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Ukraine’s iron and steel industry in tough shape due to war: NPR

Workers at the Zaporizhstal iron and steel works on July 22 in Zaporizhzhia, Ukraine.

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Workers at the Zaporizhstal iron and steel works on July 22 in Zaporizhzhia, Ukraine.

Jason Beaubien/NPR

ZAPORIZHZHIA, Ukraine — In this eastern Ukrainian city, a Soviet-era mural stands boldly in front of Zaporizhstal iron and steel works.

The mural depicts muscular ironworkers handing a freshly forged sword to equally muscular soldiers rushing into battle. Today, however, Ukraine’s iron industry is in rough shape due to the war itself.

For most of the 20th century, a thriving industrial heart throbbed in central and eastern Ukraine, fed by abundant coal mines and great, big steel mills. In several parts of the country, these plants still dominate the landscape, the local economy and even civic identity. Iron and steel production remains Ukraine’s second leading industry after agriculture. And before the Russian invasion this year, it was a major supplier of iron ore to Turkey, China and parts of the EU.

While the war with Russia has raised serious international concerns over Ukraine’s huge production of wheat, corn and sunflower oil – normally its biggest exports – in global markets, the invasion has been even more devastating for the country’s metalworks. The export of bulk iron ore, for example, which is shipped by the ton in massive cargo ships, has stopped entirely from Ukrainian ports.

Only half of the plant’s blast furnaces are lit

Inside the vastness Zaporizhstal industrial connection, the factory’s giant blast furnaces usually convert tons of raw iron ore into a stream of molten orange pig iron.

But Serhiy Safonov, the manager of the blast furnace shop, says only two of the factory’s four blast furnaces are currently operating.

Workers secure and pack rolls of steel plate at the Zaporizhstal PJSC rolled steel plant in Zaporizhzhia, Ukraine, on June 30.

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Workers secure and pack rolls of steel plate at the Zaporizhstal PJSC rolled steel plant in Zaporizhzhia, Ukraine, on June 30.

Julia Kravchenko/Bloomberg via Getty Images

The furnaces are designed to run continuously, he says, and would normally never be shut down during their 30-year lifespan. But earlier this year, all four furnaces had to be dialed back to what Safonov calls a “low idle” when Russian troops threatened to advance on Zaporizhzhia. Moscow’s forces never reached the area, but tens of thousands of people fled. Much of the city shut down and the factory, which once employed 11,000 workers, is now running at less than 50% of capacity.

Yuriy Ryzhenkov, CEO of Metinvest Group, which owns the Zaporizhstal plant, says they have enough raw materials inside Ukraine to keep pumping out coils of sheet metal and bars of cast iron. The problem is that they cannot get these products on the market. Metinvest and other Ukrainian steel producers now have huge backlogs of processed metal in Ukrainian warehouses.

“The biggest difficulty is the logistics,” says Ryzhenkov. Traditionally, all Ukrainian steel companies, of which Metinvest is the largest, export their products via Black Sea ports or Sea of ​​Azov ports. “At the moment,” says Ryzhenkov. “The ports have been blocked by the Russians.”

There is no agreement on the shipment of steel

While a few ships with grain have been allowed to leave Ukraine recently, there is still no agreement to allow it ships sailing other goods for transit through the Black Sea.

Some steel and iron ore is shipped by rail to ports in Poland and Romania, but this is a slow and expensive process. In addition to the logistical challenges, Ukraine’s railways run on a different gauge than Western Europeans, which means that goods must be transferred at the border.

“This was never intended to be the main export route for the steel industry in Ukraine,” says Ryzhenkov.

However difficult it is to get steel to customers in Turkey, Italy and North Africa, at least the Zaporizhzhia plant is still in Metinvest’s hands.

Russian and Moscow-backed separatist forces seized the company’s two steel plants in Mariupol. This includes Azov Valley facility where Ukrainian soldiers made a final showdown with the Russian occupation of the city. Russian forces blew the mill apart to capture it and finally take full control of the southern port city.

While Azovstal is now better known, it was actually the smaller of Metinvest’s two steelworks in Mariupol. The other, Ilyich Iron and Steel Works, spread over more land and, with 14,000 employees, had more workers than Azovstal. Ilyich was seized by Russian troops in April. Ukrainian fighters held out at Azovstal until mid-May.

A Russian soldier patrols the destroyed part of the Ilyich Iron and Steel Works in the Ukrainian port city of Mariupol on May 18.

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A Russian soldier patrols the destroyed part of the Ilyich Iron and Steel Works in the Ukrainian port city of Mariupol on May 18.

Olga Maltseva/AFP via Getty Images

“At some point we will return to Mariupol and see how the Azovstal and Ilyich mills are doing and see if they can be restored,” he says.

The plants were insured, “but the insurance typically doesn’t cover wartime risks,” he says. “And that’s the big problem.”

The company’s lawyers are looking at ways to file a claim against the Russian Federation for billions of dollars in damages, Ryzhenkov says — but shrugs it off as a long shot.

There is no final tally of economic damage in Mariupol, but the human suffering after months of bombardment has been extensive. This is what Ukrainian officials say more than 20,000 civilians was killed in the Russian siege of the city. UN officials have documented a lower number of civilian casualties, but still estimate the number killed in the city are in the thousands.

With the city under Russian control, Metinvest has urged customers globally not to buy steel from Mariupol. The company says there is a “high probability” that the Russian occupation forces are selling some of the more than 200,000 tons of steel products Metinvest had stored at its two factories there.

Earlier this year, Metinvest paid its unemployed workers two-thirds of their wages, including at the Mariupol factories now controlled by the Russians. But in June, the company had to lay off thousands of workers.

With limited revenue, two of its largest factories gone, and few opportunities to export its industrial products to customers abroad, Ryzhenkov says that right now the company is only focused on survival.

“We make sure that everything that we still have control over, we keep intact,” he says.

“And we’re waiting for Ukraine to sort of win the war and take back what belongs to it.” But he is under no illusions that it will happen quickly.

Plants and raw materials are behind enemy lines

The challenges faced by Metinvest are the same for other Ukrainian steel producers and industrial companies, especially in the eastern part of the country.

The Soviet mural in front of the Zaporizhstal Iron and Steel Works in Zaporizhzhia. The mural depicts iron workers handing a sword to soldiers.

Jason Beaubien/NPR


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Jason Beaubien/NPR

The Soviet mural in front of the Zaporizhstal Iron and Steel Works in Zaporizhzhia. The mural depicts iron workers handing a sword to soldiers.

Jason Beaubien/NPR

“There are a number of really problematic trends that will intensify over time,” says Andrew Lohsen, who until last year was based in Ukraine as a monitor and analyst for the Organization for Security and Co-operation in Europe.

“One of them is the fact that these industries are very dependent on coal that is mined behind enemy lines now or close to the fighting.”

He says Ukraine’s industrial capacity is severely strained right now because so much of its manufacturing sector is in or close to the intense fighting in eastern Ukraine.

This has been part of the problem for Metinvest. Before 2014, Metinvest was based in the eastern Ukrainian city of Donetsk. Once Russian-supported separatists captured Donetsk in 2014, Metinvest moved its headquarters to Mariupol, a city on the Sea of ​​Azov. This year, when Russia seized Mariupol, the headquarters were displaced again, this time moved to the capital, Kiev.

Ryzhenkov sounds tired at times talking about the effects of the war, export bottlenecks, assets stolen by the Russians, layoffs. But when asked whether the company can somehow restart operations in Mariupol or elsewhere near the fluctuating front lines, he quickly answers.

“The position of our shareholders is very clear in this area,” he says. “We will not operate in any occupied territory, under any occupation regime.” He insists they will only operate in areas under Ukrainian control.

Hanna Palamarenko contributed to this report.

Ukraine’s iron and steel industry in tough shape due to war: NPR

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