Ukrainian market of steel products for mechanical engineering to grow by 25-30% in 2024

Although the market of machine-building steel products in Ukraine is much smaller than that of construction products, its importance can hardly be overestimated in the conditions of war. The key customers are enterprises of the defense-industrial complex, and it is thanks to them that our country can effectively resist Russian aggression. What is going on in the market of steel products for machine building?

Market picture

Since 2023, we have seen a gradual recovery of the Ukrainian market in the segment of steel products for mechanical engineering. In 2024, it grew by 25-30%. In turn, TACT Metal increased its sales in 2024 by 20-25%.

For certain types of steel products, sales grew even higher than this level. For example, sales of calibrated rolled products made of structural alloy steel grades increased by 45%. If we talk about the structure of consumption in machine building, 80% is round, 10% is hexagonal section, and 5% each is square and strip.

Rolled steel for mechanical engineering is further processed either hot – at forging enterprises, where various parts and products are forged, or cold (mechanical) – at automated lathes, where various assemblies and parts of mechanisms are also forged.

The part under mechanical processing is growing faster – this is due to the fact that the enterprises are actively renewing the fleet of equipment. The programs of development and renewal of enterprises are partially financed by the state and by foreign grants.

According to our estimates, the Ukrainian market of rolled steel products for mechanical engineering in 2024 is approximately 140-145 thousand tons. Imports prevail over domestic production. Deliveries to the domestic market of special steel grades by local producers last year amounted to 55-60 thousand tons, while the volume of imports in this segment we estimate at 85 thousand tons.

I would also like to note that the volume of imports is also affected by logistics. At the moment there is no possibility to receive containers in Ukrainian ports, so Ukrainian companies are forced to use European ports, which leads to higher costs and increases the delivery time of products.

The cost of automobile logistics is high, and European carriers do not want to deliver to frontline areas such as Kharkiv, Zaporizhia, Sumy, Dnipro and Kherson due to military operations in Ukraine and increased risks. Ukrainian road carriers are experiencing staffing difficulties, including mobilization and booking difficulties. These and other processes, such as queues at borders, have had a negative impact on logistics processes – their cost and delivery times.

Development driver

The main driver of growth in demand for steel from the machine building industry is the defense industry. The industry is actively developing, new equipment is being commissioned at many enterprises, leading foreign concerns are opening their production facilities in Ukraine, and joint ventures are being established.

Among the important trends in machine building are the following:

1. Short delivery times. Ukraine has many foreign military equipment that needs to be repaired. This requires availability of necessary steel products already in stock.
2. The ban on the export of military products during the period of military operations limits the development of the industry. Ukrainian producers are relocating their production facilities and leading personnel to Europe to ensure safety and to be able to export their products.
3. Ukraine is actively renewing its industrial equipment fleet at the expense of European grants and state-funded programs. Now Ukrainian enterprises receive modern automated machine tools from Europe, Japan, South Korea, where it is only necessary to enter the drawing of the product into the computer, and the machine will independently grind this product from a steel blank. At the same time, this equipment has high requirements to the quality of the workpiece.
4. Dispersion of production facilities. The organization of the military-industrial complex in the USSR implied concentration of production at closed plants of full cycle for the production of a certain product. Now the enterprises of the Ukrainian defense industry are a priority target for the Russian Federation, so the capacities are dispersed, and a separate machine-building plant makes a single part of the overall product.

If we talk about other segments of machine building, the recovery is much slower. We see less demand from railroad and agricultural machine building, as well as hydraulic equipment producers. In the mining and quarrying segment, we see stagnation due to the cessation of coal production due to the loss of mining capacities and destruction of generating capacities.

Domestic production and imports

There is only one plant in Ukraine specializing in the production of steel products for machine building. It is the only Ukrainian producer of special steel grades, produces all types of rolled steel and various remelting processes – conventional open arc smelting, vacuum arc smelting and electroslag smelting, and has forging production. Such production is very difficult to relocate somewhere, so the company is exposed to risk and at some point may suspend production.

Other Ukrainian producers to a lesser extent, but also produce machine-building products. ArcelorMittal Kryvyi Rih produces a limited size and grade range of ‘machine-building’ products, as the company initially specialized in construction grade. In its turn, Metinvest produces and develops new products for machine building, including at its foreign assets.

Ukraine’s steel industry has been seriously affected by the military actions, some assets were lost back in 2014, including enterprises specializing in machine-building products – Donetskstal, Istil, and DMPZ.

The operating enterprises are experiencing difficulties, in particular, a shortage of workers due to difficulties with booking, as the enterprises have the opportunity to book only 50% of their employees. Against the background of all this, the need for imports may inevitably arise.

Import of steel products for machine building allows to cover the needs of Ukrainian consumers relatively quickly. Its geography is quite wide. The simplest machine-building steel products – structural carbon steel grades – are mainly imported from Turkey. More complex ones are supplied from European countries – Poland, Romania, Bulgaria, Czech Republic, Germany and Italy.

Outside Europe, the main supplier is China, which produces all kinds of complex steel products – electroslag, vacuum, vacuum induction remelting, which Ukrainian defense industry needs. If in Ukraine there is only one such plant, in China, probably 90% of enterprises produce specialized products. That is why imports from this country have been growing in recent years.

Prospects of machine building

For the first quarter we already see an increase in sales of steel products by 10-12%, so by the end of 2025 we expect the recovery to continue and sales to increase by at least 15%.

In general, Ukrainian machine building has a huge potential. The Ukrainian defense industry alone can produce $35 bln worth of products per year, but today it produces only $14 bln. We will have to work hard both within the framework of post-war reconstruction of the country and the industry, as Ukraine needs to restore entire segments of machine building as a result of occupation and destruction.

Huge opportunities also exist within the framework of infrastructure rehabilitation. We have a colossal wear and tear of the freight car fleet, and at the same time railroad car building enterprises are under-utilized. The energy and oil and gas infrastructure needs restoration and development.

The agricultural machinery industry in terms of production of tillage equipment is making great efforts to develop export potential, and many Ukrainian brands present their products at international platforms. Ukraine has a huge agrarian potential and it can be realized with the help of products of Ukrainian agricultural machinery producers.