Metalloinvest Holding Co. (METIN), the Russian iron-ore producer partly owned by billionaire Alisher Usmanov, expects Chinese demand to spur a rebound in prices from five-year low by December.
“We think prices may start to recover by the end of this year, partly due to the increasing seasonal demand from China,” Chief Executive Officer Andrey Varichev said in a Sept. 26 interview in Moscow. “We think the level of price balance should be 20 percent to 25 percent higher than the current.”
Iron ore fell below $80 a metric ton for the first time in five years last week as the biggest producers, including Rio Tinto Group, expanded low-cost output in a bet that higher volumes would offset lower prices. Metalloinvest, Russia’s largest producer and fifth-ranked in the world, is profitable at current prices and can plan investment projects, the CEO said.
“We do not see the current price level as a catastrophe,” Varichev said, who doesn’t see any prospect of “super-high” prices. “We consider $100 per ton to be a quite normal level.”
Metalloinvest produced 38.4 million tons of ore last year from its Lebedinsky and Mikhalovsky mines in central Russia. The company’s plan to build a third hot-briquetted iron-complex at Lebedinsky, with 1.8 million tons-per-year capacity, will require “billions of rubles” of investments, said Varichev. It’s also modernizing existing plants to boost output of hot briquetted iron, a supplement for pig iron and scrap in electric furnace steel mills, by more than a third to 7.2 million tons a year.
Sanction-Free
Metalloinvest and its owners are not targeted by U.S. or European sanctions over the crisis in Ukraine, and the company is still prioritizing European markets over China. Domestic sales accounted for 58 percent of first-half output, while the company boosted deliveries to Europe by 7.3 percent in the second quarter. Shipments to Asia declined this year, according to July 31 report.
Iron ore entered a bear market this year as Chinese inventories rose to more than 100 million tons from as low as 15 million tons a decade ago, said Varichev.
“China has completed the major plans to build infrastructure and now pays more attention to such things as quality of the life,” according to Varichev, who said that is weighing on prices. Conditions are better in Europe, which is a more convenient market for Metalloinvest, he said.
Closer Ties
Metalloinvest is working to sign the next “mid-term supply deal” with the eastern European plants of ArcelorMittal (MT) and the U.S. Steel Corp. (X), Varichev said. “We are looking for closer ties with those clients.”
Metalloinvest refinanced $1.15 billion of its $5.8 billion of debt in March with international lenders. The company is also in talks with banks from China, Korea and Japan on project financing, Varichev said.
“We have no difficulties in taking money from American and European banks and the ruble bonds market is not closed,” Varichev said. The company has the funds to settle a put option in March that gives buyers the right to sell 25 billion rubles of bonds, he said.
The company’s plans for its remaining 3.5 percent stake in OAO GMK Norilsk Nickel, a holding valued at about $1 billion, depends on market conditions, Varichev said. Metalloinvest raised $490 million last month from selling shares of the nickel producer.
Metalloinvest is in talks with Hopu Investment Management Co. over the $6 billion development of the Udokan copper deposit in Siberia, after signing an agreement with the Chinese company in May. The Russian company is considering spinning off the project, which holds the world’s third-largest reserves of the metal, Varichev said.
Source: Bloomberg |
