INTERVIEW: Metinvest's H2 outlook hazy, despite record-high H1: CEO

Ukrainian mining and steel group Metinvest's earnings hit a record high in the first half of 2021, but the outlook for H2 is uncertain, with the speed at which the market is cooling down a concern, CEO Yyriy Ryzhenkov told S&P Global Platts in an interview.

"We are seeing demand softening already with the price for 62% Fe-rich iron ore concentrate sinking to $150/mt, down from the peak of $220/mt. This is a 30% drop in the space of just a month and a half. The same goes with hot-rolled coil (HRC): its price has come off by $150-$200/mt," he said.

Amid greater output and strong steel and iron ore prices, Metinvest's revenues for H1 2021 jumped 70% on the year to $8.47 billion and EBITDA jumped over fivefold to $3.8 billion providing a 45% EBITDA margin. The company made $2.77 billion net profit compared with $240 million loss in H1 2020.

These figures are the highest in Metinvest's history, but for H2 its CEO is not sure which scenario will dominate.

"It is not yet clear whether it is going to be a smooth decline to some normalized levels that we very much hope for, or a nosedive associated with the fourth wave of the COVID pandemic," he said.

This year's impressive profits seen in the steel industry prompted the Ukrainian government to initiate a hike in the country's iron ore extraction tax. The draft that has already passed through the first readings at the Rada, the country's parliament, is meant to untie the tax from production costs and link it to the market price instead, with a 3.5% rate charged on on concentrate prices of up to $100/mt, 5% on those up to $200/mt, and 10% on prices above $200/mt.

The suggested rates are some of the world's highest even by the standards of major mining companies in Brazil and Australia, the Metinvest CEO noted.

Also, he said prices would be taxed on a delivered and not an ex-works basis, which means mining companies' expenditure on shipping and port dues would be taxed too, adding this was one of a few objections and complaints the draft had incurred and which may lead to its rework.

If adopted this year, as expected, the taxation scheme will make Metinvest pay twice or triple as much iron ore extraction tax – at current prices – as it does now. If concentrate prices fall further, the company's tax payment will still increase by $100 million/year, according to Ryzhenkov.