Ukraine steel production falls 17% yoy in 2014

The Steelmaking Industry Association of Ukraine announced the nation’s steel output was 1.9 mmt in December (-28% yoy, +5% m/m). Annual steel production plunged 17% yoy to 27.1 mmt in 2014.

Roman Topolyuk: The warfare in the Donbas region – where half of Ukraine’s steel enterprises are located and some on occupied territory – is the main factor for the production plunge. Being located on occupied territory, Alchevsk Steel (ALMK UK) was the most affected, having stood idle since August. Yenakiyeve Steel (ENMZ UK), also on occupied territory, managed to restart operations in October and is ramping up production volume.

Two steelmakers located close to the frontline in Mariupol – Azovstal (AZST UK) and Ilyich Steel (MMKI UK) – had been operating at 60-70% of capacity since August until the December sabotage of a key bridge, disabling shipments of a major part of their raw materials and finished products.

Metinvest, the parent company of Azovstal and Ilyich Steel, is currently constructing a bypass route, but the production volumes of these two enterprises might be significantly limited in 1Q15 (the company hasn’t disclosed its estimate of expected production).

Fortunately for the Ukrainian economy, the other half of the steel industry, located in the Dnipropetrovsk and Zaporizhia oblasts, is operating at a high capacity load level. Should the armed conflict remain frozen at current tempos, with steelmakers retaining their current output levels or idling, Ukrainian steel production may fall another 15% yoy in 2015.