Ukraine's production growth highlights supply sensitivity

MEPS respondents in Poland are increasingly concerned about the potential consequences of oversupply as steel mills in Ukraine increase production.
Some believe that the risks faced by cargo ships leaving Ukrainian ports due to the ongoing conflict with Russia increase Poland's vulnerability to cross-border exports by road and rail.

Awareness of the impact of Ukrainian exports may have been heightened by the border blockade imposed on Polish farmers last November. The action followed farmers' complaints about unfair competition and affected the delivery of agricultural and steel goods, but was eventually stopped in January.

During the latest MEPS survey, demand for flat and long products in Poland remained weak. Prices remain stable and MEPS respondents say retailers and service centers are struggling with the effects of low profit margins. Consequently, any increase in supply is increasingly viewed negatively as a potential source of further price declines.

The battle to maintain production capacity
Ukraine's steel production fell by more than 70% year-on-year to 6.26 million tons (from 21.4 million) in 2022. This is despite 1.85 million tons of production in January and 1.55 million tons in the month of February. about the Russian invasion.

In 2023, production fell by 0.6% to 6.23 million tons. Energy supply disruptions and shelling impacts have impacted the steel industry in the past year. Meanwhile, production at ArcelorMittal's Krivoy Rog plant was halted after a series of explosions caused the nearby Kakhovka Reservoir to break, cutting off water supplies to the site.

In March of this year, steel production in Ukraine increased by 15.8% year-on-year and by 14.9% month-on-month to 610.9 thousand tons. This was the highest level since February 2022.

However, hot-rolled coil exports from Ukraine are still significantly lower than the annual figure of 3.89 million tons in pre-war 2021. Last year their number was 911,681, which is 21% less than last year. However, the country exported 346,796 tonnes in the first quarter of this year, almost three times more than the same period 12 months ago, according to Worldsteel.

In March alone, exports increased 200% year-on-year to 125,601 tonnes (from 41,853), with more than 50% of exports destined for Poland.

Efforts to improve export logistics
The opportunity to expand export opportunities could benefit Ukrainian steelmakers and ease the supply problems of steel mills in Poland. In an April speech at the US-Ukraine Partnership Forum 2024, Ukrainian Deputy Prime Minister for Recovery Alexander Kubrakov said that work continues to ensure that “Ukrainian exports reach world markets.”

Efforts are underway to establish new and expanded border crossings along the country's western border. In addition, the US Export-Import Bank has preliminarily approved a loan in the amount of $156.6 million for the purchase of 40 diesel locomotives for Ukrzaliznytsia.

However, logistics issues will remain a key factor in Ukrainian steel production volumes in the future. Capacity will continue to be impacted by issues beyond the steel mills' control. The long-awaited recovery in demand is likely to be the real catalyst needed to boost steel prices, both in Central Europe and beyond.