Steel Curtain: How metallurgy develops in Ukraine and in occupied Donbas

Author : Andriy Pysarevsky

Source : 112 Ukraine

As a result of the Donbas railway blockade, production of the main types of products at domestic metallurgical enterprises has simply collapsed on an annual basis for just five months
11:19, 9 June 2017

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112 Agency

The railway blockade of Separated Areas of Donetsk and Luhansk Regions (ORDLO), which began in late January 2017, continue to take a heavy toll on the Ukrainian metallurgy.

According to the association of enterprises "Ukrmetallurgprom", production of the main types of products at domestic metallurgical enterprises has simply collapsed on an annual basis for just five months. So, steelmaking reduced by 18%, iron smelting - by 22%, rolled metal - by 20%.

At the same time, the industry is at the dawn of a new era. Since May 2017, only those enterprises located in the territory, those under Ukraine's control are included in the statistical indicators.

"What is left of the national metallurgy after the blockade? Six plants: ArcelorMittal in Kryvyi Rih, Mariupol metallurgical complexes Azovstal and MMK named after Ilyich (MMKI), Dnipro Metallurgical Plant, Zaporizhstal and Interpipe Stal. The rest is left there," said a representative of Ukrmetallurgprom.

Related: Voice for all: Two sides of Donbas trade blockade

At the same time, enterprises that have remained "here" show a generally good production dynamics - steel output fell only 7%, cast iron - 10%, rolled products - 10%. At the same time, there are all the prerequisites for improvement. In May, Ukrainian metallurgists showed production growth for the first time since January, that is, in the post-blockade period.

Mariupol assets of Metinvest have increased and will continue to increase the capacity. Avdiyivka coke plant, which supplies MMKI and Azovstal with coke, resumed the work of the second production wing after completion of the power transmission line construction from the territory under Ukraine's control.

Related: Donbas trade blockade: pros and cons

At the same time, Ukrzaliznytsia cannot yet provide passage through the Kamysh-Zorya-Volnovakha, the only railroad to Mariupol, a sufficient number of the trains. This does not allow to increase the supply of coke from Avdiyivka and iron ore from Kryvyi Rih to increase the capacity utilization of the Mariupol metallurgical plants.

The most negative factor is the lack of clarity in the issue of restarting the idle Dnipro Metallurgical Plant. Second month in a row, restart of its capacity has been shifting (by the beginning of June).

Related: Estimated losses of Metinvest due to blockade changed downwards from 30 to 10 million dollars

Previously, its owner, Industrial Union of Donbas (IUD) corporation, did not have enough working capital. Now, after refunding about UAH 1.5 billion VAT, the issue of supplying raw materials remains unresolved due to the inconsistency of the procedure for repayment of its debts.

Free-wheeling slice

As a result of the transport blockade, three enterprises of the industry remained in ORDLO: Yуnakiyevo and Donetsk Metallurgical Plants, as well as Alchevsk Iron and Steel Works.

The terrorist organizations "DPR" and "LPR" immediately announced the "nationalization" of these assets, but at least until May they stood idle. The main problem was the supply of iron ore. Previously, it was supplied from Kryvyi Rih.

In April, Russia and its curators had to work out alternative ways of supply.

Related: Donbas blockade: Yenakiieve Metallurgical Plant shuts down

In fact, there is no enough information on what is happening in the uncontrolled territory. In addition, these short facts are often clastic. Nevertheless, it is known that the Kremlin appointed the Vneshtorgservis CJSC representative from South Ossetia as the curator of these enterprises.

It is difficult to say who stands behind this structure, but, according to, it belongs to the businessman Serhiy Kurchenko. Moscow has entrusted him the mission of supplying metal plants with ore, selling metal products to Russia and to some export markets.

The scheme of ore supply is as follows: Russian miners ship raw materials not directly to ORDLO, but to Rosrezerv, which distributes them to enterprises in the occupied territories.

At the same time, Russian Railways provided a 25% discount for transportation of iron ore from Cherepovets-2 station to Uspenskaya station in Rostov region and from Kostomuksha-tovarnaya station to Liski station in Voronezh region.

Related: EU reaction on Donbas railway blockade

These stations serve assets of the Russian company Severstal, where Kovdorsky GOK EuroChem, located in the Murmansk region, can also bring raw materials.

Related: Donbas blockade to affect GDP in 2017, - National Bank of Ukraine

Restarting capacities

At the end of April, Yуnakiyevo Metallurgic Plant blew blast furnace No. 5. The leader of the Donetsk terrorists Alexander Zakharchenko took part in this procedure. He stated that 70% of the products would be used "for the domestic market."

According to unofficial information, in May the metal plant's demand for ore, 160 thousand tons per month, was completely closed. However, the company has launched only one blast furnace because the problem of selling products has not been solved. Sorted and shaped rolling is exported to the Rostov region, but there it lies in warehouses without traffic.

Nevertheless, Yуnakiyevo Metallurgic Plant curators expect to increase output of pig iron in June to 75 thousand tons compared to 27 thousand tons in May, with a corresponding increase in the casting of steel. Donetsk metallurgical plant has resumed its work: it has launched the blast furnace No. 2, which has been in reserve for more than six months. While the unit operates at reduced capacity - the volume of smelting of pig iron did not exceed 20 thousand tons. In June, it is planned to bring the blast furnace to full load - 50 thousand tons.

Related: Donbas blockade fervor: Authorities believe it would end in a month or so

However, this would depend on whether Donetsk Metallurgic Plant would is able to sell products on foreign markets. According to traders, Donetsk pig iron appeared on export after a three-month break. One Turkish buyer ventured to buy about 5 thousand tons of this product. Some resources reported on the supplies to Italy. At the same time, products from the port in the Rostov region come with a significant discount. For example, the market quotes of pig iron are around $ 350 per ton, while the goods of Donetsk Metallurgic Plant are traded at $ 330 per ton at best.

Dumping is associated with reputational costs, and the buyers, agreeing to buy goods from a territory beyond Ukraine's control, will have to go through it. Even less information is available about Alchevsk Iron and Steel Works, which, despite the declared "nationalization", still belongs to the Industrial Union of Donbas.

At least, the corporation did not announce the loss of control over this asset from the moment of stopping the Alchevsk cluster of enterprises in mid-February. Resumption of production has not been reported.

Related: World's media write about Ukrainian trade blockade with Donbas

Preservation of ownership rights for Alchevsk Iron and Steel Works can be linked to the fact that half of IUD’s shares are controlled by structures related to Vnesheconombank of the Russian Federation. Therefore, it is illogical for the Kremlin to select and transfer to the management of Kurchenko what is already owned by the Russians.

In addition, for IUD, it is critically important to reach an agreement with suppliers of raw materials on the format of launching Donetsk Metallurgic Plant in the controlled area, and only then to address the problem of Alchevsk. Although the Alchevsk Iron and Steel Works is important for the corporation, because it can produce steel semi-finished products needed by the European rolling mills of IUD in Poland, Hungary, and the Czech Republic. 

Related: Donbas trade blockade epilogue: Who would incur most losses

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