Modern economic POTENTIAL OF UKRAINE

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Ferrous metallurgy

The mining and metallurgical industry in Ukraine encompasses a full set of enterprises involved in mining and smelting of raw iron ore, the 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
• 15 tube producing enterprises

Ukraine’s production facilities have been accelerating output of pig 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 2000. Thus, compared 2000, key production figures in ferrous metallurgy in 2005 added 19.7% for pig iron, 23% for iron, and 48.5% for rolled metal production.

Within Ukraine, metallurgic enterprises are the core of several regional systems, and iron and steel works are the most important city-forming objects. These enterprises are the main employers in their localities. Ukrainian ferrous metallurgy is concentrated in the four regions: Donetsk (45% of pig iron production and 46% of steel output), Dnepropetrovsk (34% and 31%), Lugansk (9% and 10%), and Zaporozhye (12% and 13%).

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 seventh 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, and Germany. In 2005, Ukraine produced 4.32% of the world’s pig iron (30.77 mn tons in absolute terms) and 3.41% of its steel (38.63 mn tons).

Ranking of Ukrainian ferrous metallurgy in world production of steel and pig iron

The industry began the modernization of its fixed assets in between 1998-2002. Economic experiment in Ukraine’s mining and metallurgical industry, with its taxation preferences, helped local metallurgists to come out of a financial crisis and directed financial flows to enterprises. Yet, this cash was still not sufficient to conduct a fundamental restructuring of the industry. Foreign investors were not in a hurry to bring money into an uncertain economic environment, as was visible in Ukraine then.

Nowadays, the utilization of production capacity in the Ukrainian metallurgy industry looks 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.

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. Ukraine is home to over 5% of global iron ore reserves. Over 80 deposits of iron ore have been explored by now. The country also has 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. Domestic demand for ferroalloys is satisfied by three Ukrainian enterprises – Nikopol, Stakhanov, and Zaporozhye ferroalloy plants.

The Ukrainian metallurgy is heavily oriented toward exports and depends on regional international markets. The works still pay scant attention to the local market, especially in light of growing foreign interest, although in 2005 the share of local supplies on the domestic market increased from 15.6% in 2000 to 30.3% in 2005.

The commodity pattern for Ukrainian exports of ferrous metals in 2005 looked as follows:

• Raw stock materials (pig iron, ferroalloys, scrap metal) – 11.5% or 3.31 mn tons;
• Semi-products (slabs and billets) – 34.4% and 9.85 mn tons;
• Flat products (H/R, C/R, and galvanized plate, rolls) – 33.4% and 9.55%;
• Long products (wire rod, rebars, bars) – 20.8% or 5.96 mn tons.

Export of ferrous metals from Ukraine over 2000-2005

Domestic production mostly satisfies Ukraine’s internal demand for standard ferrous metal products. Therefore, rolled steel imports have no particular importance for metal provision in the national economy.

With rolled metal production totaling 33.3 mn tons in 2005 and 25.12 mn tons of that exported, the 0.92 mn tons imported amounted to around 8% of domestic consumption. Traditionally import supplies of metal to Ukraine consist of articles that have little or no production in the country. This includes for instance, rolled alloyed steel, coated rolled products and special purpose products. However, 2005 showed the further acceleration of metal product imports to Ukraine. Ferrous metal imports to the Ukrainian market in 2005 amounted to 1.77 mn tons, which exceeds last year’s figure by 15.4%. Meanwhile, supplies of finished rolled metal added 26% (up to 0.93 ths. tons against 0.73 mn tons in 2004).

The export orientation of local metallurgical enterprises forces some domestic consumers to satisfy their production needs with imported products. Hence, in 2005, the country imported around 186 ths. tons of long products and 411 ths. tons flat products. The figures show a growth over 2004 of 1.3% and 16.6% respectively.

The geographic structure of Ukrainian ferrous metal import in 2005 remained traditional. The largest supplier of metal products to Ukraine was Russia – 67.8% or 683.6 ths. tons. Around 13.1% (or 122.5 ths. tons) in the import pattern belongs to other CIS countries – Kazakhstan, Moldova, and Belarus.

Import of ferrous metals to Ukraine in 2000-2005, ths. tons

In 2006-2010, Ukraine’s ferrous metallurgy industry is forecast to develop in the following manner. In the short run, thanks to reconstruction and partial upgrades, Ukraine’s production capacities will grow to 44-45.5 mn tons or by 9-12%. This growth will depend mainly on basic changes to output capacity. In 2010, to 2005, the volume of steel production should move from 38.62 mn tons up to 44 mn tons (or +14%), and rolled metal output would rise from 33.37 mn tons to 35 mn tons (or a 5% increase).

The more complete utilization of the facilities is still the main reserve for production growth – in 2010 facilities are expected to operate at 95% of capacity.

Ukraine’s ferrous metallurgy sector will also preserve its strong export focus. However, one may expect that in 2006 steel exports will drop in line with the forecast worsening of the world market. Ultimately, in 2010, export shipments are slated to total 26.5-27 mn tons (15% higher than in 2005), and export share in production being fixed the same – at 68-72%.

Domestic consumption will become dominant in the medium term, which will be related to high growth tempos in metal consuming industries – machine building, construction, shipbuilding, and vehicle engineering. By 2010, the volume of local consumption is forecast to rise by 30-40% (to 11-12 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 medium term 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 structure of production and exports will not see serious changes. The import of metal products in the future will also go up.

In the long term, 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.

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