Iron and steel industry remains one of the most important economy sectors of Ukraine. According to the data of the Cabinet of Ministers, this sector provided 23% of all export income in the country in 2012. The  whole national economy depends on the condition and success of metal industry.

In the end of December, experts of the "Ukrpromvneshexpertize" center announced their annual metallurgic forecast. Thus, according to the report, in 2013 domestic steelmakers may improve the production by 3%, up to 33.7 million tons of crude iron. According to the center director Volodymyr Vlasyuk, recovery of the sector is possible even despite of weak market outlet and several domestic factors.

Year results

These factors include weakening of domestic demand for mill products (from 8.4 mln tons in 2011 to 8.3 mln tons in 2012). As for the export of metal products, it reduced by 15% in money terms. However, analyst Ruslan Pavlenko notes that regarding some subgroups the export increased. First of all, it concerns long semifinished products, the so-called square bloom. "For ten months of 2012 its export increased by 30% and made almost five million tons. The products go manly to Turkey, where the prices for domestic semifinished materials increased due to the price rise for scrap steel. Moreover, thanks to low freight tariffs, we were able to resume export to South-East Asia. However, the total weakness of the world metal market has reduced prices for square bloom as well: by the year end the price dropped by 12-15% comparing to the spring period," the specialist says.

Among other successes of 2012, "Delphica" project manager Oleksandr Krainykov mentions long mill products, namely construction longs. According to Krainykov's data, "export increased due to the increased demand in traditional for Ukraine markets, as Middle East (including Iraq) and CIS." As for flat mill products, exports decreased significantly. Its main part goes to Middle East, Russia and Eastern Europe.

In general, Vlasyuk reports, the share of the European Union in the structure of domestic metal export makes 28%, while the share of CIS - only 16%. "It means that the EU is more important for the industry than the Commonwealth. However, we need to continue diversifying export geography. Summarizing the results of 2012, Ukrainian metallurgists exported 22.6 million tons, while before the crisis the figures showed more than 28 million tons. In particular, 4.7 million tons were exported in the EU (6.6 mln tons in 2011) and 2.3 million tons went to Asia (3.2 mln tons in 2011)."

Manager of the consulting department of Ernst & Young in Ukraine Pavlo Kolesnyk adds that following the results of 2012 the prices for domestic metal production dropped by 10-15% on average. According to the economist, competing with regional producers Ukrainians suppliers are forced to reduce prices not only for China, but also for Turkey. "The advance of production costs and cheapening of end products force metallurgists to work with minimal profitability or even at the level of net cost," Kolesnyk states.

What to expect

In turn, Vlasyuk notes that the expected improvement in 2013 will take place thanks to the cheapening of iron ore and coking coal on global market, while the demand for metal will remain weak. "It will be possible to keep production costs at the minimal level of 3%regardless of expected cheapening of mill products by 5-7%. Thus, the average cost of hot-rolled coil will drop by 5.8% to $535 per ton and the price for square bloom will lower by 5.4% or to $530 per ton. At the same time, it will be possible to improve sales on domestic market (by 300 thousand tons approximately or up to 8.6 million tons for the year) thanks to refurbishment of Ukrzaliznitsya objects (cars and railway tracks) and metallurgic and other enterprises (construction and reconstruction), works of the housing complex (replacement of pipes), construction of new terminals in ports," the analysts says.
As for export itself, "Ukrpromvneshexpertize" center admits a small growth is possible in 2013, by 500 thousand tons, which can be considered as a success. According to Kolesnyk, in the fourth quarter of 2012 China started realization of the state program on infrastructure construction thanks to which Ukraine may increase metal export. Though Ukrainians metallurgists still cannot reach past volumes of export to China (2003-04 and earlier), for nine months of 2012 Ukraine sold metal products costing $18.7 million, which is nine times more than in 2011.

Experts presume that in 2013 the world metallurgy industry will suffer low profit margin or even losses. There can be a slight improvement in the first quarter thanks to increased demand among consumers, who need to refill stock reserves, but by summer, the situation will again take a turn for the worse. According to the specialist, "domestic metal industry has managed to survive so far thanks to such bonus as free access to own ore, while rivals have to buy it at high prices. However, the prices for ore at the world market will go down this year, and this bonus will not make much difference for Ukraine. It means that metal industry of Ukraine faces difficult times."

Nevertheless, Pavlenko appears optimistic: Ukrainian metallurgic holdings still have their channels of export outlet and will use them in 2013 with a view to post-crisis recovery and expansion. It means that Ukraine's economy will have stable enough metallurgic basis this year, which will help to predetermine further economic stabilization in 2014.

Andriy Boyarunets


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