Ukraine’s iron ore exports: why are they falling?

Ukraine’s iron ore industry, one of the main contributors to the state budget, found itself in a critical situation at the end of the first quarter. The unfavourable demand and pricing environment in international markets was exacerbated by negative domestic factors – which, could have been avoided. The situation can however, still be corrected, but delaying any solutions is fraught with severe consequences.

External factor: forecasts are coming true

The Ukrainian iron ore industry of is export-oriented. That is, most of its products are sold under foreign trade contracts. This means that iron and steel plants provide hard currency for the national economy, and contribute to sustaining the hryvnia from collapse.

Starting from February 2022, the industry faces unprecedented wartime challenges. In particular, due to the blockade of Ukrainian Black Sea ports by the Russian fleet, iron ore supplies to Far East Asia, the most important market for all major players, was suspended. As a result, by the end of 2022-2023, there was a significant decline in production and exports of iron ore products.

But already in 2024 Ukraine was able to return to the top five largest global exporters of iron ore. This was due to the Armed Forces of Ukraine establishing a “safe maritime corridor” for commercial shipping in the Black Sea. In physical terms, iron ore exports increased by 90% to 33.7 million tons. In monetary terms – by 59%, to $2.8 billion. Is this a lot or a little?

For comparison. At the end of March 2023, the International Monetary Fund approved for Ukraine a four-year credit program extended fund facility (EFF) in the amount of $15.5 billion. As of March 31, 2025, the government received seven tranches of the EFF totaling $9.8 billion. That is, iron ore exports in 2024 gave the country half of the annual loan from the IMF – which, as we know, will have to be repaid, with interest.

Unfortunately, this year, the support of the national economy by the iron & steel companies has come into question. According to the results of the first quarter, the export of iron ore in monetary terms decreased by 20% y/y, to $687.8 mln.

As can be seen, the value of imported Fe 62 iron ore in the port of Qingdao (the main global indicator) has been falling since December 2023, i.e. for more than a year. The reason is the crisis of steel overproduction in China. Local steelmakers no longer need as much raw materials as before. That is, earlier they had properly “warmed up” the mining sector with their growing demands, but now the pendulum has swung the other way.

It takes years to correct the resulting imbalances in the market, which is not a quick process. Therefore, the recovery of prices for iron ore is not expected in the foreseeable future. We can only expect a furtherdeterioration.

Thus, in early April, the Australian Department of Industry, Science and Resources confirmed its previous forecast, according to which the average world iron ore price in 2025 will fall to $85/t compared to the previously expected $95/t. This is a very worrying signal.

GMK Center previously forecasted a 15% reduction in Ukrainian iron ore exports in 2025, to 27 million tonnes, with the average price falling to $95/t versus $110/t in 2024. That is, if the gloomy expectations of Australian analysts are realized, we are in for a real collapse.

At the same time, already now, at $95/t, the supply of iron ore to China for Ukrainian mines may be unprofitable. Since high dollar inflation in Ukraine has significantly increased the costs of iron ore companies.

Domestic factor: short-sighted approach

Unfavourable conditions on foreign markets are not the only reason why Ukrainian iron ore exports are beingthreatened. We should also add the forced reduction of production capacity. Thus, in mid-March it became known about the shutdown of the Kryvyi Rih Iron Ore Plant (KZRK), the country’s largest producer of sinter ore.

The management had to take such a decision because of a catastrophic shortage of working capital needed for current expenses: salaries to employees, payment for electricity, etc. In many respects, this is a consequence of Russia’s destruction of the Mariupol steel mills. This deprived KZRK of the main buyers of products on the domestic market.

The situation was aggravated by the state’s debt of over UAH 330 mln on VAT refund for the export of iron ore sinter. In other words, if the State Tax Service had transferred this money to the enterprise in time, it would have been able to pay off the power engineers and its own personnel. And continue its work without resorting to downtime.

Ferrexpo, a top-three exporter of iron & steel products, faced the same problem in March. In this case, the tax authorities did not refund a much larger amount of export VAT – UAH 513 mln. This means that the consequences will be much more serious. Not only for Ferrexpo itself, but also for the Ukrainian economy as a whole.

“We have already been forced to reduce production to 25% of our full capacity and will not be able to produce approximately 4 million tons of products in 2025”, said the head of the trade union committee of Poltava Mining and Processing Plant (part of Ferrexpo) Dmitry Vinivitin.

At the end of the first quarter, Ferrexpo reduced its production of iron ore by 26% to 1.35 million tonnes. Most of this production is exported. Its reduction not only “cuts” currency revenues to the economy, weakening the support of the hryvnia. It is also an inevitable drop in tax payments (since February 2022 Ferrexpo enterprises have paid more than $300 mln to the budget). Whether a warring state can afford such a “luxury” is a rhetorical question.

But the negative consequences do not end here. It is important to remember that the activities of Ukrainian iron & steel plants are integrated into chains of cooperative ties. The four million tons of Ferrexpo’s forecast underproduction, mentioned above, is “ four million tonnes less capacity pushed through state-owned company PJSC Ukrainian Railways. And 4 million tonnes less of cargo transshipped through Ukrainian ports. As a result of this knock-on effect, their contributions to the state budget will also fall.

In the conditions of the war, when the economy has collapsed and every large operating enterprise in the country is literally “worth its weight in gold”, such actions on the part of the tax authorities are shortsighted.

The tariff policy of state monopolies, which regularly raise the cost of services for industry, can also be considered as “shortsighted”. At the same time, neither the state corporations themselves (PJSC Ukrainian Railways, NEC Ukrenergo, NJSC Naftogaz of Ukraine) nor in the Cabinet of Ministers, it seems, nobody asks a question: can the market, i.e. in this case industrial enterprises, “swallow” these increases painlessly?

As far as the iron ore industry is concerned, the answer to the question is unambiguously no. Igor Tonev, executive director of United Mining and Processing Integrated Works (which includes Northern, Central and Ingulets Mining of Metinvest Group), admitted in mid-March that the group was forced to shut down Ingulets Mining in 2024 due to the increased tariffs for electricity and gas transportation.

According to Tonev, Ukrainian Railways and the Cabinet of Ministers are now planning to increase the cost of freight transportation again. “Everyone loses from this,” the senior manager emphasised.

The increase in tariffs results in an increase in production costs for mining and processing plants. Against the background of falling sales margins caused by low prices for iron ore products. This forces enterprises to reduce production. After that, the same Ukrainian Railways loses income due to a decrease in freight transportation.

Tonev specified that last year the capacity utilisation of the United Mining and Processing Plant was at 50% of its potential. Obviously, it could have been more – if tariff “appetites” of state monopolies had been more supportive of big business.

In mid-April, it became known that Ukrainian Railways had made changes to the plan of train formation in the direction of Odessa seaport, the main transshipment hub for Ukrainian iron ore exports.

As calculated by the ArcelorMittal Kryvyi Rih Iron and Steel Works (which includes Novokrivorizhsky Mining), the tariff distance for trains with cargoes of the company will be increased by 257 km. Accordingly, the cost of transportation and production will increase.

“We consider such a change of routes by the state monopoly Ukrainian Railways artificial and groundless. It negatively affects our competitiveness and jeopardises our need to at the least reach break-even”, said the administration of the plant.

Meanwhile, at the end of the first quarter, iron ore exports fell not only in monetary terms (due to low prices on foreign markets), but also in kind: by 5.7%, to 8.49 million tons.

Theoretically, domestic demand could support production volumes at mining and processing plants. But steel enterprises have similar problems.

The quarterly statistics turned out to be relatively favourable. In January-March, steel production in Ukraine increased by 2.7% y/y, to 1.73 million tons. But in March there was a drop of 9% y/y, to 550.5 thousand tons.  One of the main reasons is the acute shortage of personnel caused by mobilisation.

The vicious circle of external factors outside the industry’s control and negative domestic factors that could be alleviated, will have a negative impact on iron ore production and exports in Q2, which, in turn, will worsen the situation with budget filling and currency balance.

Obviously, the Cabinet of Ministers of Ukraine cannot raise global iron ore prices. But this does not mean that the authorities cannot do anything. The iron ore industry is in dire need of deregulation and reduction of administrative pressure. It also needs state support. No, not direct subsidies. At the very least, it needs a rational tariff policy of state monopolies and timely fulfillment of VAT refund obligations.