Exclusive interview of Interfax-Ukraine agency with Chief Executive Officer of Kryvyi Rih Mining and Metallurgical Plant ArcelorMittal Kryvyi Rih PJSC (AMKR, Dnipropetrovsk region) Mauro Longobardo

Text: Yuriy Guly

 

- ArcelorMittal Kryvyi Rih is actually located in the frontline zone, the city is often shelled by the occupiers, which affects the production processes of the company. What is the situation in the company in terms of production load now? What prevents us from increasing the production output?

- We are currently using approximately 30% of our capacity for HM, steel, and finished products. But at some points it was not so. From April to August, we worked with two furnaces because the economic situation was more favourable.

But in winter the situation is quite complicated, mainly because of electricity. Firstly, it is the availability of electricity supply due to attacks on the energy infrastructure. Secondly, it is the overpriced tariffs for it. Because of this, the cost of our products is higher than the price of finished products on the market. For these two reasons, currently, we will have only one blast furnace operating from November and I also think, until the end of winter, in Q1 of 2025. So, we can say that due to the security situation in metallurgy, we were able to return to 50% of our production in the middle of the year. At the same time, we are stably using about 70-75% of our pre-war capacities and producing 650-700 Kt of concentrate with 65% Fe content per month in mining production. At the same time, about 80% of iron ore concentrate went to our steel production before the war, and we exported about 20% to our sister company in Poland. Since less concentrate is used for steelmaking, we are exporting larger volumes currently. When we produce more, we try to deliver to China, depending on the market price. This is about one ship per month.

The supply of electricity for mining is important, but not as critical as for the metallurgical equipment, which is very sensitive to power fluctuations. It can be damaged if there is a power shortage or some blackouts, especially in the hot phase, some equipment is very difficult to stop and start again. Therefore, we need to be very careful, we cannot turn the equipment on and off often.

 

- And what are the performance indicators for the year in absolute, but not in relative terms?

- As I said, with a capacity utilization of 50% per year, we will produce somewhere between 1.6 and 1.65 mln tons of metal products, of which 1.15 mln tons are finished rolled products. At the same time, we will smelt 2.16 mln tons of HM, the difference of 500-600 Kt between the volumes of steel and HM is because we also sell pig iron - we supply it mainly to the USA.

Let me remind you that previously we could smelt 6 mln tons of products in the form of HM and steel, and now it will be up to 3 mln tons if we have two blast furnaces operating all 12 months. But one blast furnace operated at the beginning of the year - in Q1, and also only one blast furnace operates in the last months of the year.

That is, one furnace operated for about 4-4.5 months this year, which led to a decrease in our production.

 

- What are the plans for 2025?

- Next year, we believe that one furnace will operate in Q1, and two furnaces in the following quarters, and our business plan for 2025 is 2.5-2.6 mln tons, not 3 mln tons, because, I repeat, we will operate one furnace only in Q1. But after that, we hope that we will be able to operate two furnaces at the maximum level.

For mining production, the plans are 650-700 Kt of concentrate per month, and so on for the whole year. This is if the price of concentrate on the market remains at the current level - somewhere around $110-120/ton. This year, the price temporarily fell sometimes, then we produced 500 Kt.

 

- How do you generally assess the situation on the markets in 2024, what is the situation, how did it work last year?

- 2024 was more or less positive, more positive until the middle of the year, when electricity was not a big problem in Ukraine - there were days when there was not such a big deficit, but we already see that by the end of the year we are returning to the situation that was before.

Unfortunately, foreign markets where we can export our products are also very depressed now if we talk about demand and market prices. In addition, we pay extra for logistics, and product prices are falling. And this is such a vicious circle when our cost of production is higher than the market price. And we are the last link in this economic chain and cannot transfer this additional cost to our buyers - prices for products in mining and metallurgical sector are limited by the world market. As a result, if we have problems with electricity in Ukraine, if electricity and water tariffs are rising - all this falls on our shoulders.

And the latest intentions of Ukrzaliznytsia to sharply increase railway transportation tariffs by 37% - we are all simply shocked. We are getting an increase in all prices, I would say in a monopolistic situation, when tariffs are not discussed. I note that this week (the interview took place on December 19 - IF-U) there was one day when electricity cost $267 MWh, and we were forced to buy this electricity, we bought a share of imported electricity to guarantee electricity supplies to the plant.

And in such a situation, the losses for the company will be higher if we actually work at 50%, not 40%. Although we have carried out a lot of internal work to reduce the costs.

 

- Recently, the government reduced the share of imported or domestically produced electricity from 80% to 60%, under which the company is not subject to power cutoff. How much did this help you? Will it not help you much because the price of imported electricity is high, is it not a solution to the problem of electricity supply?

- Previously, there were no obligations, then there was an obligation of 50% in winter and 30% in summer. Then they raised it to 80%, now they have reduced it to 60%. So, changing the percentage can help, but the help is really insignificant. If you look at the profile of energy supply and prices in the normal time, on a normal day, not in winter, then the imported and domestic price of electricity is quite equal. But during the peak hours, the difference between the price of domestic and imported electricity is quite large, and it becomes probably larger in winter.

Moreover, if you have one peak hour in summer, then there are two hours in winter: in the morning and in the evening. So, the worst thing is - when it's winter and it's peak hour, that's the priority, when we really want to guarantee the supply.

 

- What financial results do you expect for 2024?

- The goal was to reduce internal costs, and we did everything that was in our hands as the company's management: reduced the costs inside the facility, optimized consumption. Let me give you an example. In this winter month, to reduce the consumption to minimum and have a different operating mode, we operate with only one blast furnace and casting machines for one month. Then we stop the casting machines and operate for one month with only one blast furnace and rolling mill. Previously, it all worked together, and now, because of the different operating mode, we have more available HM to send to the steel rolling cycle and to the casting machines.

So internally, we did everything we could to reduce the costs. Now we are struggling to reduce the external part of the costs, but we are very limited in that. At the same time, people come and talk about raising salaries...

Logistics is also a big item in our expenses. The increase is happening everywhere. For example, water tariffs have increased by 200% for us over the past three years.

Everything put together affects the financial indicators, and if you lose in expenses, then this is already a loss, not a profit. And I cannot raise the price of products higher than on the market because the same Ukrainian consumers will buy metal products from Turkey, not from us. Therefore, I have no alternative.

Our plant has been operating at a loss for the past three years. Thanks to being part of the corporation, the plant has received the support from the outside for the past three years. At the same time, the first year was a disaster, the second year the situation is also bad, but in the third year we hoped to reach at least break even, but we cannot because of such a situation with tariffs and the situation on the market.

Ukraine must remain a competitive country. I am not saying a cheap country, but a competitive country. Currently, gas in Ukraine costs about the same (as for the competitors abroad), electricity is more expensive. Logistics is also more expensive. Coal also plays a very important role now. It turns out that Ukrainian producers are not competitive today. And I hope that after the war we will be competitive, we will be able to fight for the market with our competitors, and it will be fair competition. I want to compete with Polish competitors, with Polish clients - I do not believe that I am more expensive than in Europe. And we must raise salaries to the EU level to keep people.

 

- So, what level of losses do you predict for the whole year? What are the expected financial results of the work?

- The rough forecast is losses of about $100 million in cash, plus or minus. My goal at the beginning of the year was to get to a cash neutral position so as not to need cash injections from the group, but this is not happening. At the same time, I consider the investments that I have to make: Capex (capital expenditures – IF-U) per year - $150 mln, so that the company survives. Moreover, in 2022, Capex was supposed to be $500-550 mln, as before the war. When the war started, the first year in terms of investments was very low, but in general, to maintain 50% of steel production and 75% or maximum possible in mineral extraction, we still need about $150 mln per year to maintain the proper level of what is in operation.

We also have large strategic investments - we are building Karta III tailing pond (a place to store waste from the iron ore mining - IF-U). Because if we don't build it, we will stop ore mining. Therefore, there is a certain need for investments - if you don't do it, you will stop. And $150 mln is the minimum.

In addition, there are emergency situations. For example, in June 2024, there was an incident at the plant, there was a blackout, and there was a fire on COB No. 5, and it has not been working since then. It is very difficult to rebuild it so that it returns to its working condition. This costs us additional costs of several million dollars per month, because we need to buy coke, which we do not produce. And another $10-15 mln to repair the coke oven battery, a fire in which we did not expect at all.

All this did not allow us to reduce the losses to "zero". We thank our group very much for supporting us during this difficult period, but our goal remains the same - to be able to support ourselves. And it is very unfortunate when I see these constant changes in tariffs because I do not see that we will be able to achieve this goal. In 2024, the weight of electricity from the total volume of our losses is 70%.

The same story with the tariffs of Ukrzaliznytsia: I am "killed" by this logistics and, perhaps, I will not be able to achieve my goal - breakeven - again. Although our goal is to reach "zero" in 2025.

 

- Do you expect the situation to improve in 2025?

- It will be very interesting to see how the US administration will act in 2025. We have a lot of scenarios, I have already developed about five of them, but it all depends on the situation in the US. They are trying to introduce some stimulus into the economy in China today, but not so much that we will see an increase in domestic consumption and an increase in production. Currently, domestic consumption is very low there, there is a huge capacity for export. There is not a lot of consumption of iron ore, because the domestic market is not so good, and that is why iron ore is falling in price, as steel prices are.

And I wonder what Trump will do, whether he will really close the US market to imports from China, or whether they will make some kind of deal with China. The economy is a negotiating point for Trump. If China increases its production, then we believe that the price in the market will increase. China will use more of its domestic capacity for its projects in the country. And the world market will have less unused capacity, and then the price will go up. But when - that is a very good question.

 

- I wanted to ask about the situation with VAT refunds for the products exported. How does the state refund VAT? Do you have any problems with this?

- I must say that there are no problems. This year they paid, I would say, almost every time, on time... Although when the VAT refund date comes, we pray, because we really expect this money.

 

- And how does the shortage of personnel affect the work of the company? Are there problems with the employees exemption from active duty?

- At the end of 2021, we had 27 thousand employees, of which 22 thousand are the plant's staff and 5 thousand are the contractors' staff, because we give some work to the contractors historically. Now, we have about 3 000 people in the army and 3 000 have resigned, some to avoid mobilization. In total, for the period from 2021 to the present, 9 thousand people out of 27 thousand have left our company. The problem is that these 9 000 were experienced people, professionals who worked for many years at our plant, and they knew their job. We were able to replace about 3 000 of these 9 000 - that's how many we hired during this period. And we need another 1 000 people who we can't find today for the metallurgical production to work at 50%, and mining to produce at 75%. And it's not a question of salary: the problem is that I need a specific profession, I don't just need a person. And it's hard to find, especially electricians, locomotive operators - there are some professions that are very difficult to find today.

Another reason is that when we conduct the selection process, we start with a large number of people, but at the end these people have to go to the military registration and enlistment office to get the documents. But they prefer not to.

So, we don't have enough people in the market to hire to replace those who left, that is why the outflow of people was higher during 2024. In some cases, thanks to the dedication of our employees, they start working overtime, agree to work more, and we pay them extra for it. But this situation is impossible for a long period - you can do it for a short period, six months, seven months, eight months, but not for a long period, because we cannot think that one employee is able of having not enough rest.

Therefore, we have a big problem with personnel.

 

- How are you trying to cope with this?

- We are trying to establish the work with the universities, work with youth... We go to the universities in Kryvyi Rih and select the students. We have several programs, depending on the level of students, depending on where they study, whether they study at a university or in a high school, educational institutions. And we begin to familiarize them with AMKR. This can be either an internship or another program they have a certain position in. This can be a project when they work part-time. These programs bring them closer to us. And we expect that these programs will give us a certain number of hirings of this population group every year, so that we can start working with it.

Another thing that we have done to avoid problems with mobilization is to focus on working with women. In total, there are 8 000 women in our company now (before the war there were about 9 000 women), this is a large number. There are jobs that were previously occupied by men only. And we direct women to a career path, some of them have received the opportunity for the career growth. And we are trying to hire them now. Of course, we also try to give the priority to women, if there is such an opportunity.

Regarding mobilization - recently there have been changes in the mobilization rules again, and this has created a lot of confusion.

 

- And don't you consider as an option to close this problem, for example, to invite workers from other countries, for example, from India?

- There are already some contractors that are trying to involve such workers from abroad, because what is happening to us is also happening to our contractors. But I don’t know how many, what percentage of vacancies during the war can be closed in this way. Although a large share in Ukraine of the future will be occupied by imported labor at least the post-war period, for four or five years, I think.

In particular, workers will be needed in the construction industry after the war - during the reconstruction. Our products are used for construction. Previously, we sold 100 Kt of metal per month to the domestic market, 1.2 million tons per year of the total capacity went to the domestic market in total. We could sell more, but already in 2021 there were not enough workers to build more.

And now, given everything that happened from a demographic point of view during the war, we can expect that after the war this will be a problem, a very big problem, not only for us, but even for our customers who buy our products. They need to restart and complete all the delayed projects that were not completed during the war, and then go to the reconstruction of the country. They will need to import workers for this only. So, this will be a reality for Ukraine. I think that at least for five years it will become a reality, and then I don't know.

If Ukrainians return and settle in Ukraine, as it was before, this will be a certain solution to the problem. But some of them will decide to be abroad, or not to return to Kryvyi Rih. In general, Kryvyi Rih has always been a more difficult area to involve labor than others. So, I expect that some people who come to Ukraine will prefer to work in the west of the country, rather than work in Kryvyi Rih, if they must choose.

And so, we will have an additional restriction how to bring in more people in our area, in our city. So, again answering your question: yes, we are thinking about it. But it will be more about contractors in the first stage. And we saw that contractors are already working on this and are focusing mainly on the eastern workforce, which, I would say, is quite experienced if you look at the Middle East in terms of workforce. These are people who come to work in other countries not for the first time, work at a metallurgical plant or work in construction.

 

- Is ArcelorMittal Beryslav working now? Do you get raw materials from there?

- Yes, our plant in Beryslav is working. At the beginning of the war, it was in the occupied territory, and now it is in the territory controlled by Ukraine. The occupiers were thrown back, they were gone by the end of 2022. Then we needed to demine the territory, everything was done properly, so that in 2023 we could restart the work and deliver all the mined limestone to Kryvyi Rih.

However, the plant in Beryslav does not work all year round, it works for a few months a year, accumulates enough material to cover the consumption of the steel plant. And everything works.

 

- Will the loss of Pokrovskvuhillya, where coking coal is mined, affect your company in the event of a possible occupation?

- This is not such a big problem for AMKR from an economic point of view. Because we previously bought only a certain share of coal in Pokrovsk, 30-40% of monthly consumption. At the same time, we bought at the market prices, so in general, for us it is not much different in price whether to bring raw materials from abroad or buy it here. Although the logistics costs are slightly lower.

But during import, there may be congestion in logistics if not only we, but also this company have to import coal. There will be congestion at the ports, and some of it may come from Poland already in the form of coke.

 

- What is the situation with obtaining permits for the construction of Karta III tailing pond? Have you received all the permits? Is the facility under construction?

- We have completed the first stage of the construction of Karta III tailing pond and launched the first stage in July of this year. Everything went according to the plan, and I thank our group (ArcelorMittal - IF-U), which helped us finance this investment even during this period, so that we could continue the pace of production in the mining direction.

Karta III is a project that has always been a priority in our investment plan. Then there will be the second stage, the third stage - this will be our main investment for the next 20-25 years.

 

- Does the company plan to acquire any additional assets in Ukraine? What are you interested in? Or vice versa - sell the steel plant?

- Nobody will decide - neither to buy assets, nor to sell any assets, especially before Trump takes office and the new US administration. I think there will be a lot of answers to the geopolitical situation in 2025, and this, of course, will be one of the main questions.

Now, our goal was to become sustainable even in the times of war, and as I said, we could not achieve this because of the reasons we discussed, and in an unstable world it is very difficult, but in a stable situation we could be sustainable, we would become break-even, have at least some minimum development.

I also do not think that there will be many interested parties from abroad who will invest money without guarantees, without insurance in this period. Nobody wants to have a risk of $300 mln or $400 mln. Possibly, for the projects for $20 mln, $30 mln, and $40 mln. As an EBA member, I have seen the projects that foreign investors are implementing in Ukraine, but the projects are limited to a certain amount with low risk in the appropriate zone, in the appropriate territory of the country, where the risk is lower. When the war is over, all the conditions and assumptions will change, and from that moment on we will see what the development will be.

Of course, we do not intend to sell what we have, we have done a lot in Ukraine for many years, and also survived the war. And we see Ukraine in Europe, part of Europe and industrial community of Europe. The group is putting a lot of effort and resources into making this plan come true.

We are ready to calibrate our strategy. The situation is very dynamic now, for example, we never thought about flat rolled steel before. We have long rolled steel, and all the plants in Mariupol produced flat rolled steel, so we did not think about producing it. But now we can think about it because these positions are no longer available in Ukraine, at least in the short term. So, I say that production capacities changed a lot during the war, and my strategy should analyse these changes and understand what position to take in the coming years. That is, what will it be - flat rolled steel or something else, or it will be slabs.

But when I project such investments, I need to be more or less sure that the electricity will be at this price, because if electricity costs $200, then there are no investments that will pay off in Ukraine with such levels. So now we are in a waiting period.

Of course, we have a list of potential initiatives that we could consider after the war, and the list is updated compared to what we had before, and after the war we could include something else in this list of investments.

Now another question is: will we have enough money from the business itself to finance this strategic development plan. If everything somehow normalizes, then it will take several years to accumulate. Because we lost everything we had, even though at the end of 2021 we had money for all our plans. So, we must make more money to support the $500 million capital investment plan continuously from our own resources - this is the rule of the group: each division has to generate enough profit to pay back the investment.

Now the group has to provide additional money because we have zero money accumulated. Now, to restore the large investments, we either need to accumulate money or we need the group to inject money. Then we need to present a financial model that makes sense. Every year in the group, we have a strategic discussion with the group executive office. If we present a financial model with these electricity tariffs at the current level, it will never make sense. It will be impossible to invest money in a project that will pay back in 20 years. This should be taken into account.

And for now, we remain and will remain at the survival level for some time.

 

- By the way, about involving the investments. In 2022, the EBRD allocated you a loan of $100 mln to replenish working capital, and $150 mln next year. Do you plan to continue to involve the loans from the EBRD or other international financial institutions?

- Yes, we received money from the EBRD - twice. Now we are looking for something else, trying to attract. But this money is only for survival now. This is working capital and current level of investment. We are not talking about specific projects, for example, a pellet plant, new blast furnace or electric furnace. Although we understand that we need to return to the previous level to develop this company. Because you see what happens, when you do not develop - then you fall behind.

And when you look at Europe, at CBAM and the state of the European market, we need to implement updates very quickly after the end of the war to catch up with the best manufacturers.

 

- Will CBAM be a problem for you?

- It will be a problem. It was a problem even before. The price is increasing every year - a dollar per ton. We are trying to get a deferral - because it is logical and fair. In 2021, we were already ready with our plan for the final transformation of the plant to green steel, so as not to have issues with CBAM. We understood that this would take time and there was money for this, but all this money was taken away by the war.

The submission of the first declarations under CBAM is January 1, 2026. And even if I start the transformation today, I will not be able to achieve the requirements of the legislation. That is, this is an additional problem on my shoulders. And not only for me, but also for my clients from Ukraine, who buy my products, export to Europe, they have the same problem.

That is, we need a deferral. I am not asking for 20 years, but for some fair deferral because of the war. All metallurgical companies in Ukraine have already started moving in this direction, but we cannot do it now. We are trying to discuss this problem, but these negotiations are not easy. And these negotiations mean that Ukraine is lagging behind the EU.

 

- How have sales markets for your company evolved during the war?

- Before the war, 80% of our products were sold for export. We exported our products to the Middle East, Africa, and even the Far East. But there was not much export to the neighbouring European countries because they had small quotas. In addition, the group had its own plants in Europe. So, it was not our ambition to expand into the European market to sell our finished products.

Then there was a two-year lockdown of the ports. As a result, we have lost customers within the Far Eastern markets to some extent. Moreover, these markets are still very competitive because they are close to China. Now we are unable to compete with China because of the high manufacturing costs. So, we've changed our targets.

We are currently developing our presence in the European market, primarily in the neighbouring Eastern European countries because of logistics. In this way, Europe and Eastern Europe have become one of our target markets and have completely replaced the markets of the Far East and Asia that we used to have. But we hope that we can return to what we used to call the Middle East or the Mediterranean customers.

At the same time, the issue is the instability in those regions as well, even war. And these markets are not safe. We used to sell to Lebanon, we used to sell to Israel, we used to sell to this area of the Mediterranean. But for the last year or so, there has been a war there. There is demand, but it is not as steady. Nevertheless, this region is one of the export targets that needs to be supported, because in any case, the Mediterranean Sea, the Middle East is logistically close enough to Ukraine to be our future target.

The United States is another country where we export pig iron.

We don't expect any problems there, so the USA don't restrict the supply if they don't have those products - they impose restrictions on the products they do actually have. However, they are aware that pig iron from Ukraine is high-quality pig iron, and we do not expect any restrictions on it.

Thus, our main sales markets at present include Eastern Europe, the US, and the local market in Ukraine. And we really hope that the domestic market will return at least to the pre-war consumption levels after general cease-fire, and regardless of the war's end date, the companies will endeavour to finalise all projects that remain unfinished.

Restoration is a doubtful issue here. It will depend on what Ukraine has to rebuild. The most damaged regions are currently out of our control. And it will take years to restore them. If we have to restore the whole country, we will probably have an increase in the domestic market compared to the pre-war level of about 20-30% in 10 years. If the entire country does not have to be rebuilt, the scale of growth in the domestic consumption market will not be as significant. But I do expect that it will reach the pre-war level at least.

 

- Your company used to face many inspections. What is the situation with inspections at the plant now? Do you have any suggestions on how the government should support business?

- During the war, we had no inspections at all because of the martial law status. Although there was an accident in our coke and by-products department. An inspection team came, but they admitted that it was related to the power cut-off, meaning that it was caused by the situation with the war - that was hard to predict.

My concern is that Ukraine won't be able to change as much after the war to be like a European country. I'm afraid that the same kind of methodologies that were used before - this is just my personal point of view - will come back after the war. That's why I appeal to the government to promptly change not only the printed regulations, but it's a matter of mindset, it's a matter of people themselves. So, we would like to have a fair way to be audited. It's normal for us, our group is audited all over the world, it's not a huge problem. But we don't like audits used as blackmail, let me put it this way, we don't like being under pressure. I know that it takes time for a new Ukraine, but there is always a starting point. And we hope that the issue of inspections will be a starting point to do things the right way, without blackmailing, etc.

If you are talking about the environmental issues, we had a lot of problems before - all that ecocide stuff, during the war we practically removed all the outdated equipment, it's no longer there. So, there is no reason for any audit conducting in this field, although I am not very pleased with the reduction of the company's output due to this.

If you are talking about the environmental issues, we had a lot of problems before - all that ecocide issue, during the war we practically removed all the outdated equipment, it's no longer there. So, there is no reason for any audit conducting in this field, although I am not very pleased with the reduction of the company's output due to this.

Still, there are concerns that nothing will really change with the audits as we were inspected by the tax authorities for the period from 2014 to 2019 based on the iron ore extraction formula that is commonly used.  But the litigation is still in progress: a month or two ago, the proceedings on the matter were resumed again. For the same period! I don't understand how it is possible that we have already gone through the whole process in all instances in court twice, and someone reopens this case over the same period. It is very interesting that different institutions are reopening this case. I understand that there is a need to raise money, but it shouldn't work this way.

In general, we are very vulnerable now, we have no funds, so we need support, but not blackmail!

 

- You often use the words “we” and “us” when talking about Ukraine, meaning that you sound not like an expat, but like a genuine Ukrainian.

- Yes, absolutely. My wife is a Ukrainian, my family and my heart are Ukrainian ones.

 

- We end the conversation on this optimistic note, thank you, and all the best for the holidays! May good luck be with you! And let the war end soon on our terms! Good health to everyone.