Increase in Ukrainian Railways tariffs may lead to shutdown of ferroalloy plants

If domestic production stops due to increased railroad tariffs, imports of ferroalloys and outflow of currency from the country will increase

An increase in freight transportation tariffs of Ukrainian Railways (UZ) will lead to a sharp rise in logistics costs of ferroalloy enterprises and to the cessation of production at enterprises that have only resumed their work since May.

Sergiy Kudryavtsev, executive director of the Ukrainian Ferroalloys Producers Association (UkrFA), told GMK Center in a commentary.

According to him, the impact of the increase in railroad tariffs on the enterprises of the industry will be as follows:

1. Nikopol Ferroalloy Plant’s annual expenditures on railroad logistics amount to UAH 120 million, in case of tariff increase it will lead to additional expenditures for UAH 25 million.
2. Zaporizhzhia Ferroalloy Plant is now loaded only by 20-22%, it is trying to increase production (7.6 thousand tons in January-August) and reach break-even. Since about 85% of its logistics is carried out by railroad, the increase in tariffs will put an end to the plant’s attempts to increase production and reach profitability.

In addition, if domestic production stops due to the increase in railroad tariffs, imports of ferroalloys and outflow of currency from the country will increase.

In general, according to the business community, Ukrainian Railways initiative to “harmonize” freight transportation tariffs has no logic. The initial preparation for transportation and accumulation of different types of cargo, as well as the necessary infrastructure differ significantly, and therefore have different costs. For example, transportation of a ton of grain is more expensive for UZ than a ton of ore, so the tariff for these shipments should be different.

The last time Ukrainian Railways raised freight tariffs in June 2022. Then tariffs were raised very strongly – the cost of transportation of coal, ore and limestone increased by 140%, grain – by 96%, steel – by 70% and unexpectedly – without any discussion with business.

As GMK Center reported, Ukrainian Railways transported 118 million tons in January-August, which is 23.1 million tons or 24.3% more compared to the same period last year. Overall, UZ transported 14.18 million tons of cargo in August 2024, up 4.2% m/m, and 15.5% y/y.