Fitch: steel production in Ukraine will not come to pre-war levels

Analytics Fitch Solutions gave a disappointing Outlook for the steel industry of Ukraine.

"We remain gloomy prospects for the Ukrainian steel industry in the coming years, burdened by the ongoing conflict in the Donbass, which disrupts the vital supply chain for steel producers," - said in report Fitch Solutions, published in late October.

According to the Agency, the ongoing conflict in the Donbas continues to be a major deterrent for Ukrainian steel producers. A significant part of Ukrainian metallurgical industry, including a number of steel mills and the vast majority of coal reserves in the country, located in the Donetsk and Lugansk regions, military operations in which seriously affected the domestic steel production. For example, to 55 out of 150 coal mines are available all over the country was lost after the beginning of the armed conflict, while domestic steel production has declined from more than 2.82 million tons of steel per month in may 2014 to 1.76 million tonnes per month in August of the same year.

Group Fitch on country risk in Europe is of the opinion that the cessation of the blockade of Donbass, and especially the cessation of hostilities in the East of Ukraine is unlikely in the long term, despite the recent election of Vladimir Zelensky, the President of Ukraine in April 2019.

"Ukraine will not be able to regain control over the separatist East from Pro-Moscow forces, so it will be difficult to achieve any meaningful resolution of the conflict," according to the Agency.

Ukraine - Monthly steel production (thousand tons)

Growing global protectionism in the global steel market is likely to create risks for the further growth of steel production in Ukraine. Adopted in March 2018, the U.S. decision to impose 25% tariffs on imported steel from a number of countries (including Ukraine) in itself did not cause significant damage to the Ukrainian steel producers, since the major domestic players, such as Metinvest, and ArcelorMittal Kryvyi Rih, export the minimum number of steel products in the United States.

However, the US decision led to the fact that a number of countries that used to export cheap steel in the U.S., moved its exports to the EU, which led to losses from European steel mills. The result of this development in February 2018, the EU Commission introduced its own set of protective measures, establishing quotas, tariff rates for 26 types of steel products above which will apply duty rate of 25%. Given that the EU is a significant part of Ukrainian exports of finished steel, the new measures can create additional challenges for the industry in the coming months and quarters.

with the growth of global economic protectionism and trade policy in the United States against the steel industry, which is behind the dispute with China in the list of priorities, in Fitch believe that steel tariffs in the United States will remain in force at least until the presidential elections in the United States at the end of 2020, which in turn means the preservation of the European duties and even strengthening protective measures in the EU.

Notwithstanding the foregoing, the Ukrainian steel production will grow by end of 2019 for the first time in three years, since domestic producers of steel restructuring operations and supply chain, noted in Fitch.