A steel plant ready for war shows hit to Ukraine's economy

ZAPORIZHZHIA, Ukraine -

Flak jackets are piled up at Ukraine's Zaporizhstal steel plant, and anti-tank traps guard the entrance. Whenever air raid sirens sound -- and they go off every day -- most workers head to one of the 16 bomb shelters scattered across the sprawling grounds.

But some keep working -- braving not only the intense heat and sparks flying from blast furnaces forging steel used in everything from railway cars to household appliances, but the threat of shelling -- to keep the molten metal moving.

The southwestern city of Zaporizhzhia, which gives the plant its name, is less than 50 kilometres (31 miles) from the front line and its residential buildings and energy infrastructure are a frequent Russian target. The impact of the war has left the plant running below full capacity, with a third of its 10,000 workers idle.

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The damage to Ukraine's metal industry has crippled a lucrative sector and key employer needed to support an economy cratered by war. Efforts to restore production and get goods moving again to customers worldwide will be crucial to helping the country rebuild.

A pillar of the economy before the war, the metal industry accounted for a third of the goods that Ukraine exported, but it has been upended by Russian forces who have taken control of the industrial heartland -- the Donetsk and Luhansk regions.

For steel and mining company Metinvest, the slowdowns at the Zaporizhstal steel plant are only part of the pain. Since Russia seized Ukraine's Crimea Peninsula in 2014, the company has lost equipment and facilities in Russian-controlled areas, seen workers head to the front line and lacked enough security to grow.

But "the biggest damage we have suffered is the damage caused to the economy of Ukraine," Metinvest CEO Yurii Ryzhenkov told The Associated Press. "When damage is done to the country, the company suffers from it no less than from direct hits of shells."

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At the Zaporizhstal steel plant, life still revolves around the blast furnaces, even if only three out of four are operating. Relentless hissing fills the air, which is tinged with the pungent, acidic tang of sulfur that results from separating cast iron and waste deposits.

The workers' silver suits reflect the blinding light emanating from the red, molten metal churning in the blast furnace, where temperatures reach 1,500 C (more than 2,700 F).

The process looks busy, but the workers know they are melting less cast iron than before the war.

"We are limited. Both in terms of raw materials and sales," said Oleh Ilin, the blast furnace master.

Unlike other industrial enterprises in Ukraine, Zaporizhstal wasn't damaged by artillery fire or missile strikes. But like many others, its growth has been hindered by power outages from Russian missile attacks, damage to infrastructure and blocked Black Sea ports.

The latter is one of the biggest challenges for Zaporizhstal, where work has been interrupted only twice in its almost 90-year history -- during World War II and shortly after Russia invaded Ukraine. Russian troops were stopped just dozens of kilometres from the plant last spring, but almost a year later, it hasn't been able to recover fully.

Prices are higher for products that Zaporizhstal makes, and they are harder to get to customers. Trains instead of ships mostly move orders, increasing prices not just for transportation but for production and raw materials.

Before the war, Zaporizhstal could complete a batch of steel strips used in appliances like refrigerators, for example, and deliver it in a month or two, said Roman Slobodianiuk, general director of Zaporizhstal. Now, it could take three months or longer.

"Not every client is ready to take such risks. So we were forced to reduce the geography of our customers," he said.

Zaporizhstal used to work with customers in almost 60 countries -- that has been reduced by half. The war affected its capacity to fulfill orders in much of the Middle East and many African countries.

"Before the war, around 90% of metallurgical products were exported through the sea, because it was much cheaper," said Dmytro Goriunov from Ukraine's Centre for Economic Strategy.

Now, the plant focuses on closer European countries and the U.S. market, which can be reached through Polish seaports.

About a third of the metal industry's capacity has been destroyed and production is about 65% lower, according to data from industry association Ukrmetallurgprom and Oxford Economics.

The KSE Institute of Ukraine estimated that damage to Ukrainian businesses as a whole from the war amounts to US$13 billion. Economic output shrank by about a third in 2022, and the economy ministry forecasts growth of only 1% this year.

The government relies on donations from allies like the European Union and the U.S. to pay citizens' wages and pensions, helping it avoid printing money that could fuel inflation. Ukraine got a boost last week with a US$15.6 billion loan package from the International Monetary Fund.

For its part, Metinvest is trying to rebuild after losing two major facilities to Russia, including the Azovstal steel plant where Ukrainians fought off a siege from its labyrinth of tunnels and bunkers in Mariupol.

Maksym Notchenko, 41, a former worker of Azovstal, watched from a distance as the plant was besieged with Russian strikes: "It was like pieces of your body were being cut off."

He fled and started working at Zaporizhstal last April. About 20,000 other Metinvest workers did the same, leaving occupied territories or front-line fighting. Before the invasion, Metinvest had around 100,000 workers -- now the number is 85,000.

Ryzhenkov, the CEO, said that restoring supply chains, primarily unblocking Black Sea ports, will revive the company.

"A trait of Ukrainians, that despite everything that happens to us, we continue to work, we invent new ways of working, how to be effective in any situation," Ryzhenkov said.

He says the only way to guarantee Metinvest's security and development is liberating all Russian-held territories, including Crimea. That's why the company invests resources to support Ukrainian forces.

Their "victory can guarantee Ukraine and the business that it can develop here," Ryzhenkov said.

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AP Business Writer David McHugh contributed to this report from Frankfurt, Germany.