Tax anvil: the survival of the Ukrainian metallurgy

External environment – the fall in global demand and fierce competition for the remaining markets between producers – together with unpredictable domestic tax policy and the devaluation of the hryvnia has led to a major crisis in the domestic steel industry.

Налоговая наковальня: выживет ли украинская металлургия

This year Ukraine will finish with the worst performance during the whole period of independence, said in the largest industry Association “Ukrmetallurgprom”.

Treatment of metallurgists has published 6 December, three days later, after the Verkhovna Rada adopted in first reading the tax bill No. 1210.

It proposes to increase the excise duty on the production of iron ore (iron ore) for mining and processing enterprises, which is extremely worried representatives of mining and metallurgical complex. This practice is not used in the world, according to the metallurgists, and urge the government to support, not to exacerbate the unenviable position. Authorities insist that one of the most profitable parts of Ukrainian business have to put more revenues in the budget.

Experts fear that the reduction in the production could lead to eventual loss of foreign markets and, as a result, degradation of the entire industry. To date, a number of Ukrainian plants has partially or completely stopped production, while others are on the verge of it, the statement “Ukrmetallurgprom”.

The causes of the crisis

Recorded this year 5% drop of Ukrainian industry is particularly strongly expressed in the steel industry, which accounts for 12% of Ukrainian GDP. According to “Ukrmetallurgprom”, Ukrainian enterprises in December 2019 will produce 42% less steel compared to the same period in 2016.

The main reason for the crisis is a significant reduction in global demand for steel products. According to forecasts, given the specialist GMK Center Andrei Tarasenko, at the end of the period the expected reduction of consumption in the key (about 60% of sales) to export-oriented Ukrainian industries regions: middle East and North Africa (MENA region) – 7% in Europe, according to Eurofer by 3.1%, Turkey – 20%.

In addition, this year for Ukrainian products has been closed the Egyptian market to which domestic enterprises are mainly “arselormitall Krivoy Rog” and the Dnieper metallurgical plant, supplying semi-finished products in the amount of up to one million tons.

Quickly to find a market that could absorb such a significant amount of difficult. Now the reality is that only one exporter trying to bring your product to market, it immediately apply protectionist measures and conduct the anti-dumping investigation“, — the expert explains GMK Center.

Additional complexity has also caused an imbalance between iron ore prices and scrap in favor of the latter: this factor has determined the cost advantage of the Turkish EAF plants, which, in contrast to the majority of Ukrainian enterprises, the raw material used just scrap. The increase in excise duty on iron ore at risk of further aggravate the backlog of domestic enterprises from a competitor.

The cost the cost of the raw materials led and geopolitical factors. In particular, the restriction on the supply of coal and coke from Russia, which is a major supplier of coking coal on the Ukrainian market.

Previously complicated the shipment of steel products to foreign markets from Ukraine Kerch conflict.

Together with the sales decline and the expected increase in the tax burden, the Ukrainian steelmakers have already felt the increase in production costs: the rates for their services increase in “Ukrenergo”, “Ukrzaliznitsa” and the national Commission for the transportation of gas.

How to deal with it

Given the “Ukrmetallurgprom” figures and projections though sound catastrophic, however, are well within today’s global environment.

The closure of some facilities due to low demand in the Asian markets recently said the Japanese company Nippon Steel, and at the other end of Eurasia, the bankrupt Italian company Ilvo decided to reanimate via the repurchase of its shares by the state, in spite of disapproval of such protectionist practices on the part of the European Union.

According to Tarasenko, the majority of the world of metallurgy, working in the same difficult conditions, as well as Ukraine, however, have an important advantage – large domestic market. In the situation of the market situation is crucial.

For example, the increase in Russian production is expected by the end of this year, is also ensured by the development of infrastructure programs, the construction of high speed Railways and residential complexes. In Ukraine, on the contrary, as the representative GMK Center for the year is expected to decline in domestic consumption of steel of from 0.5% to 1%.