Metinvest announces 1Q 2014 operational results

Metinvest B.V., the parent company of a vertically integrated group of steel and mining companies (jointly referred to as “Metinvest” or “the Group”), today announced its operational results for the first quarter ended 31 March 2014.

OPERATIONAL HIGHLIGHTS 

METALLURGICAL DIVISION

In 1Q 2014, Metinvest's output of hot metal rose by 3% y-o-y due to the re-commission of blast furnace no. 2 at Ilyich Iron and Steel Works (Ilyich Steel) in July 2013 and an increase in production at Yenakiieve Iron and Steel Works (Yenakiieve Steel). Output of crude steel fell by 11% y-o-y, as production at Azovstal Iron and Steel Works (Azovstal) dropped by 216 thousand tonnes due to a major overhaul of converter no. 2 which also impacted production of hot metal in March 2014, and Ilyich Steel reduced its open-hearth production by 245 thousand tonnes in response to lower demand for rolled goods.

In 1Q 2014, the Group's output of hot metal was down by 3% q-o-q. The main factors were a drop in production of 48 thousand tonnes at Azovstal due to the maintenance work on converter no. 2 and of 71 thousand tonnes at Ilyich Steel following adverse winter weather in January-February 2014, which delayed rail shipments of raw materials to the plant. As a result, overall output of crude steel at the two plants was down by 232 thousand tonnes q-o-q. At the same time, Yenakiieve Steel's production of crude steel rose by 35 thousand tonnes following measures to improve the efficiency of its continuous casting machines.

Production of hot metal

Production of crude steel

In 1Q 2014, Metinvest's production of merchant semi-finished goods soared by 48% y-o-y to 993 thousand tonnes, driven by an overall increase in pig iron output of 317 thousand tonnes at Ilyich Steel and Azovstal, as well as a rise in merchant billet output of 145 thousand tonnes at Yenakiieve Steel. The former was due to Ilyich Steel boosting production of pig iron by 145 thousand tonnes, and Ilyich Steel and Azovstal re-directing more of their output for external sale in response to greater demand on key Group’s markets. The rise in merchant billet output was caused by an increase in crude steel production at Yenakiieve Steel. Output of slabs fell by 105 thousand tonnes y-o-y, amid a decrease in crude steel production at Azovstal.

Output of metal products^[1]

In 1Q 2014, the Group's production of merchant semi-finished goods climbed by 21% q-o-q, as Azovstal increased its output of pig iron by 47 thousand tonnes and Yenakiieve Steel raised its output of billets by 160 thousand tonnes. As regards slabs, Azovstal reduced its production by 65 thousand tonnes, while Ilyich Steel boosted its volumes by 32 thousand tonnes.

Metinvest's production of finished goods fell by 14% y-o-y to 1,986 thousand tonnes in 1Q 2014. This was driven by a decline in output of:

• 246 thousand tonnes of flat products, primarily due to a drop in output of plate at Azovstal and Ilyich Steel (90 thousand tonnes overall) and coils at Ilyich Steel (141 thousand tonnes)
• 51 thousand tonnes of long products, caused mainly by lower production at Azovstal and Yenakiieve Steel amid weaker demand in Ukraine and Russia, which was partially compensated by greater output at Promet Steel in response to stronger demand on its domestic market in Bulgaria and North Africa
• 23 thousand tonnes of large-diameter pipes (LDP), as orders for the East-West and Beineu-Shymkent pipeline declined. Khartsyzk Pipe Plant (Khartsyzk Pipe) has a project oriented business for pipeline infrastructure and as a result orders directly depend on projects.

Output of finished goods was down by 3% q-o-q, mainly due to a decline in production of long products at Yenakiieve Steel and Azovstal, as well as LDP at Khartsyzk Pipe Plant. Output of flat products was largely unchanged, while that of rails climbed by 18 thousand tonnes following additional orders from Uzbekistan and Bulgaria.

Coke production

In 1Q 2014, the Group produced 283 thousand tonnes of coke, unchanged y-o-y and slightly lower q-o-q.

MINING DIVISION

Production of iron ore concentrate and pellets

In 1Q 2014, overall production of iron ore concentrate declined by 5% y-o-y (505 thousand tonnes), primarily due to the adverse weather conditions in January-February 2014, which caused Northern Iron Ore Enrichment Plant (Northern GOK) to reduce its production by 335 thousand tonnes and Central Iron Ore Enrichment Plant (Central GOK) by 165 thousand tonnes. This was also the reason for the q-o-q fall in overall concentrate production.

Meanwhile, the volume of merchant concentrate decreased by 18% y-o-y (656 thousand tonnes), as overall production declined and the Group adjusted the merchant product mix in favour of pellets. This decrease was attributable to:

• a fall in production of merchant concentrate of 621 thousand tonnes and higher production for intragroup sales of 90 thousand tonnes at Northern GOK
• a reduction in output by 182 thousand tonnes of merchant concentrate at Central GOK, while production for intragroup sales declined by144 thousand tonnes

The decrease was partly compensated by a rise in production of merchant concentrate of 93 thousand tonnes at Ingulets GOK.

At the same time, the volume of merchant pellets climbed by 9% (181 thousand tonnes) y-o-y. This was caused mainly by a rise in production of 261 thousand tonnes at Northern GOK, whose output was partly offset by an increase in intragroup consumption of 89 thousand tonnes.

Compared with the previous quarter, the volume of merchant concentrate was down by 4% and that of merchant pellets was up by 9%. The former was due to an overall decline in production of 404 thousand tonnes, whereas internal consumption fell by only 275 thousand tonnes. At the same time, pellet output increased by 180 thousand tonnes overall, as internal consumption dropped by 154 thousand tonnes and production rose by 26 thousand tonnes.

Coking coal mining and output of concentrate

In 1Q 2014, the volume of coking coal mined by the Group fell by 12% y-o-y to 2,537 thousand tonnes. This was caused by a decline in output of 240 thousand tonnes at United Coal Company (United Coal) in the US and 119 thousand tonnes at Krasnodon Coal Company (Krasnodon Coal) in Ukraine. At United Coal, despite an increase in production at the Affinity and Wellmore mines of 79 thousand tonnes overall, volumes at the Pocahontas and Carter Roag mines were down by 319 thousand tonnes in total. At Krasnodon Coal, output from the Molodogvardeyskaya mine decreased as the last coal from longwall face no. 44 was processed following its decommissioning in November 2013.

Compared with the previous quarter, the overall volume of coking coal mined was up by 35 thousand tonnes due to greater production at the Affinity and Wellmore mines.