Metals and mining
- Executive summary
- Sector overview
- Trends and developments
- Leading players
- Organizations and associations
- List of references
1. Executive summary
Metals and mining sector in Ukraine is represented by
ferrous and non-ferrous metallurgy which includes variety
of processing stages starting from mining and raw
materials enrichment and ending with production of
metals and alloys.
Ferrous metallurgy produces iron ore and ferrous metals
including steel, pig iron (with a carbon content of a
few percent) and alloys of iron with other metals (such
as stainless steel and other types of alloyed steel). Nonferrous
metallurgy produces aluminum, copper, zinc, titanium,
nickel, magnesium, platinum, gold, silver as well
as other non-ferrous metals including their alloys.
At the same time the scale and degree of ferrous and
non-ferrous metallurgies development in Ukraine is different.
Specifically, the share of non-ferrous industry in
the structure of Ukrainian GDP is relatively small (2010:
less than 5%), which is due to relatively insufficient in industrial
terms known reserves of respective mineral resources
in Ukraine. In contrast, due to literally immense
proven and probable reserves of iron ore, ferrous subindustry
has strong potential and historically has played
a key role in Ukrainian economy. In the recent years ferrous metallurgy contributed approximately 20-25% into
GDP and generated approximately 30%-35% of Ukrainian
High export orientation of entities representing Ukrainian
metals and mining sector (80% of the output would normally
go to export), positions Ukraine among key global
players. Based on the export statistics for 2011, Ukraine
is the 5th largest iron ore exporting country and 6th largest
steel exporting country in the world, exporting 34 m
tons of iron ore and 26 m tons of steel respectively.
In spite of Ukraine’s currently strong ranking, metal and
mining sector of Ukraine needs to invest approximately
USD 15-20 bn within a decade to overcome existing
Without intensive modernization of heavily depreciated
production facilities, minimization of negative environmental
impact and long-awaited technology changeover,
in the medium perspective Ukrainian metal and mining
producers may loose their leadership due to inability
to further challenge technological superiority of other
2. Sector overview
Metals and mining sector of Ukraine is mainly represented by ferrous metallurgy.
According to the State Statistics Committee of Ukraine turnover of non-ferrous production in 2010 comprised only
6% of the total metallurgical production. As for ferrous metallurgy the highest percentage of the total metallurgical
production comprised pig iron, steel and ferroalloys production – 82%, followed by pipes production and other kinds
of primary steel processing, which constituted 8% and 3% respectively. The total turnover of metallurgical production
in Ukraine in 2010 comprised UAH 182,251 m.
Metalurgical products turnover structure in 2011, UAH bn
Currently ferrous metallurgy combines more than 200 entities, including 19 integrated steel mills and plants, 12 tube plants,
12 coke plants, 10 refractory plants, 12 mining and metals enterprises, a number of ferroalloy plants and more than 100
companies specializing in scrap and waste metals reprocessing. Metals and mining sector has a long history in Ukraine.
It’s main advantages are:
- Strong internal metal consumption (metal intensive machine building);
- Rich and suitably located resource base (iron ore, coking coal, cheap electricity etc.);
- Developed transport network and proximity to global markets;
- High degree of vertical integration;
- Skilled workforce.
Key production inputs
The mining and metals sector of Ukraine is comprised from enterprises performing the following activities:
- Mining and preparation of key inputs for further processing (ore mining, production of ore concentrate and pellets);
- Ferroalloys production;
- Coke production;
- Metal processing – key technological process resulting in production of pig iron, steel, semi-finished products from
ferrous metals (slabs, rods, billets, tubes etc.) and alloys;
- Scrap and by-products utilization.
The diagram below schematically demonstrates major production stages within mining and metal sector.
The key production input for ferrous metallurgy in Ukraine
is the iron ore. For instance, combined iron ore and coke
comprise around 50% of a steel billet cost. Apart from iron
ore and coking coal, scrap and ferroalloys form around
17% of a steel billet cost.
Ukraine is fully self-sufficient in iron ore supply, somewhat
reliant on coking coal and significantly reliant on non-ferrous
ores supply being a net importer of non-ferrous ores
required for production of ferroalloys.
Billet production cost, USD per ton, EXW (for non-integrated mills in Ukraine)
Proven and probable iron ore reserves
According to US Geological Survey (2009) Ukraine has the largest deposits of crude iron ore reserves in the world of approximately
30 bn tons. Relatively low ferrum content (30%) in Ukrainian ore ranks it 3rd after Russian and Australian ores
in terms of ferrum content in proven and probable ore reserves.
World iron ore reserves in 2009
Ukrainian mining and beneficiation companies (also referred to as GOKs) extract iron ore via both underground and open
pit mining. Ore mined from underground has ferrum content of 50-60%, while ferrum content of crude ore mined from
open pits is only around 26-33%.
Metals and mining sector output and structure
The diagram below demonstrates Ukraine’s metals and mining sector output and structure in dynamics.
Ukraine’s mining and metals sector output, m tons
As can be seen from the diagram above on the whole output
of metals and mining sector in Ukraine tends to grow,
except for 2008 when global metal markets collapsed due
to the world financial crisis.
The impact of the crisis can be felt even now: in 2011
Ukraine produced 35.5 m tons of steel which is significantly
lower than in the pre-crisis 2007 and hardly matches
the level reached in 2002. At the same time the output
of non-agglomerated iron ore (the key input of steel production)
in 2010 and 2011 surpassed the pre-crisis level.
The latter was in line with the global tendency of raw materials
prices appreciation and more fierce competition
between steel producers on the global arena in the post
crisis period due to existence of unutilized production capacities.
As a result of the mentioned trends since 2008
profit margins have been improving for Ukrainian exporters
of iron ore as well as of other raw materials (coke,
coal) and deteriorating for exporters of steel and semifinished
Currently Ukraine is a serious global player. In 2011 it ranked No. 8 in terms of global crude steel production, No. 5
among top steel and iron ore exporting nations and No. 3 in terms of proven and probable deposits of iron ore.
TOP steel exporters , m tons
Exports of iron ore, m tons
TOP-15 crude steel producers, m tons
The further development and growth of the mining and
metals industry in Ukraine is highly dependent on the
global and domestic demand, timelines of technological
changeover, and ability to produce new marketable metal
products that would be a descent substitute to the imported
metals and alloys.
Metals production capacity
In 2011 crude steel production capacity of Ukraine comprised 46.6 m tons. During the year these capacities were
utilized at a rate of 75.8% (2007: 95.4%).
Crude steel capacity utilisation in Ukraine
Steel making capacity utilization, %
Although the level of unutilized steel production capacity was in high correlation with the global average it declined significantly
during the post-crisis period.
Together with the overall decline of the global demand for steel this trend also indicates Ukraine in the post crisis period has
experienced more severe competition from other more technologically advanced global steelmaking players.
Ukraine’s steelmaking technology, in general, is decades behind that of most other major steel producing countries. As a
result, steel companies have not been able to reap maximum cost benefit from the country’s strong raw material sector.
According to the World Steel Association in 2011 Ukraine was the country with the highest percentage of outdated open
hearth furnace (“OHF”) technology used in production of crude steel among 10 major steel producing countries.
TOP-10, crude steel producers by technology used in 2011, %
As can be seen from the table above, “OBC” technology was the most popular among the major steel producing countries
such as China (89.6%) and Japan (76.9%) in 2011.
According to the State Statistics Service of Ukraine, the technological structure of steel making capacity in Ukraine in
2005-2011 was as follows.
Ukrainian steel capacities by process, m tons
During 2011 4.0 m tons of OHF capacities in Ukraine were
decommissioned, whereas 4.0 m tons of OBC and 1.3 m
tons of EAF capacities were put in use. Further replacement
of open hearth furnaces by more productive, more
energy efficient and less polluting EAF furnaces and converter
units will remain a priority for Ukrainian metallurgy
in the coming years. Complete replacement of OHF in
Ukraine is planned to be completed by 2018.
Evidently the lack of modern equipment constrains
Ukraine steel industry’s ability to produce and sell higher
value added products, including carbon plate and hotand
cold-rolled steel, instead concentrating on semi-finished
Continuously-cast steel output by country in percentage to the crude steel output in 2011
The graph shows, that only 53.9% of crude steel output
in Ukraine is processed further, while in other major steel
production countries like China, Japan and United States
almost 100% of crude steel is continuously-cast before
going to the finishing mill.
Furthermore, in first half of 2012 most Ukrainian steel
producers reduced finished roll production by 7% y-o- y,
produced 14.962 m tons of finished roll. During the same
period crude steel production fell by 3% to 16.939 m tons,
but pig iron production rose by 2% to 14.521 m tons.
3. Trends and developments
Output and consumption trends
The volume of steel consumption in Ukraine is growing, but is still far below pre-crisis levels.
Steel products consumption, m tons
The expected growth rate of apparent steel consumption in Ukraine in 2012 is 10% vs. 26% in 2011. In 2012 steel import
to Ukraine is expected to be nearly 2.1 m tons.
Prices for metals and key raw materials in Ukraine
Prices for iron ore and coking coal in Ukraine in 2012 are expected to decline by 13% and 5% respectively in response to
declining prices at the global steel markets. At the same time shortage of scrap will support growing price trend (+8.6%
Tear-and-wear of metal making facilities
Today, the pace of renovation and modernization of iron and steel enterprises outperforms estimated figures outlined by
the State Program for development and reformation of mining and metallurgical companies till 2012 (approved in 2004).
In 2006-2007, capital investment in the modernization of iron and steel enterprises have reached the average European
levels (USD 28.3 and USD 48.5 per ton, respectively).
At the same time tear-and-wear level of Ukrainian iron and steel production facilities (65% and more) is twice above the
similar indicators in EU.
Low profitability of Ukrainian iron and steel enterprises in 2009-2011 amid steel prices volatility and high raw material
prices forced steel making enterprises to join companies controlling highly-profitable iron orereserves. As a result,
Ukraine’s iron and steel industry consolidated into the vertically merged holdings.
Internal market perspectives
Stronger domestic demand was recorded for rolled
products in 2011 at almost 7.7 m tons, while the last
year`s figure totaled only 5.3 m tons. Analysts attribute
an upward dynamics to the revival of the domestic machine-
building industry (especially, car-building sector)
and partially to the recovery of the construction industry,
including construction works related to Euro 2012. Still
domestic market uses about 25% of the output. Increase
in domestic consumption could be reached through implementation
of complex program aimed at renovation of
metal fund (content of metal in the countries production
facilities). Currently 337 out of 571 m tons of Ukraine`s
metal fund is depreciated and worn-out (60%). This fact
shows existence of the powerful internal growth factor
for metals and mining industry in Ukraine.
The total power consumption of Ukrainian steel making
enterprises required for the production of cast-iron and
steel is about 30% higher than for modern production
facilities based in EU-27, India and China. Energy-output
ratio per ton of steel in Ukraine reaches 840 kg of
equivalent fuel while in EU countries this indicator is 1.9
times lower (450 kg of equivalent fuel). The cost of fuel
and energy resources accounts for 50% of rolled metal
products cost, while in some countries this indicator
The production of one ton of steel in Ukraine requires
52.8 man-hours, whereas in Russia and Germany this
figure totals 38.1 and 16.8 man-hours, respectively.
The whole world demonstrates tendency towards development
of flexible electrometallurgy, thus replacing
inefficient and outdated open-hearth furnaces. Though,
open-hearth furnaces are still in operation in Ukraine,
Russia and India.
Operating at full production capacity a Ukrainian entity
doing primary steelmaking from ores, is able to demonstrate
labor productivity close to 200-250 tons of steel
per worker per year. In contrast labour productivity of
a contemporary electrometallurgical mini mill would be
3000-4000 tons per annum.
4. Leading players
The following companies are considered to be the key players of Ukrainian mining and metals sector
These companies control 100% of Ukrainian GOKs (mining and beneficiation companies) and significant share of metal production.
5. Organizations and associations
Licenses, permits, limitations
As subsoil is the exclusive property of Ukrainian people it
can only be used and not owned. Mining operations including
those performed according to product sharing agreements
(hereinafter referred to as the “PSA”) are in general
treated as subsoil use.
Ukrainian legislation requires licensing for the following
types of activities within metals and mining sector:
- Extraction of precious metals and stones, precious
stones of organigenic origin, semiprecious stones;
The licensing body is the State Service of Geology
and Subsoil of Ukraine (hereinafter referred to as the
- Storage, recycling, metallurgical processing of scrap
base and ferrous metals. The licensing body is the Ministry
of Economic Development and Trade of Ukraine;
- Collection, primary operations with waste and scrap of
precious metals and stones, precious stones of organigenic
origin, semiprecious stones. The licensing body
is the State Assay Office of Ukraine.
For use of subsoil it is necessary to obtain special permit.
Special permits are issued by SSGS (through auction with
some exceptions) after agreement of the land plot issue
(if required) with local councils. The issue to be noted is
that the owner of special permit cannot alienate his rights
on subsoil use granted by the relevant special permit and
cannot contribute such right to authorized share capital.
There is an exception when the rights may be transferred
to the third parties simultaneously with transfer of rights
and obligations under PSA with mandatory reissuance of
respective special permit.
There are three main types of permits:
- For the purposes of mining operations special permits
are granted for 20 years (30 years for gas and
oil within offshore sea and exclusive economic (sea)
zone). The term can be prolonged;
- For the purposes of geological survey of mineral
deposits of state importance, for extraction of fresh
groundwater, development of peat deposits another
special permit is required. There are additional approval
procedures with regard to these types of activities
(with Ministry of Ecology and Natural Resources
of Ukraine (hereinafter referred to as “MENR”), State
Committee of Ukraine for Supervision on Labor Safety,
Ministry of Health of Ukraine). Special permits of
this type are granted for 5 years (10 years for gas and
oil subsoil). For some cases terms are 20 (30) years;
- The third type of special permit is permit for some
mining and construction related operations. Such
permits may be granted for 20(50) years.
After obtaining special permit the company should start
mining within two years (180 day for gas and oil) otherwise
such permit will no longer be valid (this rule is not
applicable for PSA).
There are also special requirements for storage, recycling,
metallurgical processing of scrap (i.e. companies
which perform such activities should have qualified staff
and relevant equipment, ensure ecological safety, possess
equipped land plot and to be compliant with other
The central executive bodies in the sphere of metals and
mining are Ministry of Economic Development and Trade
of Ukraine and MENR. Other authorities involved in management
of this field are: SSGS, State Assay Office of
The main legislative act governing the industry is the
Code of Ukraine on Subsoil dated 27 July 1994. Additionally,
there is a significant number of other regulatory acts,
including those of the Cabinet of Ministers of Ukraine.
Metals and mining enterprises as a general rule are
obliged to pay corporate income tax (hereinafter referred
to as “CIT”), Value added tax (hereinafter referred to as
The CIT is currently calculated at a flat rate of 19% until 31
December 2013 and 16% from 1 January 2014 onwards.
VAT is currently levied at a rate of 20% of the taxable value
of domestic supplies, imported goods and auxiliary services.
The VAT rate will be reduced to 17% from 1 January
Additionally to CIT and VAT enterprises of metals and mining
sector are taxable with special taxes/duties below:
Business entities using subsoil for the extraction of mineral
resources (including extraction of mineral resources
during geological surveys), on the basis of abovemen
tioned special permits, must pay subsoil usage duties.
For tax purposes, duty payers should maintain separate
(from other types of activities) financial and tax accounting
of incomes and expenses for extraction of each type
of mineral resource for each type of subsoil, for which a
special permit is provided. The duty rate depends on the
type of resource extracted and the volume of mineral resources
extracted during a reporting period. For example,
use of land to perform oil and gas extraction is charged
at UAH 147.63 (app.EUR 13.8) per ton of oil and at UAH
42.05 (app. EUR 4) per 1000 cubic meters of gas.
- Rent duty for extraction of oil, gas and gas condensate
Rent duty rates for extraction of oil, gas and gas condensate
depend on the volumes of natural gas, oil and gas
condensate extracted in relation to the depth (i.e., above
or below 5,000 meters) of the subsoil plots, from which
these resources are mined. Rent duty for oil and natural
gas extraction is currently charged at UAH 2,141.86 (app.
200) per ton of oil and at UAH 237 (app. EUR 22) per 1000
cubic meters of gas for wells that are less than 5km deep;
and at UAH 792.54 (app. EUR 74) and UAH 118.5 (app.
EUR 11) for oil and gas respectively for wells that are more
than 5km deep.
Environmental tax is levied on pollution of air and water
and relates specifically to a number of environmental
problems caused by shale gas and oil extraction technology.
The environmental tax is a complex and subjective
area of taxation that is linked to the type of pollution, storage
and waste. The tax depends largely on the method
of extraction and permit held by the PSA/Joint Venture
Agreements and is paid by legal entities engaged in shale
gas and oil extraction.
7. List of references:
- Billet production cost // Ukr Prom Zovnish Expertyza
- Yearbook // State Statistics Service of Ukraine , Kyiv 2010 - ukrstat.gov.ua
- Global ranking // ISSB, - http://www.issb.co.uk
- Statistics // The World Steel Association, - worldsteel.org
- Market Statistics // OECD, - oecd.org
- Market Statistics // UPE Co
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