Ukraine’s steel industry is maxed out as Russia’s war grinds on

The wiring of machines cranking out red-hot steel bars and ingots drowns out the shouts of workers donning sooty hard hats and protective jumpsuits. The noise is deafening inside global steel giant ArcelorMittal’s plant in Kryvyi Rih in Dnipropetrovsk Oblast — Ukraine’s largest steel plant — but quiet compared to pre-war.
Russia’s full-scale invasion has eaten away Ukraine’s metallurgy industry, with only six remaining plants producing 6.2 million metric tons last year. This is a far cry from the bumper year in 2021 when nine plants produced 22 million metric tons.
This year’s prediction of over 7 million metric tons is more positive. But experts warn that Ukraine has reached its full current production potential.
Blackouts, a workforce deficit, high electricity prices, and disrupted supply chains, are holding back production. In the last 10 months, Ukrainian crude steel production flatlined at around 500-550,000 metric tons per month, according to Stanislav Zinchenko, CEO of the GMK Center, a metallurgy consulting company.
ArcelorMittal’s continuous casting shop, where molten steel is turned into billets and ingots, used to operate three casting machines with 250 employees. Now, only two machines and 120 employees remain at the shop.  
“We are at the critical level. We cannot physically increase,” said the shop’s senior foreman Vladyslav Tyurin.
Ukraine is proud of its strong steel-making culture, which contributed to a tenth of its pre-war GDP. While steel producers have no doubt they will play a vital role in rebuilding the country, once reconstruction projects get going, the industry will need $62 billion in investment over 20 years for a full recovery, according to a report by Oxford University. But for now, big investments are on hold.
Steel producers are based in Ukraine’s southern and eastern industrial heartland, which falls into direct firing range from Russian-occupied territory. ArcelorMittal Kryvyi Rih is around 80 kilometers from the front lines —  a distance that Russian missiles can cover in two minutes from the occupied parts of Zaporizhzhia Oblast.
The situation is even more dire for metallurgy giant Metinvest, Ukraine’s largest steel producer. The company — which is majority-controlled by the country’s richest man Rinat Akhmetov — lost two huge plants in Mariupol in 2022, Illich and Azovstal, and around 65% of its business. Now, their coal mines in Pokrovsk, Donetsk Oblast, are under threat from an escalating Russian advance.
But there is one saving grace, notes Zinchenko: Ukraine’s rich iron ore deposits, the biggest in Europe. Global industrialists are hungry for iron ore, a core component of steel, and Ukraine can feed the demand.
“It’s why the Ukrainian iron and steel industry is still alive,” he said.
The start of Russia’s full-scale invasion caused all but one steel plant to stop production in the initial months. In Kryvyi Rih, ArcelorMittal workers were forced shut down the blast furnaces and mothball the machinery, a process that took a week.
Tyurin watched the news in horror as Russian soldiers tore apart Metinvest’s Azovstal plant during the siege of Mariupol, where he worked for two years. ArcelorMittal’s workers were determined not to let their Kryvyi Rih plant fall to the same fate and produced anti-tank defenses and bulletproof vests for the army.
Fortunately, Russian forces never reached Kryvyi Rih. As the front lines stabilized in April 2022, the plant restarted one of its three blast furnaces and reignited a second in spring 2023 once the initial wave of winter blackouts stopped.
The company is now working around the current power outages brought on by renewed Russian attacks on energy infrastructure with powerful diesel generators and by alternating electricity between different sections of the plant.
With two blast furnaces running, ArcelorMittal is churning out more products compared to 2022 and 2023. Operating at full capacity is still out of reach due to the company’s depleted workforce.
“We should stabilize now at around 50% run rate,” Mauro Longobardo, CEO of ArcelorMital Kryvyi Rih, told the Kyiv Independent.
If the company stopped producing, nearly 20,000 employees would lose their jobs and Kryvyi Rih would suffer an economic disaster, said Longobardo. Contributing to the economy is crucial in keeping the country alive, he added.
Metinvest is facing a similar situation. With two mills left, one in Zaporizhzhia and the other in Dnipropetrovsk Oblast, the company is operating at 70-75% of its current capacity. Of the company’s combined seven blast furnaces, just five are working, Metinvest’s chief operations officer Olexandr Myronenko told the Kyiv Independent.
While a second Mariupol doesn’t look likely for now, Russia has still targeted steel factories from a distance. At ArcelorMittal, a late-night missile attack blew up a storage warehouse in November 2022, killing an employee who was crushed by a concrete slab. There would have been more deaths and injuries if it were not for a blackout at the plant that meant fewer employees were working, Hennadiy Kuznetsov, deputy head of the section rolling shop, told the Kyiv Independent.
At Metinvest’s mines in Zaporizhzhia and Pokrovsk, several attacks have injured and killed workers. Occasionally the mines trap low-flying missiles into the underground holes, acting as an accidental air-defense system, Myronenko said. The company has no air defense systems to protect its assets.
The bigger issue, notes Myronenko, is frequent Russian attacks on residential neighborhoods in Zaporizhzhia and Pokrovsk. Metallurgy is the heart of the cities and the company employs thousands of residents who are at times among the killed and injured during strikes. Many have evacuated from front-line regions and with the Russians advancing on Pokrovsk, the situation only looks worse. Metinvest didn’t comment on the Pokrovsk situation out of safety concerns.
Workers that remain in industrial cities are often scooped up by the army. Zinchenko estimates that 15-25% of all steelworkers have been conscripted. Despite companies appealing to the government for protective measures against mobilization, attracting new blood is a Sisyphean task under the watching eyes of military recruiters.
“My outflow (of people) is higher than the inflow,” said Longobardo. “One month ago I needed to hire 1,000. Now I need to hire 1,100 because more people left in the meantime.”
There is very little domestic demand for steel as war continues to ravage the country. Reconstruction remains a distant prospect for many Ukrainians.
The only option for producers to sell their products is through exports, a problem when Russia’s navy blocked the main route through the Black Sea. Trains replaced boats to transport goods to neighboring EU countries, but railways incur higher costs as different track sizes mean products have to be unloaded, stored, and reloaded at the border.
“This extra cost means you already erode all your margin and you practically sell with losses,” said Longobardo.
Ukraine’s military managed to carve a route through the Black Sea late last summer, partially opening up a route to metallurgy exports, although also at great expense. While Ukrainian producers were back on the market, they found themselves lagging behind international competition.
Ukrainian companies are paying far higher costs than competitors, especially for electricity. Due to Ukraine’s diminished energy grid, industrial producers must purchase 80% of their electricity from EU countries like Slovakia, Poland, and Romania.
Imports mean additional costs. Ukrainian steel producers saw electricity prices rise by 60% in June to 112 euros ($124) per megawatt and they are likely to increase again this winter, Zinchenko said. In comparison, German counterparts paid 67 euros ($74) and French 35 euros ($39).
Steel plants use immense amounts of electricity. The ladle furnace in the continuous casting shop in ArcelorMittal uses 20 megawatts (MW) per hour (for reference, 1MW can power around 800 U.S. homes), while electricity makes up 25% of running costs for a blast furnace.
This winter will be hard, Longobardo said, noting that Ukraine has lost half of its energy-generating capacity due to Russian attacks. Plants will also lose solar-powered energy in the colder months, he added.
On the other hand, competitors like Russia, India, and China are not suffering the same production issues and their logistics cost two or three times less than Ukraine’s, according to Zinchenko.
Ukrainian producers also lost customers at the start of the full-scale war after being forced to shut down operations. China, Turkey, Russia, and India, took Ukraine’s place and are the big winners, noted Zinchenko.
ArcelorMittal’s old market, largely the Middle East, Africa, and Asia, is no longer an option. Instead, new markets have opened up in Europe and North America and Longobardo hopes to sell 1 million metric tons of products to each region this year.
Even Ukraine’s Western allies are opting for alternatives to Ukrainian products, including from Russia. Last year, Europe brought 3 billion euros ($3.3 billion) worth of Russian iron and steel despite sanctions on certain goods, according to the GMK Center.
“With our higher costs and destroyed capacity, we cannot compete with Chinese, Russian, or Indian steel products,” said Zinchenko.
A slump in global steel prices hasn’t helped producers either. However, while steel exports have nosedived, Ukrainian iron ore exports have soared.
Ukraine rarely exported its iron ore, instead using it for its own steel production. But iron ore pellets and powdered concentrate are in high demand from countries like China that produce 65% of the world’s steel but don’t have large reserves of their own. Beijing purchased 9 million metric tons of Ukrainian iron ore in the last seven months, according to the GMK Center.
The Black Sea passage green lit iron ore exports for Metinvest, in turn boosting production in its mines from 750,000 metric tons per month to 2 million metric tons per month. Seaports export 65-70% of the company’s iron ore products, mainly to China, with railways carrying the rest to Slovakia and Poland.
ArcelorMittal is in a similar boat. By increasing steel production capacity to 50%, Longobardo notes that the company has a larger surplus of iron ore concentrate that they can sell abroad for the first time.
“In this current situation, with electricity and (lack of) people, we don’t have any choice but to increase the export of (iron ore) concentrate,” he said.