Ukraine could become a primary iron ore DRI supplier to Europe, Metinvest CEO says

Ukraine-headquartered Metinvest is an international, vertically integrated mining and metals company with mining and metallurgical assets in Ukraine, Europe and the United States.

"Ukraine's strategy, initiated before the start of the war, must be to continue building plants for the production of DRI. By intensifying these productions, we will be able to supply European users. This would bring Ukraine even closer to the EU, becoming an integral part of the European steel production chain," Ryzhenkov said.

"This must be the way, and I do not see any other option on the horizon. If Ukraine wants to strengthen its industry, its economy needs the European market," he continued. "Unfortunately, we have taken steps backward, but now is the time to move back along this path. We must ensure that the tragedy of the invasion can open up new opportunities."

Most European blast furnace (BF)-based steelmakers have been investing in green steel projects in the past years, cutting carbon dioxide emissions to comply with strict EU regulations. Under the European Green Deal, the European Commission proposed a new EU target to reduce greenhouse gas emissions by at least 55% by 2030, compared with the levels emitted in 1990.

The transition from traditional blast furnace-based steelmaking to so-called "green" routes of production – replacing BFs and basic-oxygen furnaces (BOFs) with DRI plants and electric-arc furnace (EAF)-based steel production plants – has become a core element in major European steel companies’ strategies recently, in view of Europe's ambitious climate-control goals.

Additionally, the growing cost of carbon emissions in the EU has pushed mills to seek alternative ways of making steel.

The price of a carbon emissions permit in the European Union was around €90-97 ($99-107) per tonne in April 2023, down from an all-time high of €100.34 in February. The EU intends for the free allocation of such permits to be fully eliminated by 2023.

"The war actually started in 2014, so in 2022 we saw an escalation of a longer conflict. This experience has helped us over the past year. Somehow, we came prepared and knew how to proceed, even though we were forced to suspend production in the first months. We engaged in supply diversification, found new sources of raw materials and reshaped our supply chain," Ryzhenkov said.

Those measures allowed Metinvest to end 2022 on a positive financial note, he added.

In 2022, the company generated $8.29 billion in revenue and managed to register positive earnings before interest, taxes, depreciation and amortization (Ebitda) of $1.87 billion.

This was, however, a sharp decline compared with the $18 billion in revenue and $7 billion in Ebitda that Metinvest reported in 2021.

Ryzhenkov noted that "2021 was a very positive year for several producers worldwide, including Metinvest."

Still, "one of the main strengths of our group is diversification, and we were able to keep intact and active the assets that were far from the combat zones," he said. "This gave us the necessary strength to generate last year's results."

In mid-October 2022, Russia launched a campaign of illegal aerial bombardments targeting Ukraine's power generation and transmission facilities. In late November, production at Metinvest's facilities across Ukraine suffered an emergency stoppage because of a lack of power supply.

Later, the affected Ukrainian facilities resumed operation.

The company operates two steelmaking assets in Ukraine: Zaporizhstal Iron & Steel Works in Zaporizhzhia and Kamet Steel in Kamianske. Both assets are currently operating at a capacity utilization rate of 60-70%, Ryzhenkov said.

Metinvest's other two steelmaking assets – Azovstal and Ilyich Steel – are both located in the occupied port city of Maruipol and halted operations in February 2022 due to war damage after Russia invaded Ukraine.

Before Russia's invasion of Ukraine in February 2022, Metinvest had plans to covert its Azovstal steelworks into a green steelmaking facility and replace its blast furnaces and BOF converter with DRI modules and electric-arc furnaces.

"The steel plant [Azovstal] has, in fact, been demolished, but this must be an opportunity. We want to rebuild a new Azovstal and turn it into a center for the production of DRI and green steel. Our shareholder Rinat Akhmetov said he would not spare any expense to rebuild Ukraine and Mariupol and we will work to rebuild Azovstal," Ryzhenkov said.

As for Metinvest's raw materials business, Ryzenkov said that the company's iron ore operations were operating at 35-45% of capacity, with logistics issues (Black Sea ports being blocked by Russia) being the major obstacle blocking production from ramping up.

The company's coking coal operations are running at nearly 100% of their capacity utilization rate, supported by demand from outside Ukraine, with the major export destination being Eastern Europe.

Metinvest owns three flat steel rerolling mills in Italy and the United Kingdom: Trametal, Ferriera Valsider and Spartan. All three used to receive slab from Metinvest's operations in Ukraine, notably Azovstal in Mariupol.

In Italy, Metinvest operates two rolling mills.

Ferriera Valsider has two rolling lines for the production of heavy plate and hot-rolled coil. The heavy plate mill has capacity for 400,000 tonnes per year, while the HRC mill has capacity for 600,000 tpy. Trametal is equipped with a heavy plate mill with capacity for 600,000 tpy.

After Russia's invasion of Ukraine, shipments of steel slab from Ukrainian assets to Metinvest's mills in Europe were substituted by supply from Southeast Asia and Europe, Ryzhenkov said.

"European operations are currently operating in a stand-alone mode, at 100% capacity," Ryzhenkov said.

Metinvest has expressed interest in acquiring steelmaking assets in Europe, notably Hungary-based steelmaker Dunaferr, Fastmarkets reported in January. Supply-chain disruptions caused Dunaferr to halt its steelmaking operations altogether in September 2022, but an acquisition by Metinvest would allow the company to utilize the potential of its Ukrainian mining and processing plants in Kryvyi Rih.

"We are currently studying documentation [for Dunaferr steelworks], but we are not yet sure we are going to take part in the tender process," Ryzhenkov told Fastmarkets.

The tender for Dunaferr's sale is supposed to take place in June, with Liberty Steel, Hesteel and Jindal Steel named as potential bidders, among others.

Apart from acquiring the Dunaferr facility, Metinvest also has said that it would consider investing in a new steelmaking asset in Europe, Fastmarkets reported previously.