Metinvest, a Ukrainian steel and mining group, began diversifying raw material supplies in 2014 considering the risks for assets in uncontrolled areas of Donbas.
“We considered various plans of action in case given risks were realized. We’ve been working on this since 2014. Therefore, even then we began to diversify our supplies of raw materials that came from areas not controlled by Kyiv. There are two key raw material items: limestone and coking coal. For coking coal, we’ve increased marine imports – we’re taking almost all the product of our subsidiary UCC in the United States. Before that we sold about half on the domestic U.S. market, and took half ourselves, but since January of this year we’ve decided to take the whole amount,” Metinvest CEO Yuriy Ryzhenkov said.
He said that Krasnodonugol, which is located in the self-proclaimed Luhansk People’s Republic, supplied the group with 8% of its coking coal in 2016, but it could be replaced. The group has already established relations with other suppliers of coking coal, in Australia, Canada and Indonesia, and this coal is now shipped in through the Yuzhny port.
“The third source is that we are buying all the coking coal there is in the controlled territory of Ukraine. Unfortunately, there’s not that much of it. This is mostly the Pokrovske mine administration, the former Krasnoarmiyska-Zakhidna mine. Everything that we can buy from them, we buy. And the fourth source is supplies of coal from Russia. Logistically, this is the closest source of coal for us after Ukrainian. A lot is written that this is re-export of Ukrainian coal from uncontrolled territories. This is not so. The coal that we’re buying in Russia is of higher quality; such coal is simply not mined in the uncontrolled territories of Ukraine. It’s not possible to pass off coal from the Donbas as coal from the Kuznetsk Basin. Therefore, we know exactly what we’re taking,” Ryzhenkov said.
He also said that Ukraine could not refuse buying raw materials that were in short supply abroad, and it needed to have an alternative if Russia suddenly decided to suspend its supplies.
“We’ll go to Canada, to Australia and quickly replace this raw material, but if we have the ability to buy quality raw material from Russian suppliers more cheaply, we should do this,” Ryzhenkov.
He also said there were four sources from which Metinvest could get limestone, including the Novotroitske Mine Administration and Western Ukrainian producers.
“There’s also an alternative. We recently made a purchase in the United Arab Emirates. By the main parameters, the raw material is not inferior to Russian, so we already have diversification. There’s also the possibility of purchases in Poland and Slovakia, but by quality characteristics their limestone is very similar to Western Ukrainian. Therefore, in terms of diversification of raw material supplies, we’ve resolved the problem with limestone,” Ryzhenkov said.
When asked about estimated losses due to the loss of control over assets in uncontrolled areas of Ukraine, he said it would be appropriate to talk about this once the results were in for the first half of the year.
“The fact that we are now buying higher quality coal – coal from Donbas was of relatively low quality – allows us to produce coke of far higher quality. Yes, theoretically we see a difference of $30 to $50 per ton between the cost of coal from Donbas and “marine” coal. But essentially we can offset part of this with higher productivity, by getting higher quality coke. In addition, we’ve focused on producing high quality iron ore products at our mining assets, with iron content of more than 65%. Now we want to assess the final effect at blast furnaces at our steel plants. I don’t rule out that we’ll be able to offset a very substantial portion of losses by increasing productivity on higher quality raw materials,” Ryzhenkov said.
Speaking about the group’s European assets, Ryzhenkov said that Promet Steel in Bulgaria used billets from Yenakievo Iron and Steel Works, located in the self-proclaimed Donetsk People’s Republic. The group is now looking for suppliers of square billets. In March, the group bought square billets for Promet from Ukraine’s Kurakhove-Stal, and is now holding negotiations with ArcelorMittal Kriviy Rih and Belarusian producers of square billets.
“I think that we’ll be able to supply this plant with square billets by buying them on the market. Of course, this will be less efficient than producing our own square billets from ore, but nonetheless, it’s possible to find this product. We have a project to overhaul the No. 4 continuous casting machine at the Azovstal plant. There’s a plan to convert it from a slab to a bloom caster, and in addition to blooms to produce square billets there that can be used at Promet. We’re considering this project. I don’t rule out that we will accelerate its implementation,” Ryzhenkov said. (Interfax-Ukraine/Ukrainian metal)