* Top producer Metinvest no longer accepting new orders
* Steel exports to Russia down 38 pct Jan-April
By Alessandra Prentice and Svetlana Burmistrova
MOSCOW, Aug 1 Ukraine's important steel sector
is being rocked by violence in the east of the country, with the
crisis sparking fears exports to neighbouring Russia could fall
50 percent this year.
Steel-making is centred in the conflict-torn regions of
Luhansk and Donetsk, where many factories, mills and mines have
been forced to stop work.
For months, armed pro-Moscow separatists there have clashed
with Ukrainian forces, with buildings taken over and others
destroyed by artillery fire.
The conflict in east Ukraine has also hit transport links
into Russia, further slowing exports.
Steel makes up about 15 percent of the economy of Ukraine,
which last year ranked as the world's fifth-biggest exporter.
Output fell by more than 7 percent in the first half of 2014
and exports have been hit. Shipments to Russia slumped by 38
percent in the first four months of the year, International
Steel Statistics Bureau (ISSB) data showed.
"The situation is no picnic. New clients aren't rushing to
the market," a Kiev-based export trader said.
Ukraine sold three-quarters of its 32-million-tonne annual
steel production to foreign markets in 2013 and Russia was a
major buyer, accounting for around 15 percent of Kiev's ferrous
Amid fractious relations between Moscow and Kiev, Russian
steelmakers have aggressively lobbied for measures to defend
domestic producers from Ukrainian imports. There has also been a
flood of new Russian supply.
Exports of construction product rebar, Ukraine's main steel
product export to Russia, fell 66 percent in the first four
months of 2013, ISSB data showed.
The governor of Donetsk, Serhiy Taruta, said this week steel
shipments to Russia were expected to fall by up to 50 percent
this year, yet expressed confidence that supplies could be
redirected to other buyers.
Traders, however, say there is little demand for Ukrainian
steel on international markets already over-supplied with supply
"All is not well ... We're not selling much at all. The
market is sluggish. We're just surviving thanks to a fat list of
old orders. We're waiting for Ukraine and the external market to
stabilise," said an export trader in the city of Mariupol.
Ukraine's overall steel exports fell by 10 percent in the
first four months of the year and are likely to remain down
around 5-10 percent in 2014, according to Jeremy Platt, an
analyst at steel industry consultants MEPS.
CHEAP CHINESE STEEL
Ukraine's largest steelmaker, Metinvest, said on
Friday it was no longer accepting new orders due to the crisis
which has forced it to cut production.
Privately held and controlled by Ukraine's richest man,
Rinat Akhmetov, supply disruptions from the violence have forced
Metinvest to limit output at two steel mills. Production was
temporarily halted at its main Avdiivka coke plant after it was
hit by artillery fire.
"I can say without exaggeration that the combat operations
have threatened not only Avdiivka but also the entire Ukrainian
economy," Musa Magomedov, chief executive of the plant, said
Metinvest controls about 50 percent of Ukraine's steel
market. Top foreign player ArcelorMittal, the world's
largest steelmaker, has 12 percent.
ArcelorMittal's operations are based in central Ukraine,
which is not rebel-controlled and has been spared the worst of
The company's Ukrainian business posted higher production in
the second quarter with shipments up 2.4 percent
Over 50 percent of its exports are focused on the Middle
East and North Africa (MENA) region with sales to Russia,
Ukraine and other members of the Commonwealth of post-Soviet
States accounting for the remainder.
This year it has been exporting more to the MENA region with
lower demand in Ukraine due to the unrest, the company said.
Ukrainian exports to certain markets have ballooned as a
result of producers redirecting supplies, said Dmitry Popov,
analyst at metals consultancy CRU.
Rebar exports to Egypt jumped by 830 percent in the first
four months of the year, making Egypt the third biggest market
for rebar exports, he said.
However, Egyptian producers are fighting back against the
wave of foreign imports, Reuters reported in July, including
calls for restoring anti-dumping duties on imports of rebar from
Ukraine, China and Turkey.
China's aggressive export pricing poses the biggest threat
to Ukraine's hunt for markets beyond Russia, Eavex Capital
analyst Ivan Dzvinka said.
"The markets are highly competitive due to oversupply and
intensive export growth by China to its traditional markets in
the Far East, Middle East. It's even managing to find a way into
Europe," he said.
(Additional reporting by Andrey Kuzmin, Philip Blenkinsop in
Brussels, Maytaal Angel in London; editing by Jason Neely)