Metallurgy of Ukraine: The past and future of the National Economy

Мет?нвест-СМЦ\Metinvest-SMC Metinvest

Hi everyone, my name is Bogdan Perfilov, I am a sales manager in the construction sector of Metinvest-SMC. My article is primarily about how important it is to develop the steel industry in Ukraine, to try to restore metal exports to high levels and sell it on the domestic market. In the conditions of war it is very important, as we have a very serious and responsible mission to rebuild our country. Here you will not hear exclusive facts or terms about metallurgy, this article is more to motivate people to help the country in such a difficult time and do everything to ensure that victory and peace in Ukraine, come as soon as possible.

The mining and metallurgical complex has traditionally been the backbone of the national economy. Metallurgical enterprises provide jobs for hundreds of thousands of Ukrainians and billions of hryvnias of tax revenues to the state budget.

In recent years, it has become fashionable at various levels of government to talk about how successfully Ukraine is turning into a digital state and what prospects the development of the IT industry opens for our country. There are about 200 thousand IT specialists in Ukraine, and the sphere of export of digital services annually brings about 5 billion hryvnias to the state budget.

And although these figures look quite optimistic, we cannot close our eyes to the fact that the largest "breadwinners" of the state treasury and city-forming enterprises of Ukraine are not IT-companies, but representatives of the real sector of the economy.

One of such pillars, on which the Ukrainian economy has historically been based, is the metallurgical sector.

Before the war, Ukraine was consistently among the world's top ten steel producers with production of more than 30 million tons per year, while at the end of 2020, the smelting of these products by domestic plants has fallen to about 20 million tons.

However, despite this, the mining and metallurgical complex today remains one of the main sectors of the state economy. It occupies a quarter of all industrial production of our country, providing a tenth of GDP, and about a third of all foreign currency earnings.

"The mining and metallurgical complex has been and remains the backbone of Ukrainian industry. This is probably the only sector of our economy, which has preserved labor collectives, production volumes, despite the crises that this industry has experienced in recent years", - says the Chairman of the Federation of Metallurgists of Ukraine Sergiy Belenkyi.

In addition, the industry is a donor of the state budget and the main employer in Ukraine, providing more than 200 thousand jobs for Ukrainians with higher salaries than in other industries.

There are five big players in Ukraine's steel industry. They are the largest private company Metinvest, which turned 15 in June 2021, ArcelorMittal Kryvyi Rih, DCH, Interpipe and Ferrexpo. I was at a Ferrexpo production facility in May 2022, after a full-scale Russian invasion, and the scale is frankly staggering too.

"Metinvest provides jobs for more than 80 thousand people and helps generate 8 percent of the country's GDP. Over the 15 years of its operation, Metinvest has produced 142 million tons of steel, which would be enough for 20 thousand Eiffel Towers or 10 thousand Darnitsa bridges.

In addition, during this period the company paid 165 billion hryvnia in taxes and invested more than 10 billion dollars in the country's economy. At the end of 2020, Metinvest transferred more than UAH 22 billion of taxes and fees to the budgets of all levels, thus becoming one of the largest taxpayers in the country.

A large number of metallurgical products produced in Ukraine were mainly exported, which makes the Ukrainian mining and metallurgical complex unique in the world, as in the main countries with developed metallurgy the situation is fundamentally opposite - for metallurgical companies in Japan, USA, the main market is the domestic market.

This situation has both advantages and disadvantages. On the one hand, export orientation has made the domestic mining and metallurgical industry dependent on the world market conditions, and thus in many respects the economy of the whole country, as metallurgy is the basis of economic stability of the state.

On the other hand, the metallurgical industry's contribution to the balance of payments and foreign exchange inflow can hardly be overestimated. For example, ferrous metal exports alone will bring Ukraine 7.7 billion dollars in 2020, which is the second figure after grain exports.

It is also a positive fact that Ukrainian companies have managed to gain a foothold in foreign markets, supporting the image of our country as a manufacturer of quality products.

For example, the largest skyscrapers in London and New York are built of Metinvest metal. About 6 thousand tons of Ukrainian steel were used for construction of one of the tallest buildings in Europe - London 72-storey skyscraper The Shard. Metinvest's steel is also used to build the largest bridges, stadiums, liners and infrastructure facilities in the world. Moreover, it was the Ukrainian metal that was chosen by the Italian company Cimolai for the construction of a hundred-meter safety arch over the 4th power unit of the Chernobyl NPP, because of the guarantee of the highest quality.

Challenges and risks with negative impact on MMC production volumes in 2023

• Intensification of hostilities near production facilities - The main risk is the possible intensification of hostilities, rocket and artillery attacks on areas where operating enterprises of the industry are located. This may result in damage to production facilities and energy infrastructure, as well as suspension of logistics.
• Logistical difficulties - Logistical challenges remain the same as in 2022: new logistics routes are becoming longer and more expensive, which limits exports.Despite the best efforts of "Ukrzaliznytsia" and the Ministry of Infrastructure, the bottleneck remains western rail and, to a lesser extent, road crossings, as well as access to European seaports.
• Shortage of staff - The enterprises of the industry face the problem of staff shortage. Some employees became internally displaced persons or went abroad. A considerable part is subject to mobilization. Companies are experiencing difficulties or may experience them, especially when resuming production. In part, companies in the industry are solving their staffing problems through external recruitment, transfer of employees from other assets, or internal recruitment within a single enterprise.

Potential of the mining and metallurgical complex of Ukraine

Despite the war and loss of capacity, strategic investors see potential in Ukrainian metallurgy, and the post-war "green metallurgy" industry is capable of attracting tens of billions of dollars of investment. Ukrainian metallurgy is expected to be modernized to the best standards in the post-war recovery. Ukraine's post-war reconstruction will require a huge amount of metal products. Therefore, the industry is already in need of support in the form of opening ports for exports, extension of the regime of lifting trade restrictions in the markets of developed countries, reduction of logistics and energy tariffs, etc. The industry enterprises can restore production, which will automatically increase foreign currency earnings and budget revenues, contribute to the strengthening of the hryvnia exchange rate and employment growth, and create a positive multiplier effect for other areas of the economy.

Thank you very much for taking the time to read this article. I hope you found it interesting and informative.

Peaceful skies to all and have a good day.