Ukraine's top steelmaker sees steady production, no need for debt restructure

By Marc Jones

LONDON (Reuters) -The head of Ukraine’s largest steelmaker Metinvest expects its production to be steady this year, albeit at deeply depressed levels as the war with Russia continues, while it sees no need to restructure its debt.

Yuriy Ryzhenkov, Metinvest's chief executive, told Reuters that with two of the firm's biggest plants destroyed and key ports out of bounds, it was operating at 65%-70% capacity in terms of steel production and 35%-40% for iron ore.

It owns the vast Azovstal steel plant in Mariupol that became a symbol of resistance in the early stages of war last year when it became the city's last line of defence during an 80-day bombardment as Russian forces took over.

Combined with the loss of another plant, it has taken away 9-10 million metric tons of Metinvest's steelmaking capacity. Transporting steel from its other plants overland to ports elsewhere remains too expensive to be viable.

"Production volumes are going to be very similar to the year that has just gone past," Ryzhenkov said during a trip to London.

Pre-war, Ukraine's iron and steel sector contributed around 10% of Ukraine's GDP and employed around 600,000 people.

Metinvest's steel production fell by 69% last year compared to 2021, to 2.9 million metric tons. Iron ore output dropped by 66% year-on-year to 10.7 million metric tons while pig iron production slumped to 2.7 million metric tons, which was 72% less than in 2021.

"Economically it is prohibitively expensive to transport (overland)," he added. "I don’t see how it can change in the near future".

Metinvest is now looking to rebuild and reorientate so that in future it can make so-called "green steel" that is produced without the use of heavily-polluting fossil fuels like coal in the melting process.

Ukraine is hoping to secure European Union membership. This could see Metinvest produce much more of the bloc's steel and also bring it other benefits for the green steel transition.

"We will need special arrangements to get (EU) renewable energy," Ryzhenkov said, adding that one of those options was green hydrogen, or hydrogen made using renewable energy, that could then power electric arc furnaces.

ASSURANCES NEEDED

Metinvest's switch to green steel was already being planned before last year's invasion devastated Ukraine. It will take at least 1-1/2 years of planning and will require up to 40 billion euros ($44 billion) altogether, Ryzhenkov said.

Some 15-30% of the money needed could come from international grants while the rest will need to come from the company or other loans.

In normal circumstances it could go to the international bond markets, but at the moment that is not possible for any Ukrainian company, he said, due to investors' worries.

"We need a definitive end to the war and structured assurance that it will not resume in the next ten years."

"No one is going to believe just a paper agreement" he said, highlighting the Minsk agreement struck after Russia annexed Crimea in 2014.

The World Bank's International Finance Corp (IFC) arm, is set to publish a report on the potential for private sector investment in 15 key sectors in Ukraine. If it rebuilds to higher and more sustainable standards that amount could be $440 billion dollars or more, the IFC's Director for Europe, Rana Karadsheh, told Reuters.

Like other top Ukrainian companies, Metinvest saw its bonds slump in value after the invasion last year as investors feared the company would not be able to pay back its debt, or worse, if Russia took over.

The bonds have recovered around half their losses since then but other big Ukrainian companies like state-owned Naftogaz have already restructured their debts.

Ryzhenkov said Metinvest had no need to follow suit. Its next major repayment is in two years' time when it needs to pay a 300 million euro bond.

"The forecast for our operations is that we will be able to service and pay our debt".

"Our next big repayment (is in) 2025 so we don’t see any reason to ask the market for any special deal," he said.

($1 = 0.9194 euros)

(Reporting by Marc Jones; Editing by Emelia Sithole-Matarise)