The State of Ukraine’s Steel Industry in 2024
Ukraine’s steel industry is vital to the global market, known for its high-quality production of steel and rolled products. However, the ongoing challenges posed by the war and geopolitical tensions have significantly reshaped the sector.
According to data from GMK Center, Ukraine’s consumption of rolled steel grew by only 10% in 2024, compared to double-digit growth rates in previous years. This deceleration signals a shift in demand and highlights the impact of external and internal factors influencing the industry.
Key Facts About Ukraine’s Steel Industry in 2024:
- Production Levels: Steel production in Ukraine showed a recovery trend in 2024, but it remained below pre-war levels due to disruptions in infrastructure and supply chains.
- Export Dependency: A significant portion of Ukraine’s steel output is exported, but the war and trade restrictions have caused fluctuations in demand from key international markets.
- Domestic Consumption: Domestic demand for rolled steel increased slightly, driven by reconstruction efforts and infrastructure projects, but at a slower pace than expected.
2024 Performance: A Testament to Resilience
According to the latest data, the Ukrainian steel industry showed considerable growth in production metrics compared to 2023. Pig iron production reached 7.09 million tons, an 18.1% increase from the previous year. Steel production saw a notable 21.6% rise, hitting 7.57 million tons. Meanwhile, rolled products grew by 15.8%, reaching 6.22 million tons. These numbers highlight the sector’s ability to overcome immense adversity.
Although these figures represent a recovery, they are still a far cry from the pre-war levels of 2021, when the country produced 21.2 million tons of pig iron, 21.4 million tons of steel, and 19.08 million tons of rolled products. The devastating loss of Azovstal and Ilyich Iron and Steel Works of Mariupol, both located in occupied territories, has permanently reduced Ukraine’s steelmaking potential. The existing steel facilities, now operating at 50-80% capacity, are unable to bridge this gap.
A major driver of recovery in 2024 was the opening of a sea corridor for mining and metal cargoes. This restored access to vital international markets that were critical during pre-war periods, partially offsetting reduced domestic and EU demand. Nevertheless, despite this progress, steelmakers faced numerous obstacles such as skyrocketing energy tariffs, higher production costs, labor shortages due to mobilization and migration, and stringent environmental regulations imposed by European markets.
Factors Driving Growth in 2024
Several factors contributed to the industry’s ability to achieve growth in 2024:
- Access to Key Markets Through the Sea Corridor
The resumption of shipping routes provided a lifeline to Ukrainian producers by granting access to previously inaccessible export destinations. This was particularly significant for mining and metals companies, which rely heavily on international sales. By regaining connections with pre-war buyers, steelmakers mitigated the decline in domestic and European demand. - Focus on Export Markets
Approximately 65% of Ukrainian steel products were exported to the EU in 2024. The European market’s proximity and logistical advantages make it an essential destination for Ukrainian exports. Despite weakening demand in the EU, it remained a critical outlet for surplus production. - Adaptability in Domestic Operations
Despite ongoing challenges, steelmakers prioritized operational adjustments. Facilities reallocated resources to meet international demand while maintaining a foothold in the domestic market. Investments in repairs and efficient production processes also contributed to growth.
2024: A Challenging Year for Steel Consumption
Slowdown in Growth
In 2024, the consumption of rolled steel in Ukraine grew by only 10%, a significant deceleration compared to the 120% recovery seen in 2023. According to Metinvest-SMC, the capacity of Ukraine’s steel market reached 3 million tons, excluding specific segments like polymer-coated rolled products and stainless steel.
The growth slowdown can be attributed to several factors:
- Energy Shortages:
Russia’s continued missile attacks on Ukraine’s energy infrastructure caused widespread power outages, disrupting production activities. Steel-consuming industries struggled with reduced energy supplies, limiting their operations and, consequently, their demand for steel products. - Decline in Infrastructure Projects:
During the first half of 2024, infrastructure construction showed promising growth, with engineering structures expanding by 46.1% year-over-year. However, by the end of the year, growth in this segment slowed to 25.4%. Many projects stalled due to limited funding and a shifting focus towards non-residential construction. - Mobilization and Labor Shortages:
Intensified recruitment for military duty reduced the workforce available in key industries. This labor shortage, coupled with declining economic activity in steel-dependent sectors, further dampened demand for steel products.
Key Market Trends in 2024
Despite the challenges, several trends emerged in Ukraine’s steel market, shaping the dynamics of supply and demand:
- Shift Towards Western Regions:
With active construction in western Ukraine, regions like Lviv saw a 45% increase in steel sales. This surge was driven by the development of hotels, recreational facilities, industrial parks, and agro-processing facilities. - Increased Steel Imports:
Imports of rolled steel increased by 10.2% year-over-year, reaching 1.24 million tons. By the end of 2024, imports accounted for 37.6% of total steel consumption, up from 32% the previous year. - Defense and Infrastructure Projects as Drivers:
Demand for steel used in defense and fortification structures grew significantly. Rebar, wire rod, and other construction-related products experienced steady demand due to the continued construction of shelters and protective structures. - Reduced Margins in the Market:
Prolonged price drops across several steel segments led to reduced profit margins. Consolidation among larger market players also displaced smaller operators unable to withstand market pressures.
Demand by Product Type
The consumption of rolled steel products in 2024 was driven by demand for specific types of products:
- Flat and Rolled Products:
- Galvanized steel saw a 32% increase, reaching 297,000 tons.
- Hot-rolled products grew by 9% to 892,000 tons.
- Cold-rolled products, however, experienced a slight decline of 2%, totaling 245,000 tons.
- Shaped Rolled Products:
- Beams, angles, and channels saw a 20% increase in demand, totaling 159,000 tons.
- Rails experienced 15% growth, with consumption reaching 35,000 tons.
- Grinding Balls:
This segment recorded the highest growth, with a 71% increase to 113,000 tons. Ukrainian mining and processing plants drove this demand, leveraging the opening of sea corridors for iron ore exports. - Pipes and Hardware Products:
These products were in high demand, especially for power facility shelters and fortification structures. - Rebar and Wire Rod:
The rebar market grew by 5%, totaling 664,000 tons, while wire rod demand increased by 11%, reaching 460,000 tons. These materials were critical for both infrastructure and defense projects.
Industry Breakdown: Who Consumes Steel in Ukraine?
The structure of steel consumption in Ukraine reflects the state of the economy and specific industry trends:
- Construction Sector:
Accounting for 18% of steel demand, the construction sector experienced a slowdown in activity. Reconstruction of destroyed infrastructure and housing fell short of expectations. However, the western regions showed growth in resort real estate and related infrastructure. - Mining and Steel Enterprises:
This segment maintained a 13% share of steel demand, driven by increased grinding ball consumption and stable mining activities. - Defense Industry:
The defense sector’s focus on specialized steel grades for military purposes drove demand for niche products like electro-slag and vacuum-arc remelted steels. - Machinery and Railcar Production:
Demand for steel from agricultural machinery and railcar manufacturers surged. For instance, steel sales in Poltava region grew by 76%, reflecting the activation of railcar-building enterprises.
Challenges Faced by Ukraine’s Steel Industry
Impact of War on Production Facilities
The ongoing conflict in Ukraine has led to the destruction of steel production facilities in some regions. According to Fastmarkets, major steelmakers in Ukraine have been forced to adapt by shifting production to safer areas or utilizing alternative raw materials. The war has also disrupted access to critical resources like coal and iron ore, further impacting production efficiency.
Export Market Struggles
Ukraine’s steel exports faced significant challenges in 2024 due to trade barriers, logistics issues, and competition from other global producers. Markets in Europe and Asia, traditionally large consumers of Ukrainian steel, have seen fluctuating demand due to economic uncertainties.
Infrastructure Challenges
The war has also damaged transport infrastructure, making it difficult to ship steel products domestically and internationally. Railways, ports, and highways, which are essential for moving raw materials and finished goods, have been affected.
Energy Costs
Rising energy costs have also put pressure on Ukrainian steelmakers. Steel production is energy-intensive, and the rising cost of electricity and gas has squeezed profit margins.
Challenges and Opportunities
Challenges:
- Economic Uncertainty: The ongoing war, energy shortages, and inflation continue to weigh heavily on the market.
- Funding Limitations: Many infrastructure projects remain incomplete due to insufficient financing.
- Labor Shortages: Mobilization efforts have reduced the available workforce in key industries.
Opportunities:
- Pent-Up Demand: Construction projects frozen during 2022–2023 are now resuming, driving demand for steel.
- Comparative Affordability: The depreciation of the hryvnia has made steel an attractive investment, protecting buyers from inflation.
- Long-Term Reconstruction Needs: Ukraine’s need to rebuild infrastructure could generate demand for 3–5 million tons of steel annually in the coming years.
Transformation of Ukraine’s Steel Industry
Despite the challenges, Ukraine’s steel industry has shown remarkable resilience and adaptability. According to Fastmarkets, steelmakers have adopted new strategies to survive and even thrive in this difficult period.
Key Transformations in 2024:
- Shift to Safer Regions: Many steelmakers have relocated operations to western Ukraine, which is less affected by the conflict.
- Focus on Value-Added Products: Producers are diversifying their offerings by manufacturing high-margin, specialized steel products for niche markets.
- Sustainability Initiatives: The industry is also embracing greener technologies to reduce its carbon footprint, aligning with global trends toward sustainable manufacturing.
Outlook for 2025
Steel market operators remain cautiously optimistic about 2025. Despite economic challenges, the first quarter of 2025 shows promising sales figures, driven by pent-up demand and resumed construction activity. Industry experts project a 6% market growth, reaching 3.2 million tons.
The long-term outlook depends heavily on the development of the war, energy stability, and government support for reconstruction projects. Western Ukraine is expected to remain a key growth driver, with continued demand for rebar, galvanized products, and shaped steel products.
Factors Influencing the 2025 Forecast
The predicted downturn in 2025 is driven by several factors:
- Global Steel Market Dynamics
The global steel market faces oversupply issues, primarily due to increased exports from China. This oversaturation is expected to lead to a further 4% drop in flat steel prices within the EU, creating an unfavorable pricing environment for Ukrainian producers who rely heavily on this market. - High Production Costs
Rising energy tariffs and the increasing costs of other inputs are likely to erode profit margins. With limited capacity to absorb these costs, producers may be forced to scale back operations. - Logistical Challenges
Although the sea corridor has eased some logistical constraints, transportation remains costly and inefficient. This reduces the competitiveness of Ukrainian steel products in international markets. - Limited Domestic Demand
Domestic consumption is not expected to grow significantly due to ongoing economic instability, reduced construction activity, and infrastructure development delays.
Opportunities for Adaptation and Growth
Despite these challenges, there are opportunities for the Ukrainian steel industry to adapt and stabilize in 2025:
- Exploring New Markets
Ukrainian steelmakers can mitigate dependence on the EU by diversifying exports to other regions, such as Asia, the Middle East, and Africa. Expanding into new markets will require competitive pricing and a focus on niche products. - Modernization and Sustainability
Investments in modern production technologies can help reduce costs and improve efficiency. Aligning with global trends in green steel production may also unlock new opportunities in markets that prioritize sustainability. - Leveraging Reconstruction Efforts
The long-term need for reconstruction and new infrastructure in Ukraine provides a substantial opportunity for steelmakers. According to estimates, the reconstruction of war-damaged infrastructure will require 3 to 5 million tons of steel, creating potential demand for both domestic and imported products. - Strategic Partnerships
Collaborating with European partners and leveraging trade agreements can facilitate deeper integration into EU markets. This approach may also help Ukrainian producers navigate environmental compliance challenges.
Conclusion
The Ukrainian steel industry has proven its resilience through years of conflict and economic upheaval. While 2024 marked a peak in production since the war began, the road ahead in 2025 remains fraught with challenges. Declining global steel prices, rising production costs, and logistical hurdles will test the sector’s adaptability.
However, the industry has shown a remarkable capacity for overcoming adversity. By focusing on market diversification, modernization, and leveraging domestic reconstruction efforts, Ukrainian steelmakers can position themselves for a more stable future. While 2025 may be a difficult year, the lessons learned from navigating past crises provide a foundation for cautious optimism. The steel industry’s ability to adapt to changing conditions will ultimately determine its success in the years to come.
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