MAKEEVKA, Ukraine — The Kirov Metallurgical Works looms over Makeevka like a great, dark castle. Stretching for kilometers, its dirty smokestacks and smelting furnaces form a gritty silhouette that can be seen even from the town’s central market. The sight is a stark reminder of the factory’s singular economic importance in this hard-edged city of about 400,000 in Ukraine’s industrial east.
Today the smokestacks are dormant and the furnaces for the most part cold. Last December and January, factory officials laid off thousands of workers. Figures vary, but according to one local union leader, some 6,000 out of a total workforce of 7,500 were asked to accept the company’s buyout. Makeevka, where seemingly every family includes someone connected to the mill, is reeling.
Sergei Mironov was one of those to lose his job. A stocky 33-year-old with watery blue eyes and a buzz cut, he had worked in the factory’s rail yards since 2000. On Jan. 20 he accepted the steel mill’s offer of 12,000 hrvynias compensation (about $1,500) and joined the ranks of the unemployed. Thanks to other layoffs, their numbers have exploded in the last three months.
“The situation is just awful,” he said, chain-smoking outside Makeevka’s unemployment offices and job placement center. “It’s simply impossible to find work right now. You do a little here and a little there.”
Mironov lives on the town’s outskirts with his wife and mother in a cluttered three-room apartment. So far he has not received any unemployment payment. His wife, Lena, is semi-incapacitated and receives a monthly stipend of 544 hryvnias. “New Year's was the last time we bought meat,” he said.
His story is just one of tens of thousands, however, in eastern Ukraine, the country’s industrial heartland. The global economic downturn translated into contractions for industry throughout the world, but steel — the stuff of skyscrapers and automobiles, heavy machines and ships — has been hardest hit. Demand has been halved, while prices plunged from highs of more than $1,000 per ton a year ago to just over $300 today.
The effect on the Ukrainian industry has been devastating. The country exports about 80 percent of its steel output, and the metal makes up some 40 percent of the country’s total exports. Production dropped threefold at the end of last year, to levels not seen since 1991. Today many factories are working at 50 percent to 60 percent of their capacity.
And as steel goes, so goes Ukraine as a whole. In January, industrial production overall dropped a breathtaking 33 percent year on year, fueled primarily by the depression of the steel industry.
Makeevka and the region where it is located, Donetsk, were among the hardest hit. Local officials say that about 80 percent of the local economy is connected to steel production. Unemployment has nearly doubled overnight to 5 percent of the workforce, but figuring in the numbers who are working shortened hours or on reduced pay could bring that number up to 30 percent. According to Anatoly Blyznyuk, leader of the Donetsk regional council, industrial production there dropped even more than the national average, by 50 percent.
“We have suffered a double blow: First there was [the collapse after] the breakup of the Soviet Union, and now this economic crisis,” said Blyznyuk, a compactly built fire-hydrant of a man, who belongs to the Party of Regions, the party of power in Donetsk and the main opposition to the government in Kiev.
Some analysts say that the state of the country’s steel industry is not as dire as appears. The plunging value of the hryvnia, the Ukrainian currency, has allowed local producers to lower their costs. Prices for raw materials such as coke and coal also have also dropped. Already some producers are competing again with China and Russia.
Plus, steel companies here traditionally have underreported their earnings, to avoid higher taxes, observers say. Even at this difficult time, many are actually enjoying a profit, though not at the astronomical levels of one or two years ago. When the world economy recovers, as will eventually happen, and steel demand and price rebound, Ukraine’s industry — and the country as a whole — should strengthen with the improved international climate.
“We expect a v-shaped rebound for 2010 to 2011,” said Sergiy Gayda, a steel analyst with Dragon Capital, an investment bank in Kiev.
In the short term, however, the situation may become worse before it becomes better. Though steel orders experienced a slight increase this past month, April appears to be shaping up as another loss-making month. The biggest fear, Gayda said, is that demand this year will continue to drop, or fluctuate widely. “The key concern for everyone is demand,” he said.
The prospect that the economy will recover only a year or two from now is small consolation to people like Sergey Mironov, who say they need to find work immediately.
“We can live for another three months on the compensation I received, maximum,” he said.
“Give me any work — I’m ready to do any work,” he added plaintively, gripping a reporter’s arm.
More Dispatches by David L. Stern:
No bipartisanship here
For richer, now poorer
For more on the global economic crisis: