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Stanislav Zinchenko told Fastmarkets, in an exclusive interview, that ongoing active military operations across the territory since Russia invaded in February 2022 meant that any notions that cheap scrap from Ukraine would flood the markets elsewhere were seriously misplaced.
Some steel scrap market participants in various locations, including the United Kingdom, recently told Fastmarkets they had heard rumors of very cheap Ukraine-origin ferrous scrap being sold to countries such as Turkey, with some of that material being military-grade scrap.
But Zinchenko said he was not aware of military-grade scrap in Ukraine being traded either domestically or as exports, adding that the collection of military scrap is not currently legally regulated and its volumes are insignificant.
After the collapse of the Soviet Union in 1991 and until the year 2000, Ukraine was scrapping some of its heavy industrial facilities and had plenty of high-quality scrap for its own consumption and for exports, according to Zinchenko.
“When that phase of active deindustrialization finished, Ukraine stopped generating large volumes of scrap,” Zmchenko said.
“Of course, Ukrainian plants continue generating reproducible scrap during normal business activities [prime scrap from offcuts and metal waste in steelmaking and processing in factories, for instance] and scrap collectors continue to gather obsolete scrap from dismantled structures. But the scrap volumes are not so big because of decreased production of machinery and low capital investments in commissioning new equipment, [which is] preventing the disposal of obsolete steel structures,” he added.
Machinery and infrastructure spending are key sources for scrap generation globally, but in Ukraine, the share of machinery in terms of gross domestic product (GDP) is between 6% and 8% and investments in large infrastructure projects over the past 20 years were already low before Russia’s invasion.
Zinchenko said this meant there was now no way for large volumes of new reproducible scrap to be generated.
In 2021, scrap collection in Ukraine amounted to 4 million tonnes, with 3.3 million tonnes of that going to metallurgical enterprises in Ukraine.
Ukrainian steel mills alone generate around 20% of the country’s required metal scrap volumes, with a small share generated by machinery, with the rest consisting of lower-grade materials.
The key supplier of scrap in Ukraine is Ukrzaliznytsia, a state-owned rail transport company, which supplied 203,000 tonnes of high-quality scrap in 2021.
The key consumers of scrap in Ukraine are EAF-based Interpipe Steel, which produces round steel billets at its facility in Dnipro, and Dniprospetsstal (DSS), which makes long stainless steel products in Zaporizhia.
In 2021, 615.000-620.000 tonnes of Ukrainian steel scrap was exported, with the largest share (40%) going to Turkey, despite Ukraine having a €180-per-tonne duty on scrap exports.
Over the same period, scrap imports amounted to just 23,000 tonnes, Zinchenko said.
In 2022, scrap collection in Ukraine fell to 1 million tonnes, with 900,000 tonnes supplied to domestic steel mills, Zinchenko said, with only 53,000 tonnes exported.
“In 2022-2023, active military actions were or still ongoing in Odesa, Mykolaiv, Kherson, Zaporizhia, Dnipro, Kharkiv, Donetsk, Luhansk, Sumy and Chernigiv regions. Before the active phase of the war, these regions generated 40-50% of scrap collected in Ukraine,” he said.
“But it is dangerous to collect scrap in regions where military action [is ongoing] or happened a short time ago and small scrap collectors [in those regions have] closed their businesses. Thus, there are expectations that scrap collection will decrease by at least another 10% in 2023,” he added.
“The forecast of a 10% reduction in 2023 was done before indices of industrial production in Ukraine in 2022 were released,” Zinchenko said.
“Production of construction materials dropped by 65%, steel industry output by 63% and [activity in the] chemicals sector was down 62%, but the most important is industrial machinery, which was down by 43%. There is no basis for scrap collection without construction, machinery and metallurgy, so only [lower-grade] scrap remains,” he added.
Steel production – which is obviously critical in terms of scrap generation and consumption – is unlikely to exceed its 2022 total, when there were two months without war, according to Zinchenko, and in 2022, Ukraine produced just 6.3 million tonnes of steel, according to World Steel Association (Worldsteel) data. That was a 70.7% year-on-year decline from 21.1 million tonnes in 2021.
Zinchenko said, that according to the most optimistic expectations, steel production in Ukraine will be about 5.5-5.6 million tonnes in 2023.
Ukraine adopted a law “on Waste Management” in June 2022, which comes into force in July 2023 and includes the regulation of the scrap market, Zinchenko said.
“Scrap collection will be regulated by two laws – known as ‘On Waste Management’ and ‘On Scrap Metal’ – and when the legal regulation becomes more complicated [it is likely] to negatively impact scrap volumes.”
He added that he has, so far, not heard of any discussions on higher export scrap duties or on banning exports.
Handling military-grade scrap is not cheap, however, and is likely to cost a lot in terms of preparation before being deemed furnace ready, the GMK chief told Fastmarkets.
“Military scrap is very dirty; it is burnt, it has non-metallic residues and it should be tested for explosiveness. It is, therefore, very expensive scrap in terms of the cost of preparations,” according to Zinchenko.
“And it is also an issue that this scrap is located in the area of active military actions, or it is related to destroyed buildings or constructions, and to clear the rubble, special equipment is required. It is possible to collect this scrap, but it is expensive, and it is done only within some reconstruction projects,” he said.
“The other question is the status of this military scrap – it is not legally regulated in Ukraine yet. Only scrap from destroyed buildings is partially regulated, while using destroyed cars, tanks and shells is an open issue – in theory, some people consider that it belongs to the Ministry of Defence, or Ukroboronprom, or in a case, say, where it is just pieces of a destroyed car somewhere in a field, it belongs to that territorial community.”
Thus, the collection of such scrap is illegal so far and the big question is “how to work with it legally.”
But while it is difficult to estimate the scale of military scrap volumes, they are insignificant, Zinchenko said, with estimations of military scrap volumes varying from 20,000 tonnes to 100,000 tonnes.
“That is not millions of tonnes,” Zinchenko said. “Imagine, a tank weighs 50 tonnes, so 1,000 tanks is just 50,000 tonnes. That’s not much, if you remember that Ukrzaliznytsia sold more than 200,000 tonnes of scrap in 2021.”
“And it is important to remember that recycling of tanks is more difficult than [dealing with] conventional steel scrap,” Zinchenko added.
Lee Allen in London contributed to this story