Non-considered steps in finances and logistics can create additional risks for the industry
The day of February 24, 2022 divided our life into “before” and “after the war.” Like most enterprises of the mining and metals complex, the Ferrexpo group faced some difficulties, including logistical ones, because the blocking of ports.
Our European consumers supported us and purchased the volumes of pellets agreed earlier, fulfilled the contractual obligations in full. But in May, we already felt that the supplies had become more complicated. The warehouses of our European traditional consumers have limitations, the participants of the logistics chain started to work irregularly. There was an urgent need to find alternative ways.
Last year, the Ferrexpo Group companies introduced technologies aimed at the medium and long-term perspective for the development of new sales markets, but the main question now is how to deliver our products to customers?
We are currently witnessing a sharp decline in prices for metal and raw materials, which traditionally requires companies in our industry to pay maximum attention to expenses management.
But if we analyze the current situation comprehensively, we can honestly say that the increasing the railway tariff by 70% from July 1, 2022, the increasing energy prices, spare parts and other materials, and other factors led to a significant increase in the cost of our products.
Of course, we are trying to solve logistics issues — looking for new roads through the ports of Romania and Poland. But this leads to an increase in the cost of the logistics. It is extremely difficult for exporters to keep export volumes with limited logistics.
Over the past 4 months, we have significantly changed our logistics routes. We were forced to find a solution in a short time to redirect 60% of the products that were previously exported through the Black Sea ports. The majority of shippers, including producers of agricultural products, opted the same actions, which caused long queues at the western border crossings and in the Danube ports, and the turnover of wagons increased by 2-4 times. Today, we have an average wagon turnover of at least 20-24 days (up to 50-60 days), compared to 11 days at the beginning of the year.
The situation changes every week and requires us to be more flexible in new logistics circumstances and conditions, for which the infrastructure itself is often not ready, including in the EU countries.
Of course, we need the support of the state in solving the issue of logistics, increasing volumes and reaching full capacity. First of all, we are looking forward to the opening of the Black Sea ports, because all alternative logistics routes are many times more expensive than traditional ones.
With the forecasts of international experts on the acceleration of the iron ore production in the world in 2022-2026, the loss of market positions by Ukrainian mining companies may become irreversible. Our industry, which provides a stable inflow of foreign exchange earnings, provides jobs to tens thousands of people and creates an opportunity to earn for related industries, should be one of the priorities in the support programs of the government of Ukraine.
At the same time, the state stably received revenue from the mining & metals enterprises in the form of income tax, rent payments and other taxes: all mining and metals plants are among the top 100 taxpayers and, according to the results of 2021, paid about $2.5 billion in taxes. In particular, in March 2022, iron ore raw materials became the largest item of Ukrainian export. Thus, the mining & metals sector supported currency stability in the country and provided tax revenues to the state budget.
Under such conditions, careless and non-considered steps in finances and logistics can provoke additional risks for the industry, lead to critical consequences on the scale of the entire country.
We have enough plans, all of them are related to the launch of technological lines, to introduction of new capacities, production volumes increase, sustainable development of our company. But first we are waiting for peace in our country, we are working hard for our victory, we are waiting for the opening of ports and the reestablishment of logistics.