MARIUPOL, Ukraine – Business in Ukraine’s eastern war zone is no easy chore. At Azovstal, a major steelmaker in the Azov Sea port city of 500,000 people, survival tactics range from bypassing dangerous routes for supplies to inspecting and re-stocking shelters for workers in case of shelling.
“We have major complications with logistics. Donetsk is almost cut off, we have almost no shipments through Donetsk,” says Enver Skitishvili, general director of Azovstal, which is a part of Rinat Akhmetov’s Metinvest Holding, an integrated mining and steel group.
He says the plant was also forced to diversify coking coal supplies and start shipping goods and raw materials by sea to compensate for the loss of its main supply route. “But the sea (supplies) are limited because the (sea) is shallow, so we have difficulties,” he says.
The existing shipment capacities are not enough to supply the giant with all required raw materials, meaning that much of its capacity is under-used. Steel industry watchers reported earlier this month that the shipment of thick steel sheets can drop by up to six times this month if the supply problems do not get fixed.
Skitishvili says that he expects a drop of 30 percent of production across the board because of this problem, but insists that so far it has not affected financial performance – so far. “Because we went to more expensive markets…we’ve lost just 10-15 percent in monetary terms, no more,” he says.
Azovstal has been one of the luckiest companies in the region, however. By August, only a third of production capacities were in business in Donbas Oblast, according to a recent report that regional Governor Serhiy Taruta delivered to the Cabinet of Ministers. For the coke and chemical industries, it stood at 20 percent.
In the coal industry, the business situation is even graver: up to 75 percent of all mines were either completely destroyed or damaged because of war.
In total, close to 9,000 properties were damaged, most of them were commercial. The cost of this damage is estimated at Hr 6.3 billion.
Silver linings
Unlike unluckier peers, Azovstal has managed to even find some silver linings in this war, diversifying their range of products and finding new markets.
“We have decided to work to improve quality and mastering new steel grades,” Skitishvili says. As of November of last year, Azovstal has developed the capacity and skills to produce 50 new grades of steel that “nobody else makes”.
Some 60-62 percent of these new types of steel are sold to Europe, Skitishvili says. Up to 25 percent is sold to the Middle East and Africa, and the rest – to post-Soviet states.
It was not foresight that pushed them towards the new markets. It was the trade barriers that have been rolled out by Russia against Ukraine’s producers over the past few years. For example, in January Russia introduced a new standard for railroad rails, which changed the strength and length of the rails that can be used in the country.
“Basically, they did not introduce sanctions, but they introduced the kind of conditions for producers that makes no sense for me to (try) to ship there,” says Skitishvili. “This is an economic war.”
Skitishvili says new standards have been introduced for some types of rolled steel, which increase the width of the metal sheet out of Azovstal’s capacity. “The new GOST (Russian national standard) means that supplies of my sheets are additionally taxed,” he says. Kazakhstan, which is a part of Customs Union with Russia, adapted the same standard, locking Ukraine out of the supply chain.
Other ways to adapt
Adapting business practices is not the only change, however. Since May 13, Azovstal workers formed volunteer brigades to patrol the streets alongside the police. He says there are 300-350 volunteers who are doing it now.
“We have no desire to give up Mariupol. So, Mariupol will defend itself to the end,” Skitishvili says.
Azovstal also donated steel to make armor for some of the vehicles of the volunteer Azov Battalion, which is based in Mariupol and is part of the force that will defend the city in caseof a Russian attack. The shapes from Azovstal’s 18-milimeter steel plate were cut by the Illich plant, another business within Akhmetov’s Metinvest holding, located across the river from Azovstal.
Skitishvili says they are “saving human lives.”
There are also bomb shelters that have been restocked on the territory of the plant, according to Ivan Holtvenko, department head for planning and personnel development. Pointers to entrances to the shelters are freshly market on the walls of the massive shops of the plant. They are capable of housing 12,000 people at a time – several times the workforce of the plant.
Kyiv Post deputy chief editor Katya Gorchinskaya can be reached at [email protected].
Kyiv Post+ is a special project covering Russia’s war against Ukraine and the aftermath of the Euromaidan Revolution. Content is solely the responsibility of the Kyiv Post.
