The markets for metal products and iron ore raw materials (IOR) are currently facing a negative trend, making it challenging to operate profitably, particularly due to the constant rise in tariffs in Ukraine for electricity, railway transportation, and other components, noted the company's CEO, Mauro Longobardo, in an interview with Interfax-Ukraine.
"The year 2024 was somewhat positive; more favorable until mid-year when electricity wasn't a significant issue in Ukraine – there were days without such a severe deficit. However, we are already seeing a return to the situation we faced earlier before the year ends. Unfortunately, external markets to which we can export our products are also very depressed in terms of demand and prices," the executive stated.
He emphasized that the company is also incurring additional logistics costs, while product prices are declining.
"It's a vicious cycle where our production costs exceed market prices. We are at the end of this supply chain and cannot pass this added value onto our customers – prices in the mining and metallurgy sector are constrained by the global market. As a result, any issues we face in Ukraine with electricity, rising electricity tariffs, and water supply – all of this falls on our shoulders. We are all simply shocked by the recent intentions of 'Ukrzaliznytsia' to raise railway transportation tariffs by 37%," the plant manager described the situation.
According to him, the increase in all prices negatively impacts the company, "I would say, in a monopolistic situation where tariffs are not negotiated." He added that last week (the interview took place on December 19 – IF-U), there was a day when electricity was priced at $267 per MWh, yet the company had to purchase electricity at that price to ensure supply to the plant. In such a scenario, it is more beneficial for the company to reduce production to avoid generating additional costs, operating at 40% rather than 50%.
"Although we have done significant internal work to reduce costs. We have done everything possible to cut expenses. Now we are struggling to reduce external costs, but we are very limited in this regard. At the same time, people are demanding salary increases... Logistics is also a major expense for us. Prices are rising everywhere. For example, water tariffs have increased by 200% over the last three years," the agency's interviewee clarified.
He added that the rise in tariffs ultimately affects the company's financial performance: if you lose on expenses, it is already a loss, not a profit. The metallurgical plant cannot raise product prices above market levels because Ukrainian consumers will turn to buying metal products from Turkey. Therefore, the company has no alternatives. As a result, the plant has been operating at a loss for the past three years. Thanks to its entry into the corporation, it has received external support over the last three years. However, the first year was catastrophic, the second year was also poor, and in the third year, they hoped to at least break even, but this was not possible due to tariffs and market conditions.
At the same time, the top manager believes that Ukraine should remain a competitive country.
"I am not talking about being a cheap country, but a competitive one. While gas prices in Ukraine are approximately the same as those of competitors abroad – IF-U, electricity is more expensive. Logistics costs are also higher. Coal plays a very significant role now. As a result, Ukrainian producers are currently uncompetitive. I hope that after the war, we will be competitive and able to compete for the market with our rivals, and this will be fair competition. I want to compete with Polish competitors and clients... And to retain people, we need to raise salaries to EU levels," the CEO concluded.
"ArcelorMittal Kryvyi Rih" is the largest producer of steel products in Ukraine, specializing in the production of long products, particularly rebar and wire rod.
ArcelorMittal owns the largest mining and metallurgical plant in Ukraine, "ArcelorMittal Kryvyi Rih," along with several small companies, including PJSC "ArcelorMittal Berislav."