European steel review, Part 2: Interest in Central European steel sector from the East

Interest in Central European steel assets

Ukrainian group Industrial Union of Donbass (ISD) acquired Hungarian integrated flats producer Dunaferr in 2004. The group also acquired Polish integrated plate producer Huta Czestochowa in 2005.
The Polish plant entered bankruptcy in 2019, however, amid what it called increasing difficulties in the European steel market.
Liberty Steel subsidiary Sunningwell leased in 2019 the plant from Czestochowa’s bankruptcy trustee. In 2020, it won a tender to purchase the plant. Polish media noted in October, however, that the plant would remain leased until mid-2021.
Czestochowa is now operating, an administrator for the plant confirmed to MetalMiner. However, she declined to indicate what shops were operating or at what percentage of capacity.

Steel situation in Ukraine

One difficulty Czestochowa faced was reportedly due to the armed conflict in 2014 between Ukrainian forces and Russian-backed rebels in eastern Ukraine, resulting in creation of the breakaway Luhansk People’s Republic and the Donetsk People’s Republic, a November 2014 report in Polish media stated.
ISD subsequently lost control of its slab producer at its Alchevsk plant, which is in Luhansk People’s Republic, and from which it sourced slabs for rolling at Czestochowa.
Donetsk region, once Ukraine’s industrial heart and the location for the majority of steelmaking and rolling assets, is now the within the breakaway and unrecognized Donetsk People’s Republic. The republic contains Donetsk Steel, integrated metal and mining group Metinvest’s Yenakievo and Makeyevo plants and the Khartzysk pipe plant.
Reports of low operating percentages against capacities, industrial action by workers over unpaid back salaries and out-of-date equipment are also coming out of steelmakers in the Donetsk People’s Republic, sources told MetalMiner.
“Nobody knows what’s going on there,” a second analyst said.

While the plants are still exporting finished materials, shipments are not leaving the area via the port of Mariupol as they did before the conflict started. Now, shipments are departing from Russian ports such as Novorossiysk.
Integrated metals and mining group Metinvest acknowledged in 2017 that it lost control over two steelmaking plants in Donetsk and the Khartzysk pipe producer.

Elsewhere in Ukraine

The situation for steelmakers in the rest of Ukraine is notably different, however, thanks to demand from export markets in Europe, Asia and the Middle East/North Africa regions.
In fact, mills in Ukraine are operating at 75% of their total capacity of 2.5 billion tpy crude steel capacity. That figure does not include either Donetsk People’s Republic or Luhansk, the second analyst stated.
Metinvest also reported Nov. 3 its nine-month crude steel production from the plants totaled 6.15 million tonnes from its Azovstal and Ilyich plant. The total reflected a 4% rise year over year from slightly over 5.9 million tonnes.
Production in Q3 totaled almost 2.19 million tonnes. That output reflected a 22% rise from approximately 1.8 million tonnes the previous quarter, Metinvest also noted.
Ukraine did not escape the impact from COVD-19 and experienced a lockdown in March and April. However, measures within the country at present are not as stringent as in other parts of Europe, a source in capital city Kiev told MetalMiner.
ArcelorMittal’s Kriviy Rih integrated longs producer, in Ukraine’s Dnipropetrovsk oblast, reported a 14.5% drop year over year to 3.5 million tonnes of crude steel in the first nine months of 2020. The total fell from the 4.1 million tonnes poured over the same time in the previous year.
High demand from end-users abroad has made acquiring material from ArcelorMittal Kryviy Rih difficult, said one trader who works with the Ukrainian plant.
Kriviy Rih’s sales department even said to come back in December to discuss material for February delivery. The reason? No stock is available at present, the trader said.

Sourcing concerns

Ukraine is not immune to its own set of current and potential problems, sources warned.
The conflict, plus political uncertainty within Ukraine, has created some hesitation on acquiring material from Ukraine, the trader warned.
Ukrainian steelmakers also face other issues. Those issues include energy prices plus infrastructure that cannot handle power loads, the Ukraine-based analyst noted.
Older equipment at some plants is also more energy-intensive, the Ukraine-based analyst said.
Another issue Ukrainian steelmakers might have to face, however, is a possible introduction by the European Union to introduce a carbon footprint tax on steel imports from third countries.
It also remains unclear how the second wave of coronavirus infections could further impact steelmakers within the European Union.
The first analyst held out hope for Central European and Eastern European steelmakers. The analyst pointed to potential help from China via that country’s Belt and Road Initiative. The infrastructure project would include developing overland sea and maritime travel between China and into Central and Eastern Europe.
This could mean more steel required from CEE producers, as well as potential Chinese acquisitions in the region, the first analyst noted.
One example is Hesteel’s 2016 acquisition of the Smederevo plant, in Serbia.
The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.