The leading global ratings agency Fitch Ratings expects that a number of Ukrainian mining and metal companies will be shut down due to inefficiency in the current conditions of international crisis.
According to Fitch Ratings' director for the mining and metals sector, Sergey Grishunin, the forecast for the sector in question is negative, the Ukrainian metal and mining industry will recover more slowly than the global industry, and that the companies may encounter difficulties in refinancing their maturing debt obligations. Moreover, the demand for and prices of steel products will be low from Q4 2008 to Q4 2009.
Fitch has downgraded Ukraine-based pipes and railway producer Interpipe's long-term issuer default rating from B+ to B, and says that it expects the company's operating and financial results to be affected to a greater degree in 2009, due to Interpipe's export orientation, which stood at about 75 percent of its sales in H1 2008, and due to the company's high level of commodity steel production, which constitutes about 32 percent of its output. Fitch believes that Interpipe's pipe operations could see a decrease in production of 25-30 percent in FY 2009, while its railway business will be less impacted.
Moreover, Fitch expects that Ukrainian steelmaker Industrial Union of Donbass (IUD) and iron and steel producer Metinvest Holding (Metinvest) will also be significantly affected by the economic downturn, as they are also focused on commodity steel products and as around 70 percent of their production is directed for export. Based on a downside case scenario whereby market conditions remain weak throughout FY 2009 and production volumes decline by 40-50 percent year on year, Fitch estimates that Metinvest's revenues could fall by around 50-60 percent. The agency has downgraded IUD's long-term issuer default rating from B+ to B and Metinvest's from BB- to B+.