Strategic raw materials in the crosshairs: why the world is watching the fate of Pokrovsk coking coal

It became known that Ukraine has stopped production at the country’s only coking coal mine, located in Pokrovsk, due to the threat from Russian troops who have come close to the city. It was reported yesterday Reuters two sources related to the steel industry.

The mine, located in a zone of active hostilities, is a key supplier of coking coal used in metallurgy. This resource is critical to Ukraine’s steel industry, which before the full-scale invasion in February 2022 was a powerful sector of the economy, but has suffered a significant decline due to the war. Russians are aware of the strategic importance of Pokrovsk and its only coking coal mine in Ukraine for the country’s economy. That is why they are making every effort to seize this territory. Such an opinion expressed Oleksandr Vodoviz, head of the Project Office of “Metinvest” company.

Back in October, the agency Reuters warned that Russian troops had approached the strategically important city of Pokrovsk, which is an important transport hub for Ukraine. The agency also noted that the Russian armed forces are moving in the direction of the mine, where coking coal is mined, which ensures the functioning of the Ukrainian steel industry.

In general, the Ukrainian steel industry suffered significant losses due to the Russian invasion, which led to the destruction of the country’s key metallurgical enterprises.

Ukraine was once one of the leading producers and exporters of steel, but in 2022 production fell by 70.7% to only 6.3 million tons. In 2023, this figure decreased even more, dropping to 6 million tons.

What is the value of coal from Pokrovsk?

Two months ago, Oleksandr Kalinkov, president of the association of enterprises “Ukrmetalurgprom”, v interview He explained the strategic importance of coal mined in Pokrovsk for the production of steel to “Persha Zahidny”. The fact is that iron ore raw materials and coke are needed for full-cycle steel production. And coking coal, which used to be mined in the east of Ukraine, is needed for the production of coke. Unfortunately, due to the temporary occupation of the territories, Ukraine lost many mines. Since 2014, the Pokrovsk Mine Management has remained the only mine that produced a sufficient amount of high-quality “K” coking coal.

The role of this mine for Ukraine cannot be overestimated. Without it, we lose domestic production of coking coal and are forced to rely on imports. But everyone understands that it is quite problematic due to the instability of logistics.

Steel production is an issue not only of the industry, but also of the economy as a whole. We are fighting on all fronts, O. Kalinkov notes, including on the economic front. A war of attrition makes our economy a key component. Ukrainian enterprises have made significant progress in the production of special steels for the army, products for fortifications, etc. If our enterprises do not work, the contribution to the economy of Ukraine will be in question. To understand the situation: one job in an industry creates several jobs in other areas. For the production of one ton of steel, several tons of raw materials must be transported, which ensures the operation of railways and ports. This affects the entire economy of the state. I very much hope, adds the director of the association, that everything will be done to preserve production volumes.

The maritime corridor has expanded opportunities for exports rather than imports

The importance of the maritime corridor for increasing exports and obtaining significant foreign exchange earnings is now being discussed. With the start of the sea corridor, there is an opportunity to significantly increase the volume of exports. But if there are problems with the Pokrovsky Mining Administration, which provides the industry with raw materials, we can significantly lose economic income. This will have serious consequences for the budget of Ukraine.

Officials should understand the cost of this issue and take measures to minimize the negative consequences. The enemy is attacking cities like Pokrovsk to weaken our economy, because this is a blow to economic security.

Regarding the compensation of the need for coal from other regions, for example, from the mines of the Lviv region, the quality and volume of production there is insufficient. This requires a strategic approach and long-term mining development. We can now rely on imports, but logistics across the western borders are limited. Most of the world’s coal is transported by sea, and our ports are mostly focused on export rather than import.

The industry is adapting to new conditions

Despite the war, the industry continues to work, adapting to new conditions. Since 2014, many production facilities and mines in the occupied territories have been lost. However, the industry was able to adapt and continues to work. It will be possible to increase domestic production and imports in a few years, but it takes time. In the coming years, we must persevere, the director of the association believes, and everything necessary will be done for this.

Workers in Pokrovsk work in extremely difficult conditions. Most of their families have already been evacuated, and the company actively helps in this. At the same time, all conditions have been created so that in the event of a worsening of the security situation, the workers will also be evacuated, because their safety is a priority.

Imports, although a possible solution, will significantly affect the cost of products. The alternative plan is difficult to implement due to the specificity of the needs of metallurgy. There are two types of production in the industry: electrometallurgy, which works on scrap metal: Interpipe works according to this scheme. And there are also full-cycle enterprises that produce steel from iron ore raw materials, using coking coal, which cannot be replaced by gas or other materials.

The cost has increased significantly due to the increase in the cost of logistics by approximately 4.5 times. The industry is running at a loss due to reduced production volumes, which have fallen sharply since the start of the war. Until 2014, Ukraine produced 42 million tons of steel annually, and in 2013 – 32 million tons. After that, volumes fell to 21-22 million tons. In 2022, due to the full-scale invasion and the loss of more than 40% of metallurgical capacities in the temporarily occupied territories (in particular, in Mariupol, the Ilyich plant and the Azovstal plant), production decreased by three times – to 6.5 million tons.

The enterprises that remained in the territory controlled by Ukraine worked on average at 50% of their capacity in 2022-2023. In some months of 2022, their loading decreased to 12–15%. Despite this, the workers received their wages in full. As of today, the utilization of production capacities has increased to 65%.

This conscious decision is aimed at preserving labor collectives, because after the victory, the main challenge will be the restoration of Ukraine. Labor resources are a key element without which development will be much more difficult.

Even under the conditions of significant losses that enterprises have suffered in recent years, work continues. The cost of coal has increased significantly, which further increases the financial pressure. Currently, even variable costs are not covered, which means that money is literally melting away, and there is no opportunity to invest or modernize production. Although in recent years, 600 million dollars have been invested in modernization. To produce, you need to invest – such production features. But this is not enough for sustainable development.

Due to the risks of war, Ukrainian enterprises cannot receive foreign loans. International financial institutions, such as the European Bank for Reconstruction and Development or the European Investment Bank, do not finance private businesses. The only company is “ArcelorMittal”, it managed to get 250 million euros to replenish working capital, but for most it remains a problem.

The situation is very difficult, and the country is currently in the most turbulent state in recent years. It is important that everyone recognizes this challenge. The discussion of this problem indicates that work is underway on plans for exiting the crisis, and we are preparing for possible difficulties, hoping for the best.

Import vs. export

For 11 months of 2024, 72.5% of coke in Ukraine produced from domestic coal. This is in marked contrast to the situation before the start of the full-scale invasion, when up to 80% of coking coal was imported.

Infographic: IA “FACT”

In accordance with research GMK Center “Balance of the coking coal market in Ukraine”, the transition to the use of domestic resources became forced due to hostilities, which reduced the production of iron and steel, and also made imports more difficult.

3.2 million tons of coke are required for the production of 6.5 million tons of steel by converter and martenov methods and 1.3 million tons of marketable iron. Currently, about 20% of this need is covered by imports. Such volumes also require 3.8 million tons of coal concentrate, of which 3.1 million tons are provided from Ukrainian sources.

In 2023, Pokrovske Mine Management supplied 66% of coking coal on the Ukrainian market. Due to the loss of these production capacities, the industry may face the need to find additional supplies of up to 2.5 million tons of coking coal or coke.

So, the Pokrovsk mine is the only source of coking coal in Ukraine, which meets the needs of Ukrainian metallurgical enterprises, such as ArcelorMittal, DMZ and others. Its functioning is critically important for the entire industry. If the mine is occupied or destroyed, as has happened to some state-owned mines in the region, Ukraine will be forced to import coking coal by sea. However, it is economically unprofitable. Therefore, metallurgists are now faced with a serious question: how to act in the event of a complete loss of the Pokrovsk mine.