Ministry of Economy of Ukraine has presented a study “Overview of sanctions restrictions on russian pig iron and iron ores”, prepared by experts from the Reform Support Team of the Ministry of Economy (RST ME), with the support of the Department of Sanctions Policy of the Ministry, KSE Institute and GMK Center within the Export Booster project. The document shows that Ukraine has the potential to export up to 1.5 million tons of pig iron and iron ores to the EU, replacing Russian exports.
The study examined Russian exports of intermediate iron products, such as pig iron and iron ores. The report included an analysis of the imposed sanctions, potential alternatives for replacing Russian pig iron and iron ore, and the essential measures for strengthening the sanctions regime.
The key concern addressed in the paper is that the European Union has not imposed sanctions on Russian exports of iron ores and pig iron. According to the Eurostat data, pig iron and iron ores were among the top 50 product groups in Russian exports to the EU in 2022, excluding energy exports. In fact, Italy is the primary importer of Russian pig iron within the EU, while the Netherlands is the key market for iron ores.
However, the UK and the US have imposed additional tariffs on pig iron and iron ore. This approach doesn’t ban the import of Russian iron products but has created unfavorable market conditions for Russian imports, making them less competitive.
Despite export sanctions, Russia attempts to circumvent them by evading Certificates of Origin. This includes the use of false certificates of origin and a strategy that involves the re-routing of shipments. In fact, Russia is a leading global exporter of pig iron and iron ores. According to trademap.org, Russia ranked second in the world for pig iron exports and ninth for iron ore exports.
Therefore, it’s crucial to explore potential supply alternatives for Russian pig iron in the EU market. Now, Ukraine is the most viable alternative to Russian pig iron, with a potential production capacity of around 6-7 million tonnes. Its activation could contribute to an export increase, reaching approximately 1.5 million tonnes in 2023 and potentially replacing Russian pig iron on the European market. Additionally, in the short term, alternatives could come from Brazil, which accounted for 23% of global exports in 2021, and from India in the long term.
Another important aspect is the substitution of Russian iron ore on the EU market. All Russian iron ore exports to the EU are in the form of iron ore pellets. This market amounted to only 120 million tonnes in 2021 and is influenced by several major exporters, such as Canada (13% of global trade), the US (9%), Brazil (16%), Ukraine (14%), Russia (14%), and the EU (16%).
Before the war, Ukraine produced 160 to 170 million tonnes of iron ore and exported around 15 million tonnes of iron ore pellets. However, in 2023, pellet plant capacities have declined by roughly 50%, potentially leading to a decrease in exports to only 7-8 million tonnes. Addressing logistic issues, ensuring a stable energy supply, and securing water resources will aid in restoring pre-war iron ore export levels.
Imposing sanctions on Russian pig iron and iron ore could reduce Russia’s revenues by $1 billion and weaken the Kremlin’s military capabilities in waging war against Ukraine. Additional measures should include strict checks on Certificates of Origin to prevent the secret import of Ukrainian pig iron.