Attacks on the energy infrastructure have complicated the work of the steel sector

As a result of repeated October rocket attacks, about 40% of the entire energy infrastructure of Ukraine was damaged – dozens of energy facilities (thermal power plants, hydroelectric power stations, substations) in many regions of the country. This immediately affected the stability of the Ukrainian energy system and the supply of electricity to residential and industrial consumers.

Interruptions in the supply of electricity negatively affect business sentiment and lead to a decrease in economic and industrial activity. By the autumn of this year, business under the conditions of war had already been able to adapt to the new conditions. However, problems with the provision of electricity have become a new and strongest test, including for iron and steel companies.

The largest energy consumer

In 2021, steel industry became the largest energy consumer after the population. According to Ukrenergo, the industry accounted for 23% of electricity consumption in the country in 2021, which is only less than the population indicator – 30.8%. For comparison: the rest of the industry accounts for 18.6% of consumption.

The volume of electricity consumption by the industry in 2022 after the start of the war automatically became confidential information. Taking into account more than 65% decline in steel industry production, the size of the decline in consumption can also be estimated at 60-70%.

“Ukraine’s total energy consumption is typically 24 GWh. However, it dropped to 9-10 GWh. The reason is that several large factories in the east of the country no longer use electricity. In fact, a significant part of Ukraine’s industry has stopped. The rest of the energy needs can be easily covered by power plants that are under Ukrainian control. We don’t need as much electricity as we used to. Our plant consumed about 500 MWh,” says Mauro Longobardo, CEO of  ArcelorMittal Kryvyi Rih.

Current situation

After rocket attacks on October 10, iron and steel companies stopped or limited their powers.

Now, after the continued destruction of the country’s energy infrastructure, iron and steel companies surveyed by GMK Center generally try not to comment on the impact of shelling on their operations, as the situation is changing very quickly.

On the one hand, this influence certainly exists.

“Due to massive missile attacks on energy infrastructure facilities and the resulting power shortage in the energy system, the plant has reduced production,” say the workers of Zaporizhstal Iron and Steel Works.

Energy-intensive enterprises will suffer the most from the restrictions – plants with electric steel-smelting capacities, including ferroalloys. For example, from the beginning of November Pobuzhsky Ferronickel Plant was forced to stop production due to damage to power supply facilities.

On the other hand, production is partially resumed, while enterprises operate at reduced volumes.

“Currently we are working with only one blast furnace, which means a capacity of 100,000 tons per month. Compared to the 500-550 thousand tons per month that we had before, this means a load of 20-25%,” notes Mauro Longobardo.

Restrictions in the supply of electricity also affected the mining segment. As a result of Russian shelling of the country’s energy infrastructure on October 10, the company Ferrexpo temporarily stopped production at its enterprises. Subsequently, after repair work, the company partially resumed activities.

“The energy supply of the group’s enterprises remains unstable and limited, which affects the profitability of production. As a result, the group is now focused on using its inventory of finished iron ore to supply its customers,” says Ferrexpo.

According to GMK Center Chief Analyst Andriy Tarasenko, electricity is the main energy resource in the production of concentrate. Producers of underground sinter ore, where electricity is important for mine transport, ventilation, and drainage, will also suffer. These are critical processes for mining not only iron ore, but also coal.

“In connection with the requirement of the electricity distribution system’s operator in the Dnipro region to reduce electricity consumption by 50%, the power supply of some sections was switched to power from diesel generators. Residential and administrative buildings remain powered by the main power grid,” says Sergiy Koverny, chief power engineer of a mining company Rudomine.

It is important to note that industry enterprises themselves are making efforts to reduce energy consumption.

“A strict energy saving regime has been introduced at the enterprise. The briefings with employees about turning off the light in rooms where there is no staff were conducted. External lighting is off. As a result, we got about 30% reduction in consumption,” says Sergiy Koverny.

In turn, Zaporizhstal developed a plan to reduce the consumption of purchased electricity in the conditions of active production – facilities that can operate at reduced parameters during the peak period were identified, production was reoriented to the production of commercial pig iron, etc.

Also, in the current conditions, the solution to the problem to a certain extent can be a partial transfer of production to night operation. For example, a plant for the production of stainless pipes Centravis in the 20th of October transferred the main output to night shifts to reduce the load on the power system. In general, the company operates in three shifts.

Difficult future

With each new attack, the country’s energy infrastructure received more and more serious damage, which led to emergency and longer blackouts. The authorities even began to form a list of enterprises that have an advantage in electricity supply.

The seriousness of the situation is indicated by the fact that the company DTEK has already used a stock of equipment to repair damaged power facilities, and Ukrenergo is working to attract loans and grants from EBRD and World Bank on hundreds of millions of euros to repair damage to the power grid.

The duration of the problematic energy situation could negatively affect the already low indexes of the industry. If earlier, at the end of the 2022, steel production was expected at the level of 6.5-7 million tons, then after attacks on the energy infrastructure and blackouts, the forecast will need to be revised downward. However, now no one dares to predict the level of a possible decline in steel production in Ukraine in 2022.

“Now it is impossible to give even an estimated forecast, since the situation is changing every day. We do not know what the situation with infrastructure facilities will be tomorrow and how the energy system will work in a month, ”a source in the industry notes.

Due to the war, the Ukrainian iron and steel complex faced the destruction of production, logistical difficulties in obtaining raw materials and exporting products, interruptions in the supply of electricity, rising energy costs, a decrease in demand in foreign markets, etc.

Already, the decline in steel production in Ukraine is more than 65%. In turn, European steelmakers faced only a part of these problems – a decrease in demand and an increase in costs due to an increase in the cost of energy resources. In 2022, the EUROFER Association expects a decrease in the consumption of steel products in the EU by 3.5%, which cannot be compared with Ukrainian indicators.