Snapshot: Ukrainian mining opportunities and entry strategies

16 August 2011 (Last Updated August 16th, 2011 18:30)

Despite a sharp drop following the end of the Soviet Union, the market for mining in the Ukraine looks strong. Using detailed ICD Research, mining-technology.com reports on how robust economic expansion and the country's hosting of the 2012 UEFA Euro football cup has improved the outlook for mining in the Ukraine.

Snapshot: Ukrainian mining opportunities and entry strategies

According to a recent study conducted by ICD Research, the expansion of key end-user markets, such as construction, manufacturing and power, will continue to drive the demand for minerals such as iron and manganese, which will fuel the growth of the Ukrainian mining industry in the coming years.

The mining industry has become a major driver of the Ukrainian economy in recent years, accounting for 4.4% of its gross domestic product (GDP).

Moreover, the restructuring and privatization of the industry are expected to improve both the safety and productivity of mines across the country, reducing the country's dependency on imports of coal, in particular.

The Ukrainian mining industry is estimated to be worth more than US$5.0 billion, with a total mineral production volume of more than 170 million tons.

This is estimated to grow to 200 million tons by 2015, largely due to increased coal production.

Restructuring and privatization plans will increase demand for Ukrainian coal

"The mining industry has become a major driver of the Ukrainian economy in recent years."

Coal dominates the Ukrainian mining industry, accounting for almost half of all production. However, due to under-investment and a lack of progress with deregulation, the Ukrainian coal market is vulnerable to challenges such as labor strikes, hazardous working conditions and low productivity.

As a result, despite being home to the seventh largest coal reserves in the world, the Ukraine is a net importer of the mineral. In particular, the Ukraine has been increasingly reliant on imports of Russian coking coal in recent years, due to its high quality.

However, a methane gas explosion at the Raspadskaya Russian coal mine closed the majority of its capacity, forcing the Ukraine to import coal from other countries, such as the US and Australia, at higher prices, leading to losses for steel producers in the country.

The government has now prioritized the restructuring of the coal industry by closing down unprofitable mines and promoting privatization.

Legislation to improve low safety standards

The safety of coal mining in the Ukraine is also an issue. Ukrainian coal mines are considered to be among the most dangerous mines in the world, with some of the highest rates of coal miner deaths in industrial accidents and mine explosions each year.

Safety regulations are often neglected as mine owners struggle to maintain high production levels, while outdated equipment and low safety standards have also been blamed for the incidents, which claimed 318 lives in 2007 and 140 lives in 2008.

In order to develop the industry, the Ukrainian government wants to improve its mining conditions, entities and frameworks. The Coal Sector Policy Support Program was launched in September 2008 in association with the Ukraine's Ministry of Coal Industry. It intends to improve occupational safety in coal mines, develop a master plan for the development of the coal industry and strengthen the institution of the coal mining sector.

With a support system in place, the production of coal in the Ukraine is expected to grow to almost 90 million tons by 2015.

Infrastructural and industrial development to increase demand for metals

There is also optimism for the growth of other mineral groups.

"The Ukrainian mining industry is estimated to be worth more than US$5.0 billion."

The Ukraine is the largest producer of iron ore in the Commonwealth of Independent States (CIS) and sixth largest in the world.

The country is also one of the largest producers of manganese and titanium due to its substantial reserves, and a leading producer of a number of base metals. Following the end of the Soviet Union in the early 1990s, ferrous mining suffered severe production losses due to under-investment and exhausted ore reserves.

However, the Ukraine's future hosting of the 2012 Euro football cup has led to a rapid increase in the demand for infrastructure construction and associated minerals.

The future success of ferrous metal mining in the country lies in the continued expansion of national infrastructure and industry and the soaring price of iron ore in the global market.

Furthermore, with the privatization of the ferrous and coal industry set to take place in the near future, the Ukrainian mining industry is becoming more attractive to foreign investors, and is therefore experiencing regular increases in the commercial production of iron ore and other construction materials.

By 2015, the total output of metals in the Ukraine is expected to reach almost 90 million tons.

To purchase the full version of the 'Ukrainian Mining Sector: Market Opportunities and Entry Strategies, Analyses and Forecasts to 2015' report, please click here.

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