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25 September 2015
Olexander Martynenko

Steel production growth in August: first signs of recovery?

According to Metal Courier, steel production in Ukraine grew by 8.3% YoY, to 1.9mt, or up to 61,700t on average per day, in August. In 8M15, crude steel production fell 24% to 15mt. At the same time, the YoY growth in steel output in August occurred for the first time since May 2014, signaling hope for continued positive momentum in the future. If Ukrainian steel mills manage to maintain August production levels, overall Ukraine can make 23-24mt in 2015, 12-16% less than in 2014. Still, this would also mean an increase in average daily steel output from 62,000t in 8M15 to 63,000-66,000t in 2015.

 

 

The growth of steel production in August became possible mainly due to resumed production at steel mills located in the territories lost by Ukraine during the Donbass conflict. These plants include first of all Yenakieve Steel controlled by Metinvest Holding (with 266% YoY growth in August output) and Alchevsk Steel (with 128% YoY growth) controlled by IUD coroporation. Other plants of Metinvest also demonstrated significant growth, as well as another asset of the IUD, Dniprovsky Steel.

 

Since the end of July 2014, following active military hostilities, Donbass’ biggest railway junctions, Donetsk, Yasinovataya and Debaltseve suffered significant destruction, while substantial damage was also caused to other parts of the region's transport infrastructure. As a result, the conflict breached the traffic flows for the key steelmaking raw materials, iron ore and coking coal, and forced steel mills in the occupied territories to shut down. Significant disruptions in production also occurred at steel mills of Mariupol, namely Azovstal and Illich Steel.

 

A year later, the growth in production resumed due to the partial restoration of transport routes and certain adaptation of metallurgical holdings’ logistics to the realities of the military conflict.

 

To keep positive growth in steel production in Ukraine, steel mills in the occupied territories should maintain production at levels at least close to those set in August. The key risk is not only the resumption of military hostilities, but also the aggravation of the political and economic confrontation between Ukrainian authorities and the leadership of occupied territories in Donbass. For example, in early September, rail supplies through the battle frontline stalled for a few days because of the unsettled relations between the Ukrzaliznitsia and Donetsk Railways that are controlled by the occupation authorities. In general, we believe the chances of stabilizing transportation are high in view of the strong dependence of steel mills in the occupied territories, and thus the dependence of those territories' economies, on the supply of Ukrainian raw materials, primarily iron ore. If steel mills can maintain August production volumes, Ukraine can make 23-24mt, which is 12-16% below the levels in 2014. However, this would also mean an increase in average steel output from 62,000t in 8M15 to 63,000-66,000t in total for the whole 2015.