Abstract
Unsurprisingly, iron output was negatively affected through 2008 and 2009 as
the automotive and
construction industries contracted amid the global
economic problems. The biggest steel mill in the
Ukraine, owned by Arcelor
Mittal, experienced a slump in steel output for the period of
January-April
2009 of 43.8%, compared with the same period in 2008. A
total of 1.469mn tonnes were produced. Steel
output for Arcelor Mittal had
been declining steadily throughout 2008, with a 10.5% drop in the period
January-September 2008. Steel maker Zaporozhstal also announced cuts in
production of liquid steel in
October 2008 by 5.1% to 3.205mn tonnes.
Switzerland-based Ferrexpo, which owns Poltava Ore
Mining and Processing
Works had seen estimated production costs for Q308 fall because of the
easing
of inflation in the Ukraine, though this did little to offset the
negative impact of declining demand.
Ferrexpo were looking to increase
export sales in a bid to improve sales; as of October 2008 15% of sales
occurred within the Ukraine.
The devaluation of the Ukraine currency had
made iron exports more competitive and by March 2009 the
steel export
industry was benefiting from this, experiencing production capacity of 70-80%
– up from just
50% by at the end of 2008. Production in February
2009 had increased by 9.1% m-o-m but was still down
a significant 33.6%
down on the performance of February 2008, according to the World Steel
Association. Positive signs within the industry are not yet sufficient to
compensate for the overall effects
of the economic downturn. The market is
expected to stabilise by the end of 2009, with a tentative
recovery
throughout 2010.
The Ukraine government is adamant that it will achieve
self-sufficiency in uranium fuel, especially since
a dispute over pricing
lead to Russia cutting off the gas supply to the country. With an antiquated
coal
mining industry and poor natural gas resources, uranium may offer a
solution to power demands – 47.5%
of the Ukraine’s electricity
production in 2007 came from nuclear energy and the country has 15 nuclear
power reactors at 4 nuclear power plants. The government is committed to
developing the uranium
mining industry and wants to provide half of the
estimated 307bn kWh of electricity required by 2020
from nuclear
power.
In June 2009, 99 mines scheduled for privatisation had the process
suspended by the country’s president,
Viktor Yuschenko. The mines
were approved for privatisation by the Cabinet of Ministers in April, but
Yuschenko argues that it is in violation of the constitution to privatise
state property and facilities of
national importance. Yushchenko said
that: ‘Such facilities include the properties enterprises whose main
operations are production of goods including minerals of national importance
– and that means coal.’ He
has asked the Constitutional Court
to determine whether there has been a breach of rules in the proposal
of
the Cabinet of Ministers. The cabinet was hoping to generate funds from the
privatisation of the
companies to enable financial development of the coal
industry. Privatisation would be an opportunity to
attract investment and
update the mines, which are desperately in need of modernisation. However,
such
examples of political division on the governance of the coal industry
will deter investors, who would be
able to find more attractive
opportunities elsewhere.
Despite the extensive resources that the Ukraine
has to offer, the investment opportunities with its
neighbouring
counterparts will continue to be more attractive to outside investors because
less reform is
required and there is more political stability. Uran Ltd
pulled out of investment proposals in the country
because of political
uncertainty and structural instability of the governing bodies of the uranium
industry.
Industry Forecast
BMI forecasts the Ukrainian mining
industry will grow by 25.6% between 2008 and 2013 in US dollar
terms. The
industry is expected to reach a value of US$912.76bn by 2013.
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