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Ukraine Metals Report Q4 2011
Business Monitor International, Nov 2011, Pages: 51
Business Monitor International's Ukraine Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Ukraine's metals industry.
BMI maintains its view that Ukrainian steel production growth will be more subdued in 2011 following strong growth in 2010, while cost pressures caused by the rising price of gas and scrap will continue to erode margins. Moreover, output levels in Ukraine will remain significantly below pre-crisis levels.
According the latest data from Worldsteel crude steel production in Ukraine increased by 8.0% in the first eight months of the year, rising to 23.2mn tonnes (mnt). Meanwhile, the country also registered an 11.6% rise in finished steel products over the same period to 20.3mn tonnes. The increase in output was driven to a large degree by Metinvest and its subsidiaries, which account for slightly less that 35-40% of the country's output capacity.
Indeed, news reports showed that Metinvest increased crude steel output by 8.0% and finished steel production by 6.0% during the period between January to August 2011. In August alone the country recorded output of 2.9mnt tonnes of crude steel and 2.5mnt of finished steel products, marking growth of 8.3% and 4.6% y-o-y, respectively.
While the strong growth in output for the first eight months of the year follows the rebound in 2010 (12.7%) when output reached 33.56mnt, steel output in Ukraine remains well below pre-crisis levels. Although production growth slowed in March and April, it has picked up since, averaging 11.2% in May, June and July.
The cost of steel production in Ukraine grew 40% y-o-y to US$137/tonne by the end of 2010. Domestic iron ore prices grew 96%, coal increased 77% and scrap rose 55%. Early in 2010, Metallurgprom warned that the country's steelmakers were likely to see their annual production costs increase by a further UAH3.4bn (US$427mn) due to higher natural gas prices, iron ore and coking coal prices.
Evidence of this is available already. In terms of profitability, the Ukranian metallurgical industry posted an overall loss of US$106mn in the first seven months of the year, according to the State State Committee of Ukraine (Ukrstat). Indeed, acccording to the agency, 57% of the companies recorded a combined profit of US$706mn, but was offset by a loss of US$812mn by the remaining 43% of the companies. The decline in profitability is likely on the back of a combination of slightly weak domestic and international demand as well as weaker prices.
Although BMI expects a full recovery in aluminium by 2015, this is dependent on RusAl maintaining its operations in Ukraine. Debt-ridden RusAl indicated even before the financial crisis that it may close the 130,000tpa Zaporizhsky Alyuminievy Kombinat (Zalk) smelter as it is unprofitable due to high electricity prices. Output from the smelter has declined from 112,800 tonnes in 2008 to 50,000 tonnes in 2009 and just 25,000 tonnes in 2010.
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