Logistics "perfect storm" pushes Ukrainian metallurgy to the brink of shutdown
Most Ukrainian mining and processing plants may partially or completely stop due to the impossibility of full-fledged maritime exports, rising transportation costs, and capacity shortages on alternative routes. The Poltava Mining and Processing Plant is already operating at a minimum level and may be shut down, said Oleksandr Kalenkov, President of Ukrmetalurgprom.
In a column for GMK Center he noted that the Poltava Mining and Processing Plant is currently shipping products to a warehouse. If the situation does not change within a few weeks, the plant will begin conservation.
According to Kalenkov, the Southern Mining and Processing Plant was stopped a few weeks ago, and the Ingulets Mining and Processing Plant has been idle for a long time. Further growth in logistics costs and a lack of transport capacity may lead to reduced operation for most industry enterprises.
Alternative routes are too expensive
Companies estimate that transporting pellets to the Polish port of Gdansk will cost $50-60 per ton. This level of expense, according to the head of Ukrmetalurgprom, makes exports of iron ore through Northern European ports economically unviable.
The route through the Romanian port of Constanta also significantly increases transportation costs per ton. Moreover, the port is congested and operates under strict ship reception schedules, so it cannot handle the volumes Ukraine needs to ship out.
The Danube ports, according to Kalenkov, are currently unable to operate fully due to critically low water levels. Even after transportation resumes, they can ensure only about 10% of the cargo flow that previously passed through deep-water Black Sea ports.
Steel exports may fall by more than 50%
The situation with finished steel products remains somewhat better than with iron ore raw materials. However, at the western border crossings, steel cargoes compete for throughput capacity with agricultural and other sectors' products.
According to the president of Ukrmetalurgprom, losses in exports of steel products may exceed 50% of current volumes. High-margin goods, such as pipes and railway wheels, will be able to preserve part of the shipments, although their delivery costs will also rise.
The reduction in metallurgical production will further reduce domestic demand for ore. As a result, a significant part of mining capacity may be idle.
Industry seeks review of Ukrainian Railways tariffs
An additional burden for the industry is the 30% increase in Ukrainian Railways freight tariffs. Kalenkov called on the government to cancel the indexation and to cover the railway company's deficit with budget funds or assistance from international partners.
He also proposed reviewing rates for shipments to western border crossings. The distance to them is about one and a half times greater than to Odesa ports, and after the indexation, internal logistics costs, according to his calculations, grow by about 80-90% overall.
The industry is simultaneously pressured by high electricity prices, a reduction in EU steel quotas, increased railway tariffs, and the blocking of maritime exports. Ukrmetalurgprom believes that mass shutdowns can only be avoided with prompt intervention by the government and international partners.
