Ukraine’s Steel Industry Threatened by New EU Quotas and Tariffs
Impact of EU Trade Restrictions on Ukraine's Steel Sector
By Dan Peleschuk
ZAPORIZHZHIA, Ukraine, Aug 14 (Reuters) - Workers at Ukrainian steel giant Zaporizhstal have kept the sprawling complex running in the face of years of Russian drones, missiles and bombs.
Now, the nearly century-old mill at the heart of Ukraine's southeastern steel industry faces a new threat to its survival: import quotas and carbon tariffs from the European Union.
Steel products have long been a pillar of Ukraine's economy, accounting for 15% of its total exports. The EU is its top customer, receiving around four-fifths of that output.
The bloc's suspension of import duties after Moscow's 2022 invasion was critical to keeping production steady at Zaporizhstal — a top steelmaker — and other mills, said Oleksandr Myronenko, COO of parent company Metinvest Group.
"Now ... we see the story changing fundamentally," he told Reuters in a recent interview. "Instead of support from the European Union, we face restrictions."
Under new EU rules, which took effect on July 1, the bloc cut its annual tariff-free import quotas by nearly half, while a wide array of imported steel faces an out-of-quota duty of 50%.
Myronenko described the new measures as part of a raft of mounting challenges squeezing his industry, including the closure of Black Sea shipping routes and higher domestic rail costs.
In the latest Russian attack on Zaporizhstal, a strike on Tuesday killed seven workers and forced the temporary closure of the plant.
The new EU quotas for Ukraine of around 1 million metric tons represent a 60% reduction from 2025 trade volumes, according to Kyiv-based consultancy GMK Center.
Mounting Challenges for Ukraine's Steel Industry
MOUNTING CHALLENGES
The new measures are part of a pile-up of challenges facing Ukraine's steel industry, as Kyiv and Moscow spiral towards a new escalation of the air war in the fifth year of fighting.
Russian attacks on Ukraine's Black Sea corridor have cut off the primary route for its steel exports and imports of raw materials, driving up logistics costs for already financially strained firms.
Frequent strikes on the plants themselves, such as Tuesday's ballistic-missile strike at Zaporizhstal, force costly cycles of production suspensions and restarts.
From this month, producers must also contend with a 30% increase in domestic freight tariffs to help cover the state railway's budget, hit by its own higher electricity and maintenance costs.
Oleksandr Kalenkov, president of industry association Ukrmetallurgprom, said the country's once-formidable steel sector and the government must urgently seek exemptions both at home and abroad.
"For us to survive until the end of the year, a lot of different things need to happen," he said, referring to Ukraine's steel industry.
Ukraine's Federation of Employers said the EU trade restrictions could cost the country $1.2 billion in foreign earnings and lead to a 0.6% drop in GDP.
It called on Kyiv to push Brussels for an exclusion and a joint steel import regime.
Logistical and Economic Pressures
UNUSED CAPACITY
Inside Zaporizhstal, a hulking crane loads smoldering, multi-ton slabs of steel onto a conveyor where they are pounded into thin, nearly kilometre-long sheets and rolled into coils.
Large parts of such assembly lines may soon need to be powered down as the plant refocuses on making more pig iron, a semi-finished product not covered by EU quotas, Myronenko said.
But moving away from higher value-added steel products would mean around 50% of plant capacity would go unused, leading to a scramble to reassign workers, he added.
The EU says quotas are needed to protect domestic producers, while the carbon tariffs — which took effect on January 1 and charge producers according to their emissions — are aimed at cutting carbon leakage and promoting cleaner production.
With the Black Sea shipping route effectively closed, the plant faces extra costs of $30 to $40 per metric ton to import the coking coal needed for production through other European ports, Myronenko said.
The result is less efficient Ukrainian steelmakers being squeezed out of a competitive market by Turkish, Chinese and European firms.
"Everyone understands the situation in Ukraine," he said. "But everyone still has their own business, their own people, and they are responsible for them, and so they behave quite aggressively on the market."
Modernisation and the Future of Ukrainian Steel
MODERNISATION ON HOLD
Myronenko, speaking before the latest strike, said that Russian attacks on Metinvest assets like Zaporizhstal have dealt a significant blow to production but that volumes are quickly restored. He declined to specify the frequency or nature of the damages incurred.
The group is able to keep operations going and pay its 36,000 employees, he added. Zaporizhstal is the largest employer in the Zaporizhzhia region. Metinvest is majority-owned by Rinat Akhmetov, Ukraine's richest man.
What remains unclear, however, is the fate of the company's $8 billion, 15-year modernisation plan to eventually produce strictly "green steel", which Myronenko described as "unrealistic" in wartime.
In the hot-rolled steel section of the plant, two 90-year-old dial indicators still read out measurements of the steel slabs that roll down the assembly line. AI-powered software then provides exact specifications for further shaping them.
"As of today it's not clear what comes next, and investment in the development of metallurgy is constrained, so the risks are there," said senior foreman Artem Kalinevych, 36.
"But we're still moving forward, because we ... are committed to improving the quality of the products we make and deliver to our customers."
(Reporting by Dan Peleschuk; Editing by Hugh Lawson)
