Europe is fighting to secure steel after Russia’s invasion of Ukraine

Prior to Russia’s invasion of Ukraine, the Azovstal steel plant in Mariupol was a major exporter, and its steel was used in landmark buildings such as the Shard in London.

Today, the huge industrial complex is a symbol of Ukraine’s persistent resistance, bombed by Russia as the last part of the city still in the hands of Ukrainian warriors.

While Azovstal remains under intense attack, its owner Metinvest, the country’s largest steel producer, has managed to resume production elsewhere. These are the first steps towards restarting the country’s iron and steel industry, which – including supply chain accounts – accounts for almost 10 percent of gross domestic product and employs half a million people.

ArcelorMittal, the world’s second-largest steel producer, which owns a large plant at Kryvyi Rih in the south, has also been able to resume work after the industry almost came to a standstill when the invasion began in late February.

However, volumes are much lower than they were, and while some exports have been restarted, there are major logistical challenges, ranging from the disruption of ports to the Russian missile attacks on the country’s railway network.

The loss of supplies has been felt across Europe. Russia and Ukraine are among the world’s largest steel exporters. Before the war, the two together accounted for about 20 percent of the EU’s imports of finished steel products, according to the industry’s trade body Eurofer.

A worker processes liquid iron in a steel foundry at ArcelorMittal’s Kryvyi Rih steel plant in Ukraine © Ueslei Marcelino / Reuters

Many European steelmakers relied on Ukraine for raw materials such as metallurgical coal and iron ore. Ferrexpo, the London-listed Ukrainian miner, is a major exporter of iron ore. Other manufacturing companies imported slabs, semi-finished flat pieces of steel as well as rebar, rods that were used to reinforce concrete in construction projects.

Russia’s invasion initially disrupted supplies and forced customers to buy products from elsewhere.

Yuriy Ryzhenkov, Metinvest’s CEO, said the company typically exported about 50 percent of its products to the EU and the UK. “It’s a significant problem, especially for countries like Italy and the UK. [Many] of their supplies of semi-finished products came from Ukraine. “

Italy’s Marcegaglia, one of Europe’s largest steel processors and a long-standing Metinvest customer, is among those who have had to fight for alternative supplies. The company imported on average between 60-70 percent of its plate from Ukraine.

“A situation arose with almost panic [in the industry]”Many commodities became difficult to find,” said CEO Antonio Marcegaglia.

Despite initial supply concerns, the company was able to keep production going at all of its factories, finding alternative sources in Asia, Japan and Australia.

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Other companies also found new suppliers, including in Turkey. But the extra costs have been significant because prices rose after Russia’s invasion. “The problem is the spill-over effect, where prices are being pushed up,” said a steel chief in the UK.

In parts of Europe, hot-rolled broadband, a widely traded commodity used in manufacturing and often seen as a benchmark for steel prices, jumped from € 950 per tonne. tons just before the invasion to more than € 1,400 in April, according to price reporting agency Argus Media. It has since fallen back to trading at just over € 1,200 in early May.

“The immediate reaction to the invasion was a sharp rise in prices. People were very worried about the supply,” said Colin Richardson, head of steel at Argus.

But he added that afterwards: “The market started to slide pretty fast because people were panicking and buying an awful lot of material. The supply disruption has not been quite as dramatic as people had expected.”

If the initial worries about supplies have subsided, as companies including Metinvest and Ferrexpo have managed to keep some exports afloat and customers have found alternative supplies, worries about rising input prices – for raw materials and energy – have intensified.

Eurofer warned this month that steel consumption in Europe could fall by almost 2 percent this year due to soaring energy prices, ongoing disruptions in supply chains and the shock of the war in Ukraine. A market contraction – which would be the third in four years – looks likely, it says.

Despite the disruption of the war, the impact on European industry has been dampened by relatively high stocks of steel coming out of the pandemic, said Karl Tachelet, Deputy Director General of Eurofer. Some buyers have been able to stay out of the current crisis.

Cold rolled steel spools at ThyssenKrupp's factory in Duisburg, Germany
Cold rolled steel spools at ThyssenKrupp’s factory in Duisburg, Germany © Ina Fassbender / AFP / Getty Images

Aftermath of the war, however, had “manifested itself [themselves] in other parameters – a very sharp but temporary increase in prices “, said Tachelet.

“Commodity prices and energy prices have also exploded. It is a shock and they create immediate imbalances. ”

Cost inflation was the biggest concern right now, he added.

This is a view shared by ArcelorMittal, which this month said it expected steel consumption in Europe to fall by 2 to 4 percent this year due to rising inflation, compared to its previous forecast of zero to zero growth. 2 percent.

Arcelor’s CFO Genuino Christino said there had been some “supply-side tightness” which has created some difficulties for customers in finding [materials]”. He added that he thought this would be temporary but that it was “reasonable to expect that there will be some reduction in demand”.

The European Commission and the United States have both proposed suspending steel import duties from Ukraine for a year, but the big question is whether the country can continue to produce – and export.

“It all depends on the condition of the railways,” said the head of a European steel company sourcing iron ore from Ukraine.

“We have alternatives to iron ore and coal. Poland is still a major producer of coal. We can get iron ore from Australia, Brazil. But our priority, as long as it works, is to get our raw materials from Ukraine,” he added due to its proximity.

Metinvest’s Ryzhenkov said the company was working with the Ukrainian government to open new export routes to Europe.

“Yes, it’s hard,” he admitted. While some routes are easier to plan, others require investment in new track and loading terminals. The company, he added, had managed to send some materials to its plant in Bulgaria and to customers in Romania and Hungary. It recently completed its first shipment since the war – of iron ore en route to Algeria – through the Romanian port of Constanța on the Black Sea.

Despite the crisis, Ryzhenkov said he was convinced the company would be able to recover. It has also refocused some of its operations in Ukraine to manufacture steel plates for bulletproof vests for the military, as well as anti-tank traps to tackle Russian forces.

The company, he stressed, was still “functioning and functioning” and able to pay interest on its debt. Its assets in Europe and the United States, which had previously been integrated into its activities, are also gradually adapting as independent companies. Its steel rolling mill in Europe has started to procure plates from third parties to replace shipments from Ukraine.

The rating agency Fitch said this month that the company should be able to service payments on a $ 176 million bond maturing in April 2023, from “existing cash and incremental cash flows”, provided there are no significant negative changes in production and shipping levels.

Ryzhenkov said: “It will take us some time to reject the company… But it will be able to function in the long run.”

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