OREANDA-NEWS  On 16 September was announced, that Alfacapital published steel industry review according which in 1H 2008 the steel industry boosted sales by an average of 63% owing to a 66% y-o-y steel price increase. However, industry profitability declined as commodity and freight price increases took their toll: the average EBITDA margin fell from 18% to 15%, and the net margin from 11.5% to 7.7% (see table).

The results posted by Alchvesk MP, Dniprovsky (DMKD), Mariupol MP and Zaporizhstal represent the varying levels of profitability at different levels of steelmaking technology. Meanwhile, Azovstal, Enakievo and Dnipropetrovsky (DMZP) suffered from low corporate governance standards. Metalen (affiliated with Enakievo MP) raised profitability markedly in 1H08, suggesting that Metinvest has postponed a possible ENMZ-Metalen merger.

The deterioration in Azovstal’s and Enakievo MP’s margins also suggests that Metinvest is accumulating profits from the mining companies – Pivnichny, Tsentralny and Inguletsky GZK – in which it owns more than 99% of equity and can afford to pay out all income in dividends. IUD steelworks – Alchevsk MP and Dniprovsky MP – significantly boosted profitability, confirming that IUD is considering merger opportunities and sprucing up its companies.

Steel prices have been weak in 3Q08, promising weaker quarterly results both on lower prices and output. This takes away from the short-term attractiveness of the steel sector.