Posted on 30 Sep 2022
Six steel enterprises are currently operating in Ukraine, with average capacity utilisation of about 15% of the pre-war level, says national steel association Ukrmetallurgprom president Oleksandr Kalenkov.
“The situation at mining enterprises looks a little better, as they are 25% loaded on average,” he writes in a column for Business Censor. “However, work has been suspended at the Inguletskyi, Yuzhnoye, and also at ArcelorMittal Kryvyi Rih miner enterprises.”
Ukrmetallurgrpom did not reply to Kallanish’s request for comment before deadline.
According to Kalenkov, this situation is a direct consequence of Russia's military aggression against Ukraine, due to which the industry lost the capacity of two Mariupol plants, which were responsible for 40% of production. Access was also lost to sea ports, which facilitated a significant portion of exports.
As a result, in the eight months through August, steel production in Ukraine fell to 5.2 million tonnes, while in 2021 it was almost 13mt during the same period.
"Taking into account the current level, by the end of 2022 we can produce 6.5-7mt of steel products compared to more than 21mt last year, and it will be a good result under the current conditions,” Kalenkov notes.
Kalenkov considers logistics problems to be one of the main factors that continue to significantly limit steel production in Ukraine. Due to the loss of access to the Black Sea, steelmakers are forced to export products, up to 80% of which were previously sold on foreign markets, by rail across western borders.
However, this increases logistics costs by 2-3 times. In addition, railway connections with European countries cannot provide the necessary export rates for Ukraine. "Cars have been waiting for tens of days for their turn to cross the border," Kalenkov observes.
The production costs of Ukrainian enterprises are growing against the background of lower prices for steel products on world markets. Steel prices have fallen by 30% and iron ore by 35% over the past few months.
"For a clearer understanding, the current revenues of metallurgical plants cover only about 70% of variable costs, and there are also fixed ones, including salaries, which enterprises continue to pay to their employees despite the low workload," he observes. “The most effective in this situation would be the restoration of seaborne exports.”
Ukrmetalurgprom has also highlighted the importance of reducing tariffs for transportation within the country.