Ukrainian plants operate at 15% of steel production capacity

Currently, there are six metallurgical enterprises operating in Ukraine, the average capacity utilization of which is about 15% of the pre-war level, says Alexander Kalenkov, president of the national metallurgical association Ukrmetallurgprom.

“The situation at the mining enterprises looks a little better, as they are loaded at an average of 25%,” he writes in a column for Business Censor. "However, work has been suspended at Inguletsky, Yuzhny, as well as at the mining enterprises of ArcelorMittal Kryvyi Rih."
According to Kalenkov, this situation is a direct consequence of Russia's military actions against Ukraine, due to which the industry lost the capacity of two Mariupol plants, which accounted for 40% of production. Access to seaports, through which a significant part of exports passed, was also lost.

As a result, in the eight months to August, steel production in Ukraine fell to 5.2 million tons, while in 2021 it was almost 13 million tons over the same period.

“Given the current level, by the end of 2022 we can produce 6.5-7 million tons of metal products compared to more than 21 million tons last year, and in the current conditions this will be a good result,” 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, metallurgists are forced to export products, up to 80% of which were previously sold on foreign markets, by rail across the western borders.

However, this increases logistics costs by 2-3 times. In addition, railway communication with European countries cannot provide the necessary export tariffs for Ukraine. “Cars have been waiting for their turn to cross the border for dozens of days,” Kalenkov notes.

The cost of production of Ukrainian enterprises is growing against the backdrop of lower prices for metal 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 revenue of smelters covers only about 70% of variable costs, and there are also fixed ones, including the wages that enterprises continue to pay their employees despite low workload,” he notes. "The most effective in this situation would be the restoration of maritime exports."

Ukrmetallurgprom also stressed the importance of reducing tariffs for transportation within the country.