Magnitogorsk Iron and Steel Works (MMK) of Viktor Rashnikov again postponed the launch of hot-rolled steel production at his Turkish plant MMK Metalurji. The company wants to assess how the import duties imposed on steel in the US, as well as the response to special protection investigations of the European Union and Turkey, will affect the market. Analysts agree that starting the shop now is a very controversial decision, and they indicate that when the MMK Metalurji comes out to full capacity, the subsequent sale of the plant is quite possible.
MMK postponed the launch of hot-rolled production at MMK Metalurji until the situation with import duties on steel in the US, EU and Turkey was clarified, Andrei Eremin, the company's economic director, said on May 8 at a conference call with investors and analysts. The decision to launch was made "in late February - early March," but then the situation changed, the top manager said.
In early March, US President Donald Trump on the basis of Art. 232, which allows for the introduction of protective measures if imports threaten the US economy, introduced duties on the import of steel and aluminum in 25% and 10%, respectively. For a number of countries, including Canada, Mexico, the EU and South Korea, exceptions were made in exchange for accepting quotas and other conditions. For the EU, this exemption is temporary, and the European Commission in April launched a counter-protective investigation into steel imports (29.3 million tons in 2017) in an attempt to protect its market from possible overflows after reducing supplies to the US due to the introduction of duties. The example of the EU was followed by Turkey, starting an investigation into the import of steel on April 27 (import in 2017 - 15.3 million tons). At the same time, the metal from the EU does not fall under the investigation, as the interlocutors of "Kommersant" in the industry saw a direct message to Brussels - Turkey leads the list of exporters of long products to the EU.
MMK started building MMK Metalurji in 2008 together with the Turkish Atakas Group, investing in it amounted to $ 1.7 billion, in 2012 the Russian company repurchased the partner's share (50% minus one share) for $ 485 million. The plant's capacity is 2.3 million tonnes flat products, including those with coatings, per year. Because of the expensive scrap (where electrometallurgical steel smelting) and low prices for products, the hot shop was stopped in 2012, and MMK began to look for a buyer for the asset. In November 2015, the incumbent CFO of the MMK, Sergey Sulimov, said that the company received several offers for the sale of the plant, but they were all about $ 1 billion, while the company expected to receive up to $ 2 billion for the plant. In autumn 2016, Viktor Rashnikov stated that he " asset from sale "and, conversely, considers the prospects for launching a hot shop. This topic was raised in MMK and in early 2017, explaining that the market recovered an acceptable difference between the prices of raw materials and rolling. Following the results of 2017, the output of MMK Metalurji grew by 8.4% and amounted to 925 thousand tons, hot rolling is supplied from Magnitogorsk.
Now at the Turkish plant are Russian specialists MMK, who analyze the condition of the equipment together with its producers, as well as negotiate contracts for the supply of raw materials and energy, said Andrei Eremin.
But MMK postponed the search for personnel for the hot shop and "delays the moment until the situation is clarified and the issue is resolved by Europe and Turkey, how they will react."
The investigation initiated by Turkey is in itself positive for the company, he added.
Andrei Lobazov from Aton believes that "it's the right decision to delay with the launch of the hot shop." "The pursuit of a small increase in profits with operational risks, a working capital increase of $ 100 million, and not fully understood the consequences of US sanctions is a very controversial occupation," the analyst believes. But in the long-term perspective, the launch of capacities is certainly welcome for the shareholder, since it will help sell the asset, he adds. "In a good situation, the plant should be put out to full capacity and sold," agrees the source of Kommersant in another investment company.