they are not.

Why have you become the direct shareholder of Zaporizhstal?

This is just a formal structuring procedure within Metinvest Group. It is related nether to the management structure, nor to the beneficial ownership or day-to-day operations of the plant. This is a legal procedure. 

Does it mean that you had been the sole shareholder of these Cyprus-based companies without any minority partners?

Yes, it does. We had no partners. Our shareholding in Zaporizhstal has not changed since 2012.

Can we expect any changes in the top management teams at other Metinvest's companies?

We don't expect any changes. This is a normal process. Someone new comes, someone leaves.

I have talked to Oleksandr Yaroslavsky. He told me that the rolling capacities of Dnipro Steel Plant are still in operation. Metinvest is a supplier of semi-finished products to the plant. Where do you take square billets? As far as I know, you don't have own production capacities at the moment.

We have been buying square billets from Dniprovsky Integrated Iron and Steel Works (owned by Industrial Union of Donbass corporation — NV Business). We still buy this product from them.

But they have shut down the operations...

Well, one blast furnace is still in operation. As far as I understand, Dniprovsky Integrated Iron and Steel Works has balanced their operations. It has shut down two blast furnaces producing cast iron for billets. The last operating blast furnace is used to run their section mill. We purchase wire rods from them. Perhaps, they stock some billets. We purchase the product from them and supply it to Dnipro Steel Plant.

How are the things with Promet Steel in Bulgaria? It also depends on the purchased square billets.

We purchase either from Dniprovsky Integrated Iron and Steel Works or from ArcelorMittal Kryvy Rih. Metinvest-SMC (a trading company of Metinvest Group — NV Business) is quite a strong steel trading company. Very few steel producers of the post-Soviet world have this kind of company. Our colleagues/competitors use it as a distributing company, sometimes for the sale of billets.

We've already mentioned Dniprovsky Integrated Iron and Steel Works several times. Last year, its blast furnaces were bought by neighbouring Dnipro Coke Plant of which Metinvest will soon be a shareholder.  Why did you need this purchase?  How does it influence operations of Dniprovsky Works?

It is difficult for me to comment on why we did it, but I can tell you where we stand now. Under a contract we have, these furnaces were bought, yet they were given to Dniprovsky Integrated Iron and Steel Works for a long-term lease at the same time. Thus, the purchase does not influence the plant's operations in any way.

Are they fully responsible for operations of the blast shop?

Yes, of course. As far as I know, the thing was that Dniprovsky Integrated Iron and Steel Works had a considerable debt to this coke plant for coke supplies. Therefore, the furnaces became a collateral for those debts.

Do you mean that it was done before Metinvest came?

This was definitely done before the consolidation. Moreover, we have not consolidated this coke plant yet, we're in the process of consolidation.

Now a question about the litigation against Rafik Dau, or more correctly, against Dniprovsky Integrated Iron and Steel Works, which is your close partner. Last week, his company announced it had won a $47m dispute at the Supreme Court of Ukraine. Can this affect Metinvest's operations, as they are mentioned in Rafik Dau's statements?

I cannot comment on Mr Dau's statements or actions. Metinvest has nothing to do with his claims against Dniprovsky Works.

But court decisions are in place...

This cannot affect operations of the Group, as Dniprovsky is not a part of Metinvest. This is the first point. Secondly, Dniprovsky Works undergoes bankruptcy proceedings where, as far as I know, Mr Dau has laid his claims. He is one of the creditors. We are also a creditor of the plant, even a bigger creditor. It means we will have to go through this together.

Author: Artem Ilyin

Image: Artem Ilyin / NV Business