Ukrainian steelmakers have overcome the August decline in output

The power of the steelmakers, as it is known, in batches

Photo: Ivan Chernichkin

After the 30% collapse of steel production in August due to the military operations in the Donbas region and the shutdown of a number of enterprises metallurgists were able to reverse the trend and increase the output in September. Analyst at Eavex Capital Ivan Dzvinka says Ukrainian steelmakers produced 1.807 mn t of steel in September. “This is 2% more than in August, which, according to our estimates, amounted to 1.765 mn t,” said the expert.

September dash

Oddly enough, such growth was achieved despite the continued downtime at the Alchevsk Iron and Steel Works (ISD) and the Yenakiyevo Iron and Steel Works (Metinvest), which were shut down in August. The Ilyich Iron and Steel Works in Mariupol – the second largest manufacturer in the industry – reduced smelting by 7% in September. But that did not stop the other steel producers from achieving a positive output indicator last month.

The situation in the industry was improved by the Dzerzhinsky Iron and Steel Works (ISD) with the output increase at 30% (52,000 t). ArcelorMittal Kryviy Rih (AMKR) – 13% compared to August (+70,000 t). Smelting at Zaporizhstal saw an increase in output of 6% last month (+20,000 t). “This growth can be attributed to the location of the plants outside the Donbas region and seasonal recovery on export markets,” explains Dzvinka.

Who saved production

The Metallurgprom Association still has not published the results of the companies’ operation in September and over the first 9 months of this year, but Ukraine’s major steel producers have already reported their production levels over the period January – September 2014. Analysis of the provided data allows for dividing steelmakers into two groups. The first group includes manufacturers, which, in spite of the military operations in the east of the country, have managed to maintain production indicators at a level that is comparable to last year. The second group includes plants which have significantly reduced production of steel based on the results of the first 9 months of this year.

Dzvinka believes the first group includes such companies as the Zaporizhstal (+2% compared with the same period last year, the total of 2.5 mn t), the Petrovskiy DMZ (+2%, 664,000 t), as well as ArcelorMittal Kryviy Rih (-1%, 4.1 mn t) and the DSS (-1%, 136,100 t). Even though the latter two companies showed negative results based on the first 9 months of this year, they are currently ramping up production. This significantly mitigates the negative picture that appeared in the Ukrainian steel industry in August after the shutdown of the Yenakiyevo and Alchevsk steelworks.

Moving away from Russia

Enterprises in the first group managed to improve production dynamics not only due to their location outside the ATO zone, but also by reorienting their exports from the Russian market to other countries and regions. As a reminder, in January – August exports of steel products from Ukraine to Russia dropped by 33%.

For example, while the share of AMKR’s supplies to Russia accounted for 30% based on results of the first eight months of last year, in the same period in 2014 this share fell to 21%. At the same time, according to representatives of the company, in order to diversify its sales a decision was made to gain a foothold on market of Turkmenistan. In 2014, the plant supplied 80,000 t of its products to this country. AMKR re-bars are used in two major ongoing construction projects in Turkmenistan – namely, the construction of a new airport in Ashgabat and its infrastructure, the Olympic stadium and the infrastructure for the Olympic Village (in 2017 the country will host the 5^th Asian Games).

Over 8 months Zaporizhstal was able to reduce its dependence on the Russian market from 20% to 12%. Metinvest, which manages the plant, announced in early August that this enterprise was chosen by the group to increase production, while the rest of the company’s plants would reduce output or would simply be shut down.

ISD’s moves

The situation at Dzerzhinsky Steelworks owned by the ISD Corporation is quite interesting. Its decline in production based on the results of 9 months of this year is explained by the fact that the parent group redistributed some of its orders to the Alchevsk ISW in the first half of 2014. As a result, the latter showed positive dynamics in steel output in the first half of 2014 (+2%) in conditions of the overall decline in production in the national steel industry by 6%. For the same reason, in the first half of the year the Dzerzhinsky ISW showed a 23% decline in production.

Having reduced its production based on the results of January-September 2014, in September the Dzerzhinsky ISW increased its output by one-third compared to August. In September the company produced 227,000 t of steel and 255,000 t of rolled products, the company reported. At the same time, deliveries of raw materials to the plant improved. Obviously, ISD and Metinvest decided to compensate for the losses of enterprises located in the ATO zone with the help of additional loads at its other plants.

Who contributed to the decline?

The second group of iron and steel works, which showed a collapse of production in the first 9 months of this year, includes the Ilyich ISW in Mariupol (-23%, to 2.6 mn t), the Alchevsk ISW (-22%), the Azovstal ISW (-20%, 2.4 mn t), the Yenakiyevo ISW and the Dzerzhinsky ISW (-19% each) and Interpipe Steel (-24%). “The first four of these are located in the ATO zone, which on the backdrop of essential damage of the infrastructure of the region led to the decline in the supply of raw materials and even the shutdown of the Alchevsk ISW and the Yenakiyevo ISW in mid-August,” said Dzvinka. He believes that the decrease in the output of Interpipe Steel is the result of the increasingly unfavorable conditions on international pipe markets.