The geopolitical conflict of recent years has devastated the Ukrainian steel industry. World Steel Association statistics show that in the former Soviet Union, Ukraine's crude steel production averaged more than 50 million tonnes per year; by 2021, its crude steel production had shrunk to 21.4 million tonnes. Affected by the geopolitical conflict, some of Ukraine's steel mills have been destroyed, and its crude steel production in 2022 also fell to 6.3 million tonnes, a drop of up to 71%. According to the Ukrainian Steel Trade Association (Ukrmetalurgprom) statistics, before February 2022, Ukraine has more than 10 large and medium-sized steel mills, with a total crude steel production capacity of 25.3 million tonnes, and after the outbreak of the conflict the country's only six remaining steel mills have a total crude steel production capacity of about 17 million tonnes. However, according to the latest edition of the World Steel Association's short-term demand forecast report released in October this year, the development of Ukraine's steel industry is gradually improving and stabilising. This may provide a boost to the recovery of the country's steel industry.
Reconstruction programme helps steel demand improve.
Steel demand in Ukraine has improved, benefiting from the country's reconstruction programme, among other factors. Data from the Ukrainian Iron and Steel Trade Association showed that Ukraine's crude steel production in the first 10 months of 2023 was 5.16 million tonnes, down 11.7% year-on-year; pig iron production was 4.91 million tonnes, down 15.6% year-on-year; and steel production was 4.37 million tonnes, down 13% year-on-year. For a long time, about 80% of Ukraine's steel products have been exported. In the past year, due to the doubling of freight railway tariffs and the blockade of ports in the Black Sea region, the country's steel companies have lost convenient and cheap export channels.
Following the destruction of the energy infrastructure, many of the country's steel companies were forced to shut down. However, with the Ukrainian energy system back in operation, most of the country's power producers are now able to meet industrial electricity demand, but there is still a need for continued improvement in energy supply conditions. In addition, the country's steel industry urgently needs to reorganise its supply chain and introduce new logistics routes. Currently, some of the country's enterprises have already re-established export logistics routes through European seaports and the port of Izmir on the lower Danube in southern Ukraine, ensuring basic capacity.
The main market for Ukrainian steel and metallurgical products has always been the European Union region, and the main exports include iron ore, semi-finished products, and so on. Therefore, the development of the Ukrainian steel industry depends to a large extent on the economic situation in the EU region. Since the beginning of 2023, nine large European steel companies have announced the restart or restoration of their production capacity, as the stocks of some European distributors were depleted in December 2022 . Along with the recovery of steel production, steel product prices have seen an increase in demand for iron ore from European steel companies. Due to the blockade of Black Sea ports, the EU market also remains a priority for Ukrainian iron ore companies. According to the Ukrainian Steel Trade Association forecast, in 2023, the country's exports of steel products will reach 53%, restarting shipping is expected to further increase; total steel production will also increase to 6.5 million tonnes, the seaport after the opening of the possibility of doubling.
Some companies have begun to formulate production resumption plans.
Although it is difficult for Ukraine's steel production to quickly return to the level before the conflict broke out, some companies in the country have begun to formulate plans to resume production.
Data from the Ukrainian Steel Trade Association show that in 2022, the average annual capacity utilization rate of the Ukrainian steel industry will be only 30%. The country's steel industry is showing initial signs of improvement in 2023 as power supply stabilizes. In February 2023, the crude steel output of Ukrainian steel companies increased by 49.3% month-on-month, reaching 424,000 tons; the steel output increased by 30% month-on-month, reaching 334,000 tons.
The country's mining companies are committed to restoring production line equipment. Currently, the four mining and processing companies under the Metinvest Group are still producing normally, with a capacity utilization rate of 25% to 40%. The group plans to restore mining capacity to 30% of pre-conflict levels while focusing on pellet production. In March 2023, the second pellet production line of Ferrexpo, which conducts iron ore mining business in Ukraine, was put into operation. At present, the company has a total of 4 pellet production lines in production, and the capacity utilization rate has basically reached 50%.
Companies in major steel production areas still face numerous risks
As far as the current situation is concerned, in the main steel-producing areas of Ukraine such as Zaporozh, Krivoy Rog, Nikopol, Dnipro, and Kamiansk, there are still steel companies facing production facilities and energy infrastructure. Risks such as destruction and logistics interruption.
Industry reconstruction attracts numerous overseas investments
Although the Russia-Ukraine conflict has caused huge losses to the Ukrainian steel industry, Ukrainian steel companies are still confident about the future. Foreign strategic investors are also optimistic about the potential of Ukraine's steel industry. Some experts predict that the reconstruction of Ukraine's steel industry will attract tens of billions of dollars in investment.
In May 2023, at the Construction Business Forum held in Kiev, SMC, a subsidiary of Metinvest Group, formally proposed a national reconstruction initiative called "Steel Dream". The company plans to design 13 types of steel structure buildings, including residential buildings (dormitories and hotels), social infrastructure housing (schools, kindergartens, clinics), as well as parking lots, sports facilities and underground shelters. SMC predicts that Ukraine will need about 3.5 million tons of steel for the reconstruction of domestic housing and infrastructure, which will take 5 to 10 years. In the past six months, about 50 partners in the country have joined the Steel Dream initiative, including steel mills, furniture manufacturers and building materials producers.
In March 2023, South Korea's Posco Holdings Group specially established a "Ukraine Recovery" working group, focusing on related projects in five major fields including Ukrainian steel, grain, secondary battery materials, energy and infrastructure. Posco Holdings plans to participate in local environmentally friendly steelmaking projects. South Korea and Ukraine will also jointly explore modular construction methods for steel structures, thereby significantly shortening the construction time of reconstruction work. As an innovative construction method, modular construction first prefabricates 70% to 80% of the steel components in the factory and then transports them to the site for assembly. This can shorten the construction time by 60%, and the steel components can also be effectively recycled.
In June 2023, at the Ukraine Recovery Conference held in London, England, Metinvest Group and Primetals Technologies officially joined the "Green Recovery of the Ukrainian Steel Industry" platform. The platform is an official initiative of the Ukrainian government and aims to support the reconstruction of the country’s steel industry and ultimately revitalize Ukrainian industry through the green transformation of the steel industry.
It is estimated that it will cost Ukraine US$20 billion to US$40 billion to establish a green steel value chain. Once the value chain is completed, Ukraine is expected to produce up to 15 million tons of "green steel" per year.
Post time: Nov-20-2023