It’s material if not as bad as expected. I expect China will absorb displaced Russian iron ore supply and steel exports so that nets out. The biggest impact is the loss of Ukraine volumes for both. UBS working with GFK.
—
Ukraine iron ore/ steel expert call: Steel more impacted than iron ore
There are 1159 words left in this subscriber-only article.
Key takeaways are: (1)Iron ore: Ukraine produced 79mt of iron ore in 2021 with 35mt consumed domestically & 44mt exported (40% rail, 60% by sea). There is currently no damage to iron ore facilities (~80% is produced in Kryvyi Rih, 80km from front line) but mines run at c50% utilisation due to logistics (Russia blockades Black Sea ports); exports are now just railed & down ~1mt/mth or ~30%. Ukraine aims to lift rail capacity materially and can normalise exports as/ when Black Sea ports open up; damage to rail is a key risk. GMK estimates incremental freight costs are c$50/t for FXPO (to rail then export pellets via Baltic/ Polish ports), taking cfr China cost to ~$150/t; with pellet prices at c$230/t exports remain profitable. (2)Steel: 9 mills in Ukraine (6 BF-BOFs) produced~21mt of crude steel in 2021 (~80% exported); the operations are located in 4 cities:Mariupol, Zaporizhzhia, Kryvyi Rih, Dnipro. The 2 BFs in Mariupol (which produce 9mt of mainly flat steel) have been damaged & it will take a long time for these to restart given damage to city. Sourcing met-coal is a key challenge as Russian volumes (2021 43%) &seaborne imports (15%) are no longer available, while domestic supply from Donbas is at risk (39%); more volumes have to be railed in (adding significant cost).
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
