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Ukrainian iron ore industry is in crisis

The majority of the steelmaking facilities were destroyed during the war in the Donbass and the Northern Military District, and metal production in Ukraine itself decreased. As a result, there is now an enormous surplus of iron ore on the market in this country. 

Ukrainian iron ore industry is in crisis

The international mining and metallurgical company Metinvest owns nearly 70% of Ukraine's iron ore production capacity, making it one of the top ten iron ore producers in the world. Thus, it owns the largest mining and processing facility in Europe, PJSC "Northern GOK," which creates iron ore concentrate and pellets. 

Until mid-March 2017, Metinvest sold a significant part of this volume on the domestic market of Ukraine, providing this type of raw material to Azovstal, Mariupol Metallurgical Plant, Zaporizhstal and Enakievsky Metallurgical Plant; "Alchevsk Metallurgical Plant" and "Dneprovsky Metallurgical Plant; as well as Donetskstal-metallurgical plant. And the group sold the remaining most of the iron ore mainly to the far abroad markets, delivering it there by sea through Ukrainian ports.

However, by the end of February 2022, the number of consumers of iron ore produced by Metinvest within Ukraine had decreased to only two steel enterprises. Moreover, due to the Special Military Operation, the total volume of metal production at both plants decreased by more than 2 times. At the same time, all Ukrainian ports through which Metinvest could reorient the released volumes of iron ore for export turned out to be unavailable. For these reasons, in March, the average volume of loading of iron ore capacities in Ukraine as a whole, compared with the pre-war period, also decreased by about 2 times.

However, even in the spring months, due to the rather favorable conjuncture of foreign markets and thanks to the construction of new logistics routes, the group managed to send excess volumes of iron ore for export. According to the company, 8.8 million tons of iron ore were produced in the first half of 2022

By mid-June, the situation on the foreign iron ore markets had already started to deteriorate, and as a result, only 30% of the three biggest mines owned by Metinvest were operating at full capacity. The production of iron ore had become wholly unprofitable due to the decline in iron ore prices on the global market and a significant increase in the cost of product transportation.

Thus, the Central GOK was the only iron ore asset that Metinvest had operating from mid-August to early November. In January-September 2022, the volume of concentrate production at all its enterprises, with the exception of YuGOK, decreased by 59% compared to the same period in 2021, to 9.7 million tons. In other words, if the company produced 8.8 million tons of this kind of raw material in the first half of 2022, it produced only 900,000 tons in the third quarter.

Another factor contributing to this drop in production in addition to the unfavorable market conditions and exorbitant transportation costs, there was a power shortage brought on by the Russian Federation's missile strikes in early October

Metinvest's iron ore segment will, at best, be able to work only at the lowest speed, and in the worst case, it will be completely stopped, as long as the entire set of negative factors - insufficiently high prices for iron ore on foreign markets, the inaccessibility of Ukrainian ports, and the worsening electricity shortage in the country - remain in force. However, it is still unclear to what extent the group will be interested in keeping such a sizable amount of unused raw material capacities.


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