Memo from Moscow

Steel News from Russia, Ukraine and other CIS States

Ukrainian Metallurgy: End-2009 Annual Review

According to the Ukrainian association of the metallurgical enterprises METALLURGPROM, Ukrainian crude steel production in 2009 declined [in comparison with 2008 levels of 37.1 mt] by up to 17.4% and reached ~29.8 mt. For the steel industry of the Ukraine, this is the lowest level of crude steel output since 2000. Production of pig iron in 2009 also declined by ~13% and reached about 25.7 mt. Finished rolled product output also showed a decline at ~15% and reached around 27.8 mt.

At company level, the mining metallurgical combine Arcelor Mittal Krivoi Rog in 2009 reduced finished steel production by ~17.2% in comparison with 2008 to 4.49 mt, with crude steel output falling ~18.9% to 5.05 mt, pig-iron production reducing 21.6% to 4.4 mt, and agglomerate output lowering 18.4% to ~7.9 mt.

The volume of Ukrainian rolled steel product exports in 2009 also decreased by 18% compared with 2008. In 2009 some 85% of rolled product production was exported (from which 10% went to China). According to the Ukrainian Association of Metals Traders demand for steel products in Ukraine decreased more than ~40% in 2009. Year 2009 steel consumpton in Ukraine is estimated at approximately 5 mt. This is almost half of the pre-crisis 2007 demand level of ~9.4 mt of finished steel consumption.

As steelmaking volumes fell, so the majority of steel enterprises in Ukraine finished the year making large financial losses. Realization of many important investment programmes geared to quality improvement or to increasing steelmaking capacity was put on hold. Total investments in Ukrainian metallurgy in 2009 actually amounted to less than 25% of the 2008 level, reaching just $US 500m. An important exception to delayed modernisation however was the continuation of construction work at the electrometallurgical enterprise Dneprostal of Interpipe Group, where upgrades of the Nizhnedneprovsky pipe plant continue. 'Metinvest' is also moving ahead with modernization of the blast furnace at the Enakievsky Metallurgical Work.

Due to problems with the supply energy and especially gas in the Ukraine, many metallurgical enterprises are trying to conserve energy and decrease energy consumption for steel making in particular. OHF steelmaking is therefore being closed down wherever possible as operating conditions allow. Indeed, at end-2009 only 15 OHF furnaces were in operation in Ukraine, from a total of 42. The main thrust of much modernisation in recent years has been investment in new converters and blast furnaces to replace antiquated open-hearth furnaces. Further replacement of open hearth furnaces by more productive, more energy efficient and less polluting EAF furnaces and converter units will remain a priority for Ukrainian metallurgy in the coming years.

According to preliminary data from METALLURGPROM, losses of Ukrainian metallurgical enterprises in 2009 amounted to ~5 billion hryvna [more than $US 620 m]. Production costs in first half of 2009 were actually higher than export prices. Much cross-indebtedness exists in the Ukrainian economy today. The 'Memo from Moscow' team understands that the Makeevsky Iron and Steel Works has just declared itself bankrupt with debts amounting to ~$US 580m.

A Memorandum of Mutual Understanding between the Ukrainian Government and owners of metallurgical plants operating until March 2010 [dating back to November 2008] was recently authorized. According to this Agreement, steel manufacturers are allowed to freeze tariffs for railway transportation and for electric power supply, with extra charges for natural gas prices being waived. These measures will of course offer the steel sector some easing of financial pressures.

In January 2010 a group of Russian investors led by former shareholders of Evraz got a controlling equity stake in the Ukrainian metallurgical corporation Industrial Union of Donbass (ISD). According to information in the international press, the new company owners include Russia's Evraz Group and Metalloinvest. The ISD included the Alchevsky and Dneprovsky Iron and Steel Plants in Ukraine, Dunaferr in Hungary and ISD-Huta Stali Czestochowa in Poland; so this is quite a significant change of ownership of steelmaking assets [involving a crude steel production volume in 2008 of ~9.9 mt].

According to the forecast of the Ukrainian Ministry of Industrial Policy, year 2010 steel sector production will increase by around 3-4% in comparison with 2009. Production of crude steel in 2010 is expected to approach ~30.5 mt, pig iron ~26.5 mt with finished rolled product output near to ~28.5 mt.

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