2008 Minerals Yearbook UKRAINE U.S. Department of the Interior December 2010 U.S. Geological Survey THE MINERAL INDUS T RY OF UKRAINE By Mark Brininstool Ukraine was a major world producer of bromine, gallium, other European consumers (Johnson and Kim, 2008; NJSC graphite, iron ore, magnesium metal, manganese ore, nitrogen, Naftogaz of Ukraine, 2008, 2009b; OAO Gazprom and NJSC peat, pig iron, silicon, steel, titanium, titanium concentrates Naftogaz of Ukraine, 2008). (ilmenite and rutile), and zirconium. The country has large coal reserves but is dependent on imports to satisfy most Commodity Review of its petroleum and natural gas demand. Ukraine was also an important transit country for petroleum and natural gas Metals from Russia and Central Asia to Europe (Apodaca, 2009a-c; Corathers, 2009a, b; Fenton, 2009; Gambogi, 2009a-c; Jaskula, Aluminum.—Throughout 2008, the Zaporozhye aluminum 2009; Jorgenson, 2009; Kramer, 2009; Olson, 2009). smelter (ZALK), which was Ukraine’s only producer of primary aluminum, requested a reduction in its electricity tariffs. In Production 2007, the rate that the company had to pay for electricity increased by 24.3%, and in the first 10 months of 2008, it had In 2008, production of nickel mine output decreased by grown by another 45.7%. The company claimed that electricity 33%; ferroalloys, by 24%; rolled and crude steel, by 16% and costs made up 48% of its production costs. As the price of 13%, respectively; pig iron, by 13%; and iron ore, by about electricity increased, the sale price of aluminum decreased, 7%. Gypsum production increased by 56%, and feldspar, by resulting in financial losses for ZALK of about $5.6 million 9%. Bentonite production decreased by 33%; salt, by 20%; in September and $10 million in October. On November 3, limestone, by 11%; and lime, by 10%. ZALK announced that it would begin a phased shutdown of its production capacity, but the decision of whether to Mineral Trade complete the shutdown was delayed until 2009 as negotiations with the Government concerning electricity prices continued Since 2006, natural gas shipped to Ukraine for domestic (Chernovalov and others, 2008). use and for further transfer to Western Europe was sold by Iron and Steel.—In 2008, crude steel production decreased to the Russian company OAO Gazprom to an intermediary about 37 million metric tons (Mt) from about 43 Mt in 2007 and company, RosUkrEnergo AG, which shipped the gas to the pig iron production decreased to about 31 Mt from about 36 Mt Ukrainian border. RosUkrEnergo was 50% owned by Gazprom, as the world economic crisis reduced demand for iron and steel and 45% and 5% owned by two Ukrainian businesspeople, products. According to the World Steel Association, crude steel respectively. At the Ukrainian border, the gas was purchased production in Ukraine averaged about 3.5 million metric tons by CJSC UkrGazEnergo, which was a joint venture between per month (Mt/mo) from January to September 2008, but in the RosUkrEnergo and NJSC Naftogaz of Ukraine. UkrGazEnergo fourth quarter of the year, average production decreased to about sold some of the gas directly to industrial consumers and some 1.8 Mt/mo (World Steel Association, 2009). to Naftogaz of Ukraine for delivery to powerplants and other Although Ukraine has the advantage of large iron ore and organizations (NJSC Naftogaz of Ukraine, 2009a, p. 8, 27). coal deposits, inefficiencies in the steel industry have served Disagreements concerning Ukraine’s debts for natural gas to counter some of that advantage. Since the dissolution of imported from Russia resulted in Russia cutting gas supplies the Soviet Union, Ukraine failed to undertake widespread to Ukraine by 50% between March 3 and March 5 until an modernization of its metals industry, which resulted in greater agreement was reached by the two countries’ Presidents. An production costs owing to the industry’s high rates of energy agreement signed by representatives of Naftogaz of Ukraine use, less-efficient use of raw materials, and other factors. As and Gazprom settled the conflict by setting mutually agreed the economic crisis of 2008-09 began to reduce demand for upon terms of payment for gas sent to Ukraine in January and steel products, the higher production costs of Ukrainian steel February, and authorizing Ukraine to receive at least 49.8 billion producers meant they had less flexibility to lower prices to the cubic meters of Central Asian gas at the price of $179.50 per levels at which other countries were willing to sell steel products, 1,000 cubic meters during the rest of 2008. The agreement which increased the harmful effects of the financial crisis on also stated that gas transited from Russia to Ukraine would be Ukraine’s steel industry (Metall Ukrainy, 2008a, p. 6-9). received at the Ukrainian border by Naftogaz of Ukraine and Iron Ore.—Output of iron ore decreased by about 7% in not UkrGazEnergo. Also, a Gazprom subsidiary, OOO Gazprom 2008 compared with that of 2007. In the first three quarters Sbyt Ukraina, was formed to sell gas to industrial consumers of the year, iron ore gross weight production averaged about in Ukraine. Additional disputes between Ukraine and Russia 6.8 Mt/mo, but dropped to about 3.8 Mt/mo during the final regarding gas supply contracts and payments of debt that began quarter of the year when demand from steel producers decreased in October 2008 resulted in Gazprom cutting all deliveries of as a consequence of the world financial crisis (State Statistics gas intended for Ukrainian consumers on January 1, 2009, Committee of Ukraine, 2009). which seriously affected transports of natural gas intended for Ukraine—2008 35.1 Large finance and industrial groups controlled the production considered coal production to be an important part of Ukraine’s of most iron ore and associated products (concentrate, pellets, energy security. Ukraine’s Energy Strategy to 2030 emphasized and agglomerate) and supplied most of their products to their the importance of coal in domestic energy production and laid own domestic steel production facilities. The most significant out the Government’s plans to increase coal production and its exception to this was the Poltava Mining and Beneficiation share of energy production. Difficult mining conditions, health Complex (GOK), which did not own any steel production and safety concerns, and low productivity were, however, facilities and exported about 88% of its total volume of iron obstacles to the further development of the coal industry ore products in 2008. During times of high demand for iron (Ministry of Fuel and Energy of Ukraine, 2006, p. 57-58; World ore products (as was seen in the first three quarters of 2008), Energy Council, 2009, p. 4-5). this situation made it difficult for Ukrainian steel producers A deficit of coking coal production was a significant concern that did not have their own source of iron ore to obtain raw for Ukraine’s coal and metallurgical industries. In 2008, materials at reasonable prices. In addition to domestic supply the demand for coking coal by Ukraine’s coke plants was constraints, Ukraine’s shallow port facilities restricted deliveries approximately 28 Mt, of which only about 17 Mt was provided of iron ore products from such countries as Australia and Brazil, by domestic coal producers. The deficit of coking coal took on and supplies from Russia were limited because Russian steel greater significance for the Ukrainian metals industry because producers consumed almost all the Russian iron ore produced gas prices were expected to rise and reduce the industry’s (Metall Ukrainy, 2008c, p. 41; Ferrexpo Plc., 2009, p. 14). ability to diversify away from coke as an energy source (Metall From January to August, 2.63 Mt of iron ore products were Ukrainy, 2009c, p. 47-48). imported into Ukraine, which was a 30.7% increase compared Uranium.—Ukraine’s uranium reserves were estimated to with the same period in 2007. Imports of iron ore products be between 130,000 metric tons (t) (assuming a market price of for all of 2008 were 2.72 Mt, which was a 23.3% decrease $80 per kilogram of uranium) and 200,000 t (assuming a market compared with imports in 2007; the decrease was owing to the price of $130 per kilogram of uranium). Domestic production sharp decrease in demand for iron ore in the final quarter of the supplied about 30% of the uranium oxide needed by Ukrainian year. Exports of Ukrainian iron ore products increased by 5.1% nuclear powerplants (NPPs), which accounted for 46.8% of all (to 21.87 Mt) in 2008 compared with exports in 2007 (Metall electricity produced in Ukraine. Uranium oxide from Ukraine Ukrainy, 2008d, p. 44; 2009a, p. 44; 2009b, p. 44). was sent to Russia and processed into nuclear fuel by JSC Manganese.—The PrivatBank Group controlled Ukraine’s TVEL. The remaining nuclear fuel needed by Ukraine’s NPPs two manganese mining enterprises—the Ordzhonikidze GOK was also purchased from JSC TVEL (Metall Ukrainy, 2008b, and the Marganets GOK—which together produced about p. 61; NNEGC Energoatom, 2010; World Nuclear Association, 1.4 Mt of manganese ore and concentrates in 2008. An estimated 2010a, b). 1.5 billion metric tons of manganese ore reserves (about 70% In April, the Cabinet of Ministers of Ukraine liquidated of Ukraine’s total reserves of manganese ore) was located in Ukratomprom, which was the Government holding company the undeveloped Velikotomakskoye deposit. In December, the that was in charge of all Ukraine’s nuclear fuel production Zaporizhia Oblast Administration signed an agreement with and the national atomic energy company Energoatom. In its the Industrial Union of Donbass Corp. (ISD Corp.) to develop place, the Government established Nuclear Fuel of Ukraine a vertically integrated enterprise that would mine and process and removed Energoatom from the control of the new manganese ore from the Velikotomakskoye deposit and produce holding company to separate control of Ukraine’s nuclear fuel ferromanganese in a 350,000-metric-ton-per-year (t/yr)-capacity production and energy production sectors (Ukrrudprom, 2008a).