Direct contracts with Energoatom will make it possible to avoid the impact of rising energy prices

High electricity prices in Ukraine affect not only the cost of an individual enterprise directly, but also through the supply chain – through the selling prices of energy-intensive production facilities of suppliers. This makes Ukrainian suppliers uncompetitive and forces them to buy cheaper imported products.

GMK Center presents the thesis of Igor Kandaurov, Head of Procurement at Centravis, who spoke at the roundtable discussion «Ukrainian Electricity Market: Challenges for iron and steel industry».

Chain impact of suppliers

Centravis is a manufacturer of seamless stainless steel pipes. Although the company is not a very large enterprise, it is quite significant for the country’s economy and energy sector. We consume electricity, which, although not a large part of our cost of production, is significant enough to be affected by rising electricity prices.

In addition to the direct cost effect in the production of seamless stainless steel pipes, we are also affected by the cost of electricity through the purchase of stainless steel billets. Previously, Ukrainian suppliers of these billets accounted for a large share of our purchases, but now they are also increasing their prices due to rising energy prices, primarily electricity. Since almost 100% of our products are exported and we have to compete on the global market, we have to buy billets from India and consider cooperation with China.

Our Ukrainian suppliers are more flexible than Indian suppliers, have much shorter production times and can respond more quickly to any changes in demand. However, Ukrainian manufacturers are losing this advantage because they cannot provide us with competitive prices. Therefore, we have to turn to other manufacturers outside Ukraine to stay competitive.

Of course, we have internal programs to mitigate the impact of rising electricity prices and invest in them to reduce electricity consumption. But this is not enough to cover the current increase in electricity prices in Ukraine. It is important to emphasize that this is not just a direct effect on our production, but also a chain effect on other producers and our suppliers.

Suggestions for solving problems

In our opinion, the following measures would improve the situation for Ukrainian industrial enterprises:

1. Increased competition. What is really lacking in the market now is more competition so that we can consider other suppliers.
2. Direct agreements with electricity producers. It is very important to develop the possibility of entering into direct agreements with energy producers, in particular with nuclear power plants. I understand that this can be difficult and requires rather large volumes of consumption from customers, but it is a real chance and opportunity.
3. Predictability of prices. One of the main problems is the inability to predict prices, which also affects business opportunities. Increased competition and the possibility of concluding direct agreements, as well as the introduction of forward contracts, would provide more insight and predictability for business.