The general manager of the Ukrainian flat steel producer Ilyich Iron and Steel Works of Mariupol (Ilyich), Vladimir Boyko, has said that the company has signed a 25-year long term contract with Metinvest Holding (Metinvest), one of the country's largest mining and steel producing companies, for the supply of coke, iron ore and concentrate, which will allow it to solve its raw material shortages in the mid-term. No further details on volumes or prices were disclosed, but it is likely the steelmaker will buy raw materials above the market prices.
Previously, the companies said that they were in talks over a possible merger, which is likely to happen after Ilyich resolves its ongoing ownership dispute. The dispute started at the end of May this year when Cypriot companies representing unnamed Russian investors said they bought 100 percent shares in ZAO Ilyich-Stal, the company that owns a 90.41 stake in Ilyich steel plant.
Meanwhile, Mr. Boyko noted that the long-term contract with Metinvest is a defensive move against the ongoing corporate raid attempt, and the contract's implied terms, mainly the prices for raw materials, are aimed at discouraging the raiders from continued claims to ownership of the mill.
"They have realized at what prices these supplies may be and what fines will have to be paid for failure to fulfill the contract. The crisis, the general economic situation of the plant, during which the losses of the company could reach billions, the tension over the payment of the multimillion-dollar government debt due to VAT refund - all these together influenced the decision of the ‘buyers' of the shares to start talks with us," Mr. Boyko said.
Commenting on the news, Eugen Dubogryz, analyst from BG Capital, said, "On a broad scale, the contract is positive for the Metinvest entities responsible for supplying Ilyich, namely Inguletskiy GOK and Avdeyevka Coke and Chemicals Plant. The latter looks set to benefit heavily, as roughly 40 percent of its facilities were idle through January-May 2010, and it has the capacity to increase its metallurgical coke output by 1.74 million mt over 2010-2012 through higher coke deliveries to Ilyich."