Azovstal plans to close outdated, energy inefficient open hearth furnaces in May.

Steel production capacity will decrease by 1.3 MT to around 5.5 MT per year, with two converters left. Additionally, Azovstal gained approval at the end of April to produce rails from converter steel from its biggest rails customer, Ukrzaliznytsia.Until recently OHF steel was used. The affiliated Ilyich Iron and Steel Works will supply additional Azovstal semi-products from OHF steel to extend its rails output.

We expected these events since Azovstal revealed recently its intention to produce railway rails from converter steel, though official confirmation from Metinvest on the closures has yet to be obtained. The closure of open-hearth furnaces will have a positive impact on the stock and the company’s financials, due to the higher cost efficiency, notwithstanding the fact that Azvostal’s steel production will be capped at 5.5 MT per year as a result. However, under current market circumstances this positive effect from the closures will be outweighed by high prices for raw materials.

(Sourced from www.phoenix-capital.ua)