Outlook on development of Ukraine`s metallurgical companies to remain stable in 2008 :: Expert Opinion :: Analytics

Outlook on development of Ukraine`s metallurgical companies to remain stable in 2008

14.02.2008

Credit-Rating foresees stable development of Ukraine`s mining and metallurgy industry in 2008. Among the primary factors to underpin ratings of national mining and metallurgy companies are relatively low level of costs and conservative fiscal policy the majority of the companies adhere to. At the same time, among the primary factors to weigh on the ratings are necessity in large investments for updating outmoded production facilities, as well as traditional range of products orientated to semis and ready products with low added value. Another negative factor is poor quality of corporate governance.

The agency forecasts global steel prices to remain high in 2008. Possible decline in metal consumption in the U.S. may be compensated in evolving economies, primarily China, India, Russia, Brazil and Mideast countries. However, the anticipated surge in energy and raw materials` prices may have negative impact on profitability of national metallurgical companies. The most vulnerable to this impact would be financial and industrial groups, namely OJSC Ilyich Iron and Steel Works of Mariupol, Zaporizhstal Integrated Iron & Steel Works JSC, Industrial Union of Donbass, which does not have own raw materials sources. We should, however, note that in 2008-beginning these companies concluded long-term contracts with Metinvest Holding LLC on supply of iron ore. In Credit-Rating`s view the practice of long-term contracting may mitigate risks associated with both raw materials` supply and sale of products to ore mining and processing enterprises.

The trend of consolidation in Ukraine`s metallurgy industry will probably be retained in 2008, being in line with the global tendency. `Concentrating industry`s assets allow companies to cut costs due to economy of scale and companies` vertical integration, and to facilitate access to certain markets due to geographical diversification of the production base`, Dmitriy Melnik, head for specialized Credit-Rating`s department said. Ukraine`s joining WTO may positively affect the national steel industry providing easier access to overseas markets.

For more information, please contact:
Information and Communication Department
Sergey Rozumyak +38 044 490 25 50
SRozumyak@credit-rating.com.ua


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Outlook on development of Ukraine`s metallurgical companies to remain stable in 2008 14.02.2008 Credit-Rating foresees stable development of Ukraine`s mining and metallurgy industry in 2008. Among the primary factors to underpin ratings of national mining and metallurgy companies are relatively low level of costs and conservative fiscal policy the majority of the companies adhere to. At the same time, among the primary factors to weigh on the ratings are necessity in large investments for updating outmoded production facilities, as well as traditional range of products orientated to semis and ready products with low added value. Another negative factor is poor quality of corporate governance. The agency forecasts global steel prices to remain high in 2008. Possible decline in metal consumption in the U.S. may be compensated in evolving economies, primarily China, India, Russia, Brazil and Mideast countries. However, the anticipated surge in energy and raw materials` prices may have negative impact on profitability of national metallurgical companies. The most vulnerable to this impact would be financial and industrial groups, namely OJSC Ilyich Iron and Steel Works of Mariupol, Zaporizhstal Integrated Iron & Steel Works JSC, Industrial Union of Donbass, which does not have own raw materials sources. We should, however, note that in 2008-beginning these companies concluded long-term contracts with Metinvest Holding LLC on supply of iron ore. In Credit-Rating`s view the practice of long-term contracting may mitigate risks associated with both raw materials` supply and sale of products to ore mining and processing enterprises. The trend of consolidation in Ukraine`s metallurgy industry will probably be retained in 2008, being in line with the global tendency. `Concentrating industry`s assets allow companies to cut costs due to economy of scale and companies` vertical integration, and to facilitate access to certain markets due to geographical diversification of the production base`, Dmitriy Melnik, head for specialized Credit-Rating`s department said. Ukraine`s joining WTO may positively affect the national steel industry providing easier access to overseas markets. For more information, please contact: Information and Communication Department Sergey Rozumyak +38 044 490 25 50 SRozumyak@credit-rating.com.ua
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