Memo from Moscow

Steel News from Russia, Ukraine and other CIS States

Steel industry in Ukraine, September 2009

Industry players and production levels

The ten largest Ukrainian steel producers are as follows.

• Krivorozhstal (Mittal Steel Germany GmbH);
• MMK named after Ilyich (Ilyich-Steel);
• Azovstal (System Capital Management);
• Enakievo metallurgical plant (System Capital Management);
• Zaporozhstal (Midland Resources Holding);
• Alchevsky metallurgical plant (Industrial Union of Donbass);
• Dneprovsky metallurgical plant named after Dzherzhinsky (IUD);
• Makeyevsky metallurgical plant (Smart-Group);
• Dneprovsky metallurgical plant named after Petrovsky (PRIVAT);
• Donetsky metallurgical plant (ENERGO);
• Dneprospetsstal (Interpipe).

According to the Ukrainian association "Metallurgprom", in July 2009 production of iron and steel sector was as following: pig-iron – 2.361 mt (77 % from July, 2008 level), crude steel – 2.675 mt (73 % in compare with July 2008), finished rolled products – 2.4 mt (74 % from the last July level). Metallurgprom's experts predict for September 2009 the further revival of steel sector with grows of production: for pig-iron - up to 2.46 mt, for crude steel - up to 2.85 mt, for rolled products - up to 2.52 mt.

The average daily production of the finished rolled products for 7 months of 2009 was 68,800 t (in 2008 – in average 85,900 t), crude steel - 76,800 t (in 2008 - 101,300 t), steel tubes and pipes - 4,200 t (in 2008 - 6,400 t), hardware - 600 t (800 t in 2008), coke - 46,500 t (53,500 t in 2008). For the first half of 2009 year the rate of continuous casting reached 47 % of total crude steel while the corresponding parameter the last year made 37 %, only.

For 7 months of 2009 the volume of production of pig-iron reached 14.332 mt (66.4 % from a level of 2008), crude steel – 16.277 mt (62.8 % from 2008 level), finished rolled products – 15.161 mt (65.5 % from the same level of last year). As of end of August 2009 only 68 % of Ukrainian blast furnaces were in operation (28 of 41 in total), 90 % of oxygen converters (19 of 21), 37 % of open-hearth furnaces (15 of 42) and 21 % of EAF steel-melting furnaces. Average use rate of Ukrainian steel-melting capacity July of 2009 was 62 %.

In experts’ opinion, the 2009 crisis will result in a fall of Ukrainian steel production by approximately 20 % in comparison with the previous year. Full year output levels are expected at: rolled products ~25.1 mt, pig-iron ~24.7 mt, crude steel ~28.0 mt.

Trade volumes

The volume of import of rolled products to Ukraine for the 7 months of 2009 decreased in comparison with the similar period of 2008 by 65 % and amounted to ~383,600 tonnes. 2008 imports to Ukraine in total were about 1.75 mt. The greatest decrease in import has taken place on flat rolled products (on hot rolled strip in coils - by 89 %, on cold rolled strip - by 71 %), and also on shaped long products (angles and channel – by more than 82 %). The reduction of import of long rolled products was not such significant (wire rod volumes falling by 25 % only). In 2009 the main importer of metal products became the pipe sector; here the share of deliveries rose from 27.3 % to 40.5 % while metals traders lowered their share from 34.4 % to 24.1 %.

Steel demand

According to the Ukrainian metals traders association, the consumption of steel rolled products in Ukraine for first half of 2009 decreased by 57 % in comparison with similar level of 2008. The Ukrainian domestic steel rolled consumption for 2008 was about 8 mt in total. For 2009 the domestic market forecast is of consumption of about 6 mt steel only. The building branch of the Ukraine consumes almost 50 % from total steel rolled products delivered on domestic market. In 2009 almost a 55 % reduction in the volume of civil construction work in the country led to a pronounced fall in building sector metals demand.

Today, large building projects focus on the development of infrastructure – especially within the framework of the preparation of the Ukraine for the European 2012 Football Championship (Euro - 2012). This specific development remains a unique stimulus for recovery of medium-term domestic steel consumption levels in Ukraine. According to experts, construction and repair of sports facilities, roads and other communication routes for Euro - 2012 will result in additional demand of ~8 mt metal products within the nearest three years (2009 - 2011).

Supply side

Problems with natural gas supply (mainly from Russia) are having a significant impact on the Ukrainian iron and steel metallurgy. Ukraine last year reduced consumption of natural gas: in 2008 the country bought 52 bln m3 of natural gas; in 2009 the purchases will be just 33 bln m3; and in 2010 the plan is to buy only 25 bln m3. A basis of future Ukrainian energy independence should be energy savings and growth in the extraction of domestic gas.

The most effective energy conservation measure for blast furnaces is pulverized coal injection [PCI]. The first European installation for preparation and injection of coal dust into a blast furnace was at the Donetsk Steel Work in 1980 (BFs No 1 and No 2). In 1984 the USSR license was sold to Voest Alpine (Austria).

Presently two main metallurgical enterprises in Ukraine - the Mariupol Iron and Steel works named after Ilyich and the Zaporozhstal Steel Plant - work on introduction of PCI and these investments should allow complete independence on imported natural gas.

• Zaporozhstal plan completion of PCI testing on blast furnace № 2 before end 2009. Installation of the equipment is conducted under the direction of Kuttner GmbH & Co and the PCI installations with advanced design will allow use of up to 200 kg of coal per tonne of pig-iron.
  
  
• In the Mariupol Metallurgical Kombinat named after Ilyich, construction of a series of PCI installations is to be complete by the end of 2010. Today, the BF shop is the greatest consumer of natural gas at the enterprise – with demand at up to 70,000 m3 per hour. Much if not all of this natural gas demand will cease from end-2010 when all PCI equipment [largely purchased from China] is installed.

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