How Ukrainian steel industry is fighting for survival and future green prospects

To read the study “Opportunities for rebuilding for iron & steel industry of Ukraine” prepared for the OECD Steel Committee, please follow the link.

The iron and steel industry remains a key part of Ukraine’s economy. In 2024, it made up 7% of the country’s GDP and accounted for 15% of all goods exports. Despite the war, steel companies are still investing — around 20% of all industrial investment (CAPEX) in Ukraine comes from the iron and steel sector.

However, the industry has suffered significantly because of the war. Ukraine lost control of major steel plants in occupied areas, in particular in Mariupol. Over the past 11 years, Ukraine’s total steelmaking capacity has dropped by two-thirds. Today, iron & steel companies continue fighting serious challenges.

One major problem is high energy prices. Ukraine relies fully on electricity imports from the EU. 70% of Ukraine’s energy system has been destroyed by Russian attacks. So, Ukraine had to import more energy from Europe, and the price of imports now sets the domestic price. As a result, over the past year, electricity prices in Ukraine have doubled.

Meanwhile, 93% of steel in the EU is produced in countries with lower energy costs than Ukraine. This makes Ukrainian steel exports less competitive. High electricity prices hit producers of iron ore concentrate especially hard because electricity makes up 60% of their production costs. As a result, Ukraine’s iron ore production and exports – particularly to China – could decrease.

Another big problem is staff shortage. Between 15% and 20% of steel industry employees have been drafted into the military. Many people are afraid to work at big companies because it increases their risk of being mobilized. Changes to mobilization laws often trigger waves of resignations. Companies are hiring women, older workers, and veterans to fill the gaps, but it’s not enough. The worker shortage isn’t just a problem today – it could limit Ukraine’s future growth.

Logistics costs have also soared. Current freight costs are at least twice higher than before the war. Ukraine has opened a sea export corridor, which has helped, but its capacity is limited. Not all ports are operational, and shipping can’t be fully safe because of the war risks.

Despite all sanctions, the EU keeps buying Russian iron and steel products. Last year, it imported 1 million tons of pig iron and 3.3 million tons of semi-finished steel products from Russia. Russian producers enjoy cheap energy and no logistic constraints, so Ukrainian companies can’t compete Russian ones. European buyers could source pig iron from Ukraine, supporting our economy, but many still prefer to buy from Russia.

On top of everything else, Ukraine also faces a major coking coal shortage. In January 2025, Pokrovske Mine, the country’s top producer of coking coal, shut down. Last year its share in the domestic market reached 66%. Now Ukraine will need to import 2.5 million tons of coking coal or coke to keep steel production steady. It’s possible, but imported materials would increase production costs, deteriorating competitiveness of Ukrainian steelmakers further.

Trade restrictions are another hot issue. There are currently 28 restrictions on Ukrainian steel exports. A quarter of them were imposed over 20 years ago and are outdated. The situation has changed – Ukraine’s steel companies can’t flood markets with their products or harm local steel industries. So, it is necessary to conduct a review of existing trade restrictions.

The new EU carbon border tax (CBAM) is another big threat. The steel sector will be hit the hardest. By 2030, Ukraine could lose $1.6 billion a year in steel exports because of CBAM. Ukrainian companies urgently need to invest in cutting their carbon emissions – but they can’t. Right now, survival is the priority. It’s impossible to launch major green projects or attract financing during the war.

Ukraine hopes to get a CBAM waiver. The regulation includes a «force majeure» clause, which should be applied given the devastating impact of the war. But the exemption cannot be granted automatically – the Ukrainian government have to contact the European Commission explaining necessity of special CBAM approach for Ukrainian exporters.

Looking ahead, the competitiveness of Ukraine’s steel sector could improve after the war – especially through investment in energy sector. Nuclear energy looks like a priority. It’s cheap, low-carbon, and fits European climate goals. Developing nuclear power could make Ukraine a hub for energy-intensive industries producing low-carbon products.

In the future, Ukraine could become a major supplier of DR-grade iron ore, which is in high demand as Europe decarbonizes its steel sector. Ukraine could also supply low carbon HBI that is beneficial for European EAF producers amid potential scrap shortages. Ukraine could also deliver low-carbon steel products for Europe.

Ukrainian steel companies are already planning for this green future. For example, Metinvest plans to build two DRI modules in Ukraine, each with a 2.5 million ton annual capacity. These will feed metallics to new EAF complexes at Zaporizhstal and Kametstal. ArcelorMittal Kryvyi Rih can also switch from BF-BOF to DRI-EAF route.

We estimate that total CAPEX needed for all announced green iron & steel projects in Ukraine is around $11 billion – about $1,500 per ton of steel produced last year. These projects will only move forward if Ukrainian companies get access to European green finance tools. With that support, Ukraine’s iron and steel industry could become a major part of Europe’s low-carbon supply chain, which will be beneficial for all stakeholders and especially the European iron & steel industry.