Mergers and acquisitions an attractive exit from the situation for the steel industry of Ukraine - Fitch Ratings

Prices for raw materials and problems with the return of VAT, at the request of the rating agency Fitch Ratings of July 12, 2010, can lead to consolidation of steel rental manufacturers in Ukraine.

“Given the difficulties facing the Ukrainian industry at present, mergers and acquisitions may be an attractive way out of the situation for smaller/weaker manufacturers who have a significant debt, the need to modernize their plants and/or who does not have enough self -sufficiency of raw materials,” said Peter Archbold, senior director of the Fitch Ratings analytical group for industrial companies. “Consolidation, the need for which is high, would have a beneficial effect on the steel sector of Ukraine, however, the concentrated structure of property means that any mergers or acquisitions will be a difficult process.”

The Donetsk Metallurgical Plant is Donetskstal, which stopped its domain production for an indefinite period of time, an example of an enterprise with production capacities, but does not have a resource base. Such enterprises are faced with a situation where rising prices for iron ore and coal lead to the fact that production costs are ahead of sales prices, but also cause concern about obtaining sufficient raw materials to continue production.

Fitch отмечает, что объявленная недавно сделка с участием ММК им. Ilyich and the Ukrainian manufacturer Metinvest ("B"/forecast "Stable") is typical in terms of many factors that determine activities in the field of mergers and acquisitions in the region. MMK named after Ilyich-a large manufacturer (the power of steel shops of the company is about 6-8 million tons per year), but he lacks self-sufficiency in raw materials, while Metinvest already provides a significant share of his iron ore and part of the needs for coke.