Metallurgy and war. How to save the business and keep the professionals?

The assets of the Alumeta group, led by Serhiy Shapran, are Brovary Aluminum Plant (BRAZ), BRAZ Line, and BRAZ Construction. These companies provide a full production cycle from development to the finished product. Production begins with the BRAZ company. This is a modern enterprise, the range of which is about 20 thousand products, and the geography of exports includes more than 30 countries.

After the full-scale invasion of the Russian Federation, the plant was located near the front line. However, the business did not stop. The company has developed a strategy that helped to survive, continue production, and save jobs. After the liberation of the Kyiv region, BRAZ is looking for new ways to develop.

According to various estimates, the temporarily occupied regions provided about half of the revenue of metallurgy before the war. According to you, what losses did the industry suffer?

During the war, Ukraine lost its main metallurgical capacity. Most of the enterprises are stopped in Donetsk, Zaporizhzhia, and Dnipropetrovsk regions. It is still unclear what is the state of the facilities on the temporarily occupied territories of the «Azovstal» and «Ilyich Iron and Steel Works» plants, and whether they can resume their work after reoccupation. In addition, the occupiers steal Ukrainian metal for sale to Africa and Asia. About 200 thousand tons of metal and cast iron worth $170 million were exported from the port of Mariupol.

The industry has lost more than 50% and continues to lose. According to Ukrmetallurgprom, in the first half of 2021, our metallurgists produced 11 million tons of steel, this year - 4.5 million tons.

In non-ferrous metallurgy, several enterprises have also been shut down due to the danger, lack of raw materials, and transportation problems. There is almost no ore mining. The industry has lost more than 50% and continues to lose. According to Ukrmetallurgprom, in the first half of 2021, our metallurgists produced 11 million tons of steel this year — 4.5 million tons.

Our task in the state of war is to preserve the business and one of the main values of the state — specialists in the field of metallurgy. It will be especially difficult in winter when the risk of interruptions in the supply of electricity and energy carriers will increase. But we will work, develop the plant and implement investment programs. We are launching a new press and are already testing it. We fulfill our obligations to our clients in full. Furthermore, we plan to reach pre-war production volumes by the end of the year, while we are not talking about restoring the level of profits.

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Traditionally, the largest share of Ukraineʼs export earnings was provided by metallurgy, agriculture, and IT. How did the situation change during the war?

The mining and metallurgical complex is about 10% of Ukraineʼs GDP and the main source of foreign exchange earnings ($22 billion in 2021). Now the figures have dropped. Metallurgy is in the most difficult condition among export industries. The situation is better in the IT sector because IT companies have relocated and are working. 

Relocation is problematic for metallurgical enterprises. The plants consume a lot of electricity and gas, and there are difficulties with connection capacities in western Ukraine. It is impossible to find money to construct the plant in Ukraine during the war.

Meanwhile, the agricultural sector is drawing attention to food security and the risk of hunger in the world. An agreement concluded in Turkey concerns unblocking ports for grain exports, while metal is not mentioned.

Before the war, your company supplied products to 30 countries. How did the invasion of the Russian Federation affect exports?

Before the war, BRAZ exported 60-70% of its products, and now — about 90%. Large projects in Ukraine have been stopped, and demand has decreased. Before the full-scale war, Ukraine was one of Europeʼs largest suppliers of raw materials. Now we have zero duty in trade with the EU, which allows us to increase exports. But there is no guarantee of the safety and delivery time of goods from a country where there is a war, and BRAZ takes responsibility for that.

What channels does the company use to supply products abroad, and how has logistics cost changed?

Due to the blocking of ports, we use road transport. However, amid security problems and transport shortages, road transportation has tripled in price, influencing the cost of goods. In addition, ore, coal, and coke rose in price by 141%, and ferrous metals — by 70%. When prices for mining products in the world fell by one-third, it made Ukrainian products uncompetitive.

The railway cannot meet the needs of industrialists because its priorities are critical cargo and agricultural products. In addition, railway transportation takes time. If earlier it took three days to transport cargo from Central to Western Ukraine, now it takes up to two weeks. Alternative export routes cannot even remotely provide pre-war volumes. Therefore, the situation will not improve without unblocking ports for all exporters.

Since the beginning of the Russian invasion, the National Bank has resorted to several currency restrictions. How do they impact exporters?

During the war, Ukraine did not protect its producers and exporters. When importers bought the dollar 25% cheaper than the market value, we lost 25% on the sale of foreign exchange earnings. Increasing the official exchange rate to 36.6 UAH/USD is the right step for the National Bank. This rate allows for covering production costs and adds profitability.

Did your company suffer from a shortage of raw materials during the war?

There was a shortage of raw materials before the war, which worsened. The supply of aluminum scrap has been stopped, and we are forced to buy expensive primary raw materials. The state should have imposed restrictions on the export of non-ferrous scrap, as it was done with ferrous scrap, for which an export duty was established. This is relevant when due to fears of shortages in the world, scrap metal and aluminum are becoming more expensive, and their stocks in the warehouses of the London Metal Exchange are the lowest since 2007.

What other steps towards business do you expect from the state during the war?

We are waiting for the resumption of automatic VAT refunds because it will provide working capital. We are interested in extending the zero duty for our products in trade with the EU, which is set until the end of the year. Also, producers need protection in the form of import duties, as in Europe.

We are waiting for the platform for an active dialogue between the state and business

I would like to draw your attention to the fact that the Russian Federation will try to import the sanctioned metal by changing the code of origin of the goods. If Ukraine does not control its origin, these cheap products will enter our market, affecting Ukrainian producers. The US Treasury recently released a list of 18 countries that help the Russian Federation circumvent sanctions, creating great risks.

Unfortunately, communication between the state and businesses is very poor. The tax authorities record violations rather than conduct a dialogue with businesses. Associations do not solve global issues in economic sectors. Therefore, we are waiting for the creation of a platform for a lively dialogue between the state and business. Businesses should know the economic plans of the state. This allows faster economic recovery and more efficient distribution of donor assistance.

The world is already discussing the «Marshall Plan» for Ukraine. How do you think, what concept of post-war reconstruction of the state will be effective?

The West is discussing the allocation of billions for infrastructure; it is not about helping businesses affected by the war. However, if only destroyed houses are restored, not businesses, the country will not succeed due to the lack of jobs and budget revenues.

So far, business recovery is entrusted to the business itself. We can only hope either for the help of the state or for reparations from the aggressor in the perspective of at least several years.

However, becoming part of a successful world without state investment in business development, professionals, and new technologies is impossible.