Heads of enterprises in the Ukrainian mining and metallurgical complex have appealed to Prime Minister Arsenii Yatseniuk to impose a moratorium on increase of rail freight tariffs until the situations on foreign markets of metals and iron ore stabilize. They sent the relevant document to the prime minister, RBK Ukraine reports.
The document states that worsening conditions on the world markets of steel and iron ore, the lack of foreign financing, and the logistical problems caused by the conflict in eastern Ukraine have considerably reduced the competitiveness of Ukrainian steelmakers on their traditional markets. This, according to the document, could lead to a loss of these markets in the future. The document also states that the volume of steel production in Ukraine in 2015 constituted only 70% of the volume of steel production in 2013.
"As of today, the cost of transportation by rail already accounts for almost 10% of the prime cost of cast iron, and it is one of the key items of expenditure along with coking coal and natural gas. The level of rail freight tariffs directly affects the competitiveness of domestic steelmakers," the document states.
According to the document, it is necessary to help steelmakers reduce their production costs, including their logistics costs. Otherwise, they will have to reduce production, which will affect related industries.
The document states that Ukrainian producers are already losing significantly to the key players on the global market for supply of iron ore by sea, mainly in terms of logistics costs.
"Thus, the through logistics costs of Australian producers during deliveries to the Chinese port of Qingdao currently amount to about USD 9 per ton and the through logistics costs of Brazilian producers amount to about USD 12 per ton. At the same time, the through cost of Ukrainian producers is about USD 22 per ton, much of which is not market regulated and cannot be reduced through reduction of the cost of energy or through competitive negotiations (delivery by rail to a deep-water port in Ukraine costs about USD 5 per ton, transshipment costs about USD 5.5 per ton, port charges to a ship in the Yuzhny port totals about USD 3 per ton (compared with about USD 0.5 per ton in Brazil), passage through Turkish channels and the Suez Canal costs about USD 2.8 per ton, and port charges in China total about USD 0.9 per ton. Under these conditions, the minimum level of logistics costs is USD 17.2 per ton and only about 20% of the costs depend on market conditions," the document states.
The document also states that the heads of mining and steel companies believe that the level of rail freight tariffs in Ukraine is sufficient to ensure that railways operate without making losses in the current environment.
