Ferrous metallurgy of Ukraine (2002-2007)

The mining and metallurgical industry in Ukraine encompasses a full set of enterprises involved in mining and smelting of raw iron ore, production of by-product coke and ferroalloys, iron and steel casting, as well as rolled production. It includes:

• 15 iron and steel works and plants;
• 3 ferroalloy plants;
• 14 mining enterprises;
• 12 by-product coke plants;
• 13 refractory production plants;
• 20 metal ware plants;
• 8 tube producing enterprises and 134 companies which organized tube manufacturing.

Ferrous metallurgy of Ukraine embraces 15 large enterprises – metal mills and works, which account for some 98% of the national steel production and 100% of steel-making iron output.

Domestic metallurgy is mostly oriented at flat product manufacturing (plates and rolls) occupying 55% of production facilities. The remaining portion engages producers of long products. The country also has roll production of alloyed steel grades (DneproSpetsStal Metallurgical Plant and CJSC Mini Steel Mill ISTIL).

Ukraine’s production facilities have been accelerating output of cast iron, steel, and rolled products for the past several years. An average annual rise of production indicators of 2-5% has been seen in the industry since 2002. Thus, compared to 2002, key production figures in ferrous metallurgy in 2007 added 28.8% for cast iron, 25.7% for steel, and 25.6% for rolled metal production.

Production dynamics at Ukrainian metal mills over 2002-2007, mn tons

Ukraine is located in close proximity to the most important world steel markets – the countries of the European Union, the Middle East, and Russia, to which more than 60% of Ukrainian metal products are shipped. Because transportation costs are often low, Ukrainian metal is a worthy competitor compared to other producers at these markets.

Ranked eighth in the world by output, Ukraine is a major producer of ferrous metals, along with the likes of China, Japan, the USA, Russia, South Korea, Germany, and India. In 2007 Ukraine produced 3.2% of the world’s steel (42.83 mn tons in absolute terms).

Ranking of Ukrainian ferrous metallurgy in world production of melted steel

In 2007, the utilization of production capacity in the Ukrainian metallurgy industry looked as follows: 85-100% in metallurgical enterprises, 75-85% in mining companies and in the production of iron ore raw stock, 40-42% in the refractory industry, and 90-92% in coke production. Tube rolling and metal ware production have a good reserve of production capacities and their loading depends firstly on the availability of sales market.

A sizable portion of rolled products by Ukrainian metallurgical enterprises has been certified by world leading centers. Thus, for instance, most of output by Azovstal, Zaporozhstal, and Ilyich ISW of Mariupol (shipbuilding, boiler, construction steel) has been certified by Lloyd’s Register of Shipping (UK), TUV (Germany), American Bureau of Shipping (USA), Russian marine register, and other organizations. Wire rod and re-bars, which correspond to European and American standards, are produced by ArselorMittal Kryvyi Rih (previously – Krivorozhstal).

Not only Ukraine has a developed metallurgy, but it also boasts plentiful reserves of natural resources and available facilities for metallurgical raw production.

The raw stock for the industry in Ukraine consists of considerable natural reserves of iron and manganese ores, coking coal, fluxes, refractory clays, and other mineral materials. With domestic resources, the country is able to meet demand of the national ferrous metallurgy for all types of strategic raw stock, foremost, in iron ore materials (sintered ore, concentrate, agglomerate, pellets), and coke.

The country also has about 20% of world reserves of manganese ores and is one of the top ten producers of coking and power generating coal in the world. The annual volume of coking coal mining is around 40 mn tons.

Ukraine’s production of main raw stock materials essential for steel casting

The Ukrainian metallurgy is heavily oriented toward exports and depends on international markets’ conjuncture. Powerful production structure of Ukrainian metallurgical enterprises completely satisfies internal market demand for rolled products. In 2007, the share of local supplies on the domestic rolled metal market increased from 18.5% in 2002 to 25.6% in 2007 as a result of higher demand by internal market.

Positive trends of Ukraine’s presence on the world market have advanced recently. Output of the leading Ukrainian producers yields to no best world producer in terms of quality.

The largest producers with essential technological and technical bases have been more actively promoting Ukraine’s rolled products with high added value to foreign markets. As a result, commodity structure of Ukrainian ferrous metal exports improved. As compared to 2002, the pattern of rolled products export (in physical terms) in 2007 saw the portion of raw stock materials reducing from 19.2% to 12.4%, accompanied with the corresponding expansion of end rolled products’ share.

The commodity pattern for Ukrainian exports of ferrous metals in 2007 looked as follows:

• Semi-products (slabs, billets, and hollow billets) – in physical volumes – 36.7% (11.8 mn tons, export curtailment by 5.5%), in currency earnings – 30.6% (USD 5,126.8 ths., increase by 17.9%);
• Flat products (H/R, C/R, and galvanized plate, rolls) – in physical volumes – 28.0% (9.02 mn tons, export growth by 2.5%), in currency earnings – 31.5% (USD 5,274.5 ths., growth by 28.2%);
• Long products (wire rod, rebars, bars) – in physical volumes – 22.9% (7.38 mn tons, export rise by 3.7%), in currency earnings – 25.8% (USD 4,326.2 ths., increase by 34.6%);
• Raw stock materials (cast iron, ferroalloys, scrap metal) – in physical volumes – 10.2% (4.0 mn tons, export growth by 23.8%), in currency earnings – 12% (USD 2,013.8 ths., rise by 46.4%)

By results of 2007, geography of Ukrainian metal products’ export by regions of the world looked in the following way:

• Middle East (35.3% or 9.882 mn tons, supplies up by 12.8%),
• Europe (21.3% or 5.951 mn tons, a drop by 14.7%),
• CIS (14.9% or 4.176 mn tons, supplies up by 22.1%),
• Asia (12.9% or 3.612 mn tons, supplies up by 6.5%),
• Africa (9.7% or 2.708 mn tons, a drop by 2.0%), and
• America (5.8% or 1.609 mn tons, a drop by 43.8%).

Situation on Ukraine’s market of ferrous metals has recently been ambiguous. In spite of rather developed ferrous metallurgy industry as well as steadily growing production of steel and rolled products, annual volumes of ferrous metal imports to Ukraine keep boosting swiftly.

Hence, in 2007 the volumes of metal products’ import to Ukraine, as compared to the previous 2006, grew by 24.1%, having reached record-high level since independence of Ukraine – 2,859.5 ths. tons. Meanwhile, financial value of the imports came to USD 2,238.6 mn, which was 52.4% higher than the respective level of 2006.

It should be noted that the increased portion of rolled steel imports within Ukrainian consumption expanded from 6.3% in 2003 to 16.3% in 2007. Correspondingly, the share of local production in the consumed volumes narrowed from 93.7% in 2003 to 83.1% in 2007.

• high degree of export orientation of Ukrainian steel mills,
• rather narrow range of metal products of Ukrainian origin,
• current system of metal products’ sales,
• production relations of rolled steel consumers, and
• discount programs provided to Ukrainian metal products’ importers by foreign producers.

Geographical pattern of Ukrainian metal products’ import in 2007 did not see particular changes. The Russian Federation remained the largest supplier of metal products to Ukraine contributing 73.4% to the gross volume, or 2.4 mn tons. Around 10.2%, or 297.8 ths. tons in import structure fall for other CIS states – Kazakhstan, Moldova, and Belarus. The rest of rolled steel was imported from the European Union, and countries of the Middle East and Asia.

Ukraine’s ferrous metallurgy sector will also preserve its strong export focus. However, one may expect that starting in 2008 steel exports will drop in line with the forecast worsening of the world market and growing domestic consumption. Ultimately, in 2010, export shipments are slated to total 25-26 mn tons.

Domestic consumption will become dominant in the run, which will be related to high growth tempos in metal consuming industries – machine building, construction, shipbuilding, and vehicle engineering, as well as large-scale programs for Euro-2012. By 2010, the volume of local consumption is forecast to rise by 30-40% (to 13-15 mn tons). Meanwhile, the local market can be seen as a reserve to consume any excessive output of metal products in case of contracted demand on foreign markets.

The mentioned forecasts for ferrous metallurgy development in Ukraine in the run will not lead to fundamental technical and technological changes. Taking this into account and in the light of tight competition on external markets, one can expect that the commodity pattern of production and exports will not see serious changes. The import of metal products in the future will also go up.

In the prospective, production and trade indicators of Ukraine’s ferrous metallurgy can be corrected, as they strongly depend on world demand (which may change) as well as political and economic events within Ukraine and worldwide.