(Bloomberg) -- Ukrainian steelmakers may be forced to import coking coal if Russian forces overwhelm the nation’s only mine near the front line in the Donetsk region, dealing another blow to the embattled industry.
Steel accounted for about a fifth of Ukraine’s exports before the Russian invasion, and still plays a pivotal role in Kyiv’s defense against the Kremlin’s onslaught. Output slumped more than 70% as Ukraine lost a significant portion of its capacity following Moscow’s three-month assault on Mariupol, the port city that’s home to Metinvest Holding LLC’s Azovstal and Ilyich mills.
Now the sector’s logistics chain could be further strained by the loss of Metinvest’s Pokrovske mine, which produces coal that’s turned into coke for the country’s remaining steel plants.
Russian forces are about 9 kilometers (5.6 miles) from the eastern outskirts of Pokrovsk, the main focus of fighting in the region in recent months, although their advance has slowed. Both the mine and the processing plant are a few kilometers west of the town.
Metinvest, owned by Ukraine’s richest man Rinat Akhmetov, said that Pokrovske Coal remains operational. “We are confident that the armed forces of Ukraine will defend Pokrovsk from the ongoing Russian offensive,” the company’s press office said.
ArcelorMittal SA’s Kryvyi Rih steel operation declined to comment.
“Most likely, companies will turn to imported coal, though any disruptions to coking coal deliveries can lead to temporary slowdown in production,” said Denis Sakva, an analyst at Kyiv-based brokerage Dragon Capital.
Ukraine’s steel output slumped to 6.2 million tons last year, from more than 21 million tons before Russia’s invasion. The industry supplies products for the nation’s armed forces, but most of its production is still exported, with the European Union its biggest market.
Kryvyi Rih’s steel business, 150 kilometers southwest of Dnipro, is operating at 47% of capacity, according to ArcelorMittal’s first-half report. The company took a $1 billion impairment on that operation in the fourth quarter of 2022.
President Volodymyr Zelenskiy said the surprise incursion by the Ukrainian army into Russia’s Kursk region in early August has distracted some of the Kremlin’s forces from the east, including Pokrovsk.
Pokrovsk Regional Governor Vadym Filashkin said more than 20,000 people have left the town, which has no gas supply after shelling destroyed a distribution station on Wednesday. Evacuation of the remaining 18,000 people in Pokrovsk will continue.
Ukrainian forces repelled dozens of Russian attacks in the past 24 hours, the general staff of the army said on Telegram.
Metinvest said it is encouraging staff to relocate to safer regions, from where they can rotate in for work shifts.
While Metinvest has readjusted its operational capabilities and logistical routes since the outbreak of war, the risk of disruption remains high, according to Fitch Rating analyst Maria Yakushina.
In December, Andriy Akulych, mine director at Pokrovske, said investments were continuing. The operation has also helped fund Ukrainian army units in the Donetsk region and the construction of fortifications and other facilities near the town, Metinvest said.
This year, Pokrovske was targeting coke output of 2.8 million tons, slightly down on 2023.
--With assistance from Peter Laca and Olesia Safronova.
(Updates with comment from Ukraine military in 11th paragraph)
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