War-torn Ukraine may end calendar with over 85% plunge in steel production
Steel production drops over 67% in Jan-Oct 40% of energy infrastructure destroyed Securing coal supplies a challenge Morning Brief: Ukraine’s crude steel production...
- Steel production drops over 67% in Jan-Oct
- 40% of energy infrastructure destroyed
- Securing coal supplies a challenge
Morning Brief: Ukraine's crude steel production over January-October, 2022 decreased by a hefty 67.3% to 5.84 million tonnes (mnt), as per information available to SteelMint. In October, 2022, output amounted to 318,000 tonnes - a 6.4% drop m-o-m and an 80% y-o-y plunge.
In October 2022, steel mills in Ukraine increased production of rolled products by 13.8% compared to September to 289,000 t. In October 2021, production of the same had plunged 81% y-o-y. In January-October, 2022, production of rolled products reduced by 68.6% compared to the same period in 2021 to 5.02 mnt.
Pig iron production in October 2022 increased by 12.6% compared to September to 349,000 t but showed a 78% y-o-y fall. Pig iron production over January-October decreased more than 67% y-o-y to 5.81 mnt.
"Majority of plants stopped production in Ukraine after the war began in February. Capacity utilisation was just around 50% because of the worsening market conditions. Moreover, increasing production costs and energy supply disruptions posed challenges to the steel mills in Ukraine," recalled Stanislav Zinchenko, CEO, GMK Center, during a recent webinar organized by SteelMint.
Many of Ukraine's prominent steel mills are located in war-affected areas. Thus, carrying on production does not look safe amid such hostilities, Zinchenko said, adding that Ukraine's monthly steel production dropped by 90%. Only three out of 11 plants operated in September when the average capacity utilisation was just around 10%. Zaporizhstal is operating and can produce 3-4 mnt of steel.
The war has slashed monthly steel and pig iron production by almost 80%. All six plants are working except in Mariupol where Russia declared its full control of the Azovstal steel plant. Notably, Azovstal, for weeks, was the last holdout in Mariupol and a symbol of "Ukrainian tenacity" in the strategic port city, but now in ruins with more than 20,000 residents feared dead. Meanwhile, average capacity utilisation was 25%. It may be noted that 40% of steel was produced at the Mariupol plant before the war.
Exports
He said reducing steel exports from Ukraine has disrupted global supply chains. "Monthly iron exports decreased by 77% since the beginning of the war. However, in some cases, our exports were more than our production because of our stocks. Our exports to China were 40-45% pre-war. Now, amid this ongoing war, exports to China are no longer possible as ports of Black Sea are blocked now!"
On the other hand, Ukraine's iron ore exports to European Union (EU) are at 90-95% now where nations like Poland, Czech Republic and Austria are the main consumers of the same.
Power crisis
Consumption of electricity is also down in Ukraine as all consumers cannot be supplied. To make situations worse, power tariffs will also increase, Zinchenko informed, which will be a big problem for European steel producers. He said more than 40% of Ukraine's energy facilities have been destroyed. Ukrainian steelmakers are being impacted by emergency power outages. He reminded that Ukraine cannot produce iron ore concentrates or DRI without electricity.
Economic recession in EU
The sea ports are blocked by Russian fleet. Moreover, the railway border crossings with EU are overloaded. These are leading to increased lead times and logistics costs.
Now, EU is the main market for Ukrainian steelmakers, but it is heading towards an economic recession. Hence, EU's steel demand is decreasing. Amid these challenges, missiles and drone attacks have worsened the situation. The railcars stay at the EU border for 5-15 days. The problem is yet to be resolved. In addition, 40% of Ukraine's energy infrastructure is damaged by Russian attacks. As a result, Ukraine's manufacturing PMI fell by 50 points in July. "Overall, there is negative impact on growth in the nation," Zinchenko explained.
Outlook
"Owing to factors like war hostilities, recession in Europe, geo-political tension and global economic turmoil, Ukraine could see low production in October, November and December," Zinchenko predicted.
In 2022, keeping in mind the attacks on energy infrastructure, total crude steel production could be 6-6.5 mnt, which is a drop by 87% from the previous year, he said.
Ukrainian steel mills will have to find ways to secure coal supply which is challenging amid the war. "We do not have sea ports to organise such connections at present. We are partly importing from Poland. As far as Q12023 outlook is concerned, I hope the war will end. ...By then, sea ports may be opened up which will help us immensely to resume production at full capacities. Eventually, Ukrainian steel companies will get better prices as logistics cost will decrease," Zinchenko signed off.
