The demand for scrap metal from Ukrainian steel mills is estimated to be restrained
During 2022, the Ukrainian scrap metal market practically stopped. The full-scale war affected the main consumers of scrap metal in Ukraine – steel and foundry enterprises, which were captured, were forced to stop or reduce production. This led to the suspension of planned shipments of already harvested raw materials.
Realities on the scrap metal market
The full-scale invasion of the Russian Federation affected all segments of Ukrainian industry. Most industries have significantly reduced production rates or stopped production altogether. At the same time, the production of steel at steel plants in 11 months of 2022 fell three times – from 19.6 million tons to 6.1 million tons. Accordingly, the consumption of imported scrap metal decreased.
Demand for scrap metal from Ukrainian steel plants is estimated to be restrained. Necessary volumes of material for operational use are purchased, as well as minimal technological stocks of raw materials are formed for the winter months. Working steel plants have long-term contracts with suppliers, which guarantees the receipt of the required amount of scrap. Foundries have the opportunity to buy any amount of scrap metal on the market, including from state-owned enterprises, which currently have difficulties in selling scrap metal.
In total, in 11 months of 2022, about 841.9 thousand tons of scrap metal were delivered to steel enterprises, compared to 3055.9 thousand tons in the same period of the previous year.
The main problems characteristic of the Ukrainian scrap metal market include:
- limited demand and consumption by steel and foundry companies;
- lack of alternative directions for the sale of scrap metal (export opportunities);
- difficulties of a transport and logistics nature;
- shortage of labor resources at all levels of procurement, processing and sale of scrap metal.
According to the Register of the Ministry of Strategy and Industry of Ukraine, as of December 22, 2022, about 1,050 companies of various forms of ownership, specializing in operations with scrap metal, are officially registered.
About 20% of these companies and their fixed assets are located in temporarily occupied territories or in zones of active hostilities, so they cannot conduct activities. Another 50% of companies from this register stopped their activities due to economic or social problems. According to our estimates, the most affected companies are in the Donetsk, Mykolaiv, Kherson and Sumy regions.
The restoration of scrap metal procurement and processing directly depends on the economic and social processes that will take place in our country after the victory. Also, the development vector of these processes will depend on the market situation and consumer activity.
Currently, the activity of collecting scrap metal in front-line or liberated regions is mainly regulated by military administrations. For the most part, companies are resuming their activities, but the volumes of procurement and sale of scrap metal are still insignificant.
Provision of needs
Ukrainian companies specializing in procurement, processing and sale of scrap metal can almost completely meet the needs of steelmakers and foundries in scrap metal. In recent years, supplies of scrap metal to enterprises have exceeded the declared needs. Therefore, taking into account the increase in the physical volume of scrap metal on the market due to the destruction of infrastructure, industrial and residential facilities, problems with ensuring steel and foundry production are not expected. In addition, a surplus of ferrous scrap metal is beginning to be observed on the market.
Forecast of the Ukrainian scrap metal market balance for 2023, thousand tons
|Indicator||2021||2022, expectations||2023, forecast|
|Steel production||21 297||6500-6700||7000-7500||12 000-12 500|
|Deliveries of scrap metal to steel plants||3323.4||850-870||900-950||1500-1600|
The price factor is the main factor in the healthy functioning of the market. Scrap metal collection volumes in 2023 will depend on the price situation on the Ukrainian market, as well as the export capabilities of companies specializing in scrap metal collection and processing. With a balanced market, the total procurement of ferrous metal scrap in 2023 may reach 1,800-1,850 thousand tons, which will make it possible to meet the needs of steel companies in the case of an optimistic scenario of steel production.
State-owned companies that generate scrap metal are in a rather ambiguous state. Thus, due to the actual lack of a market, Ukrzaliznytsia, Ukroboronprom and other state-owned companies have already canceled tenders for the sale of scrap several times, losing funds that could be used for the repair or restoration of damaged objects, assistance to the Armed Forces, etc.
Export of scrap metal, even in small amounts (about 2.5-4 thousand tons per month), makes it possible to keep procurement companies in working condition. Export duty in the amount of €180/t limits sales directions, leaving only the European direction for Ukrainian companies. Poland and Slovakia were the main buyers of Ukrainian scrap metal.
At the same time, the European supply direction has its own peculiarities. The deterioration of the world economy also affected European steel companies, which reduced steel production. Accordingly, the demand for scrap metal decreased, dragging prices down with it.
The following problematic points should be noted separately: logistical difficulties and high requirements both for the quality of scrap metal of Ukrainian origin and for mandatory compliance with environmental standards.
But I consider the main obstacle to be the process of granting the export certificate EUR.1 by the State Customs Service of Ukraine (SCSU), which allows the export of scrap metal to EU countries under the terms of the relevant trade agreement. The main problems are the rather loose interpretation of the term “origin of scrap metal” by employees of the SCSU, as well as the requirements for documents and general document flow when carrying out operations with scrap metal. We are working on this issue with SCSU.
Since the beginning of the war, our association has been actively studying the issue of formation and disposal of military equipment destroyed during the fighting. Repeated appeals to executive authorities and structures that should be responsible for these issues did not yield results. This situation actually lasted until the end of the year.
The main problem of handling such scrap is its safety. A large amount of destroyed and damaged equipment is scattered over a large area of our country, without adequate protection and measures for explosion, fire and radiation safety, so it poses a significant threat to the population and the environment. Given that the disposal of destroyed military equipment and equipment is a complex and expensive process, we consider it necessary to actively attract funds from our foreign partners and Ukrainian private companies.
In order to establish an effective process of disposal of destroyed military equipment and to minimize the mentioned threats, we consider it necessary to implement a number of the following measures:
- Organize a system for assessing the volume and quality of scrap metal that may be generated as a result of the disposal of military equipment.
- Develop an effective and modern state control mechanism for operations with scrap metal generated in the process of disposal of military equipment.
- Develop mechanisms for the application of modern technologies for the processing and disposal of military equipment.
- To create prerequisites for the restoration of the Ukrainian scrap metal market, as well as to promote the development of export opportunities of companies that will process destroyed military equipment.
Only at the beginning of December, the Cabinet of Ministers issued Order №1121-r “Some issues regarding the use of samples of weapons, military and special equipment of the enemy destroyed during the repulse and containment of the armed aggression of the Russian Federation.” The document recommended the Ministry of Defense to establish activities for effective handling of destroyed military equipment. I hope that our knowledge and experience will be useful to the Ministry of Defense.
In addition, we believe that for effective activity with scrap metal formed as a result of the disposal of destroyed military equipment, the determining requirements are:
- involvement of private and foreign companies in the processing process;
- removal of restrictions on the export of such scrap metal;
- full publicity and transparency of the organization and functioning of the processing process.