Ukraine's largest steel producer, Metinvest, has suspended operations at its Pischane coal plant near the front-line town of Pokrovsk in Donetsk Oblast due to approach of Armed Forces of Russia (AFR), the company announced on December 10.

The decision to close the plant follows heavy fighting in the Pokrovsk sector, a key Ukrainian logistics hub that has been the goal of the Russian advance for months. Ukrainian forces are under intense pressure from Russian troops attempting to breach defensive lines, Commander-in-Chief of the Armed Forces Oleksandr Syrskyi said during a visit to the front.

“Battles in the Pokrovsk sector are extremely intense,” Syrskyi stated. “The enemy is deploying all available forces to break through our defences, but Ukrainian soldiers are demonstrating extraordinary resilience.”

"Currently, battles continue in the Pokrovsk sector against the enemy superior primarily in manpower. We must make unconventional decisions to enhance the resilience of our defence and more effectively destroy the invaders," he said, as reported by UkrInform.

Pokrovsk is important as it is a terminus for Armed Forces of Ukraine (AFU) supplies on the frontline. If it falls to Russia then Ukraine’s entire defence of the Donbas frontline will be much more difficult. In addition, beyond Pokrovsk, there are few towns or defensible positions all the way to the Dnipro River that divides Ukraine in two.

Key coal mine

Pokrovsk is doubly important as it is also home to the strategically important Pischane coal mine that supplies most of Ukraine’s metallurgical sector with a special type of coking coal, a key part of steel-making.

Metinvest cited intensified shelling and the proximity of the frontline to its Pokrovsk site, which includes a mine and administrative facilities. Core personnel and their families have been evacuated, the company said, while it monitors the security situation for future decisions.

As bne IntelliNews reported, the Pokrovsk front line’s collapse has been continuous and incremental since the fall of Avdiivka on February 17, when the Russian armed forces gained the initiative in the war in Ukraine.

Pischane is Ukraine’s largest coking coal producer and one of the largest in Eastern Europe, accounting for half of Metinvest's coal supply used in steelmaking. The closure poses a severe threat to Ukraine’s steel industry, as while Ukraine has other coal deposits, the coking coal deposit at Pischane is the main source of this key input to the country’s steel-making industry. Metal exports are the country's second-largest foreign currency earner after agriculture.

The shutdown could reduce Ukraine's steel production to 2-3mn metric tonnes annually, down from a projected 7.5mn tonnes in 2024, according to Oleksandr Kalenkov, head of Ukraine's steelmakers' association, reported The Kyiv Independent.

“If we lose Pokrovsk, our steel output will plummet further,” Kalenkov warned, noting that imports of coking coal would significantly raise production costs and reduce competitiveness.

Ukraine’s steel industry has already suffered substantial losses, including the destruction of Metinvest's Azovstal plant in Mariupol, a symbol of resistance during Russia’s initial invasion.

As bne IntelliNews reported, the repercussions of losing the mine go beyond steel output. Pokrovsk and nearby cities such as Zaporizhzhia rely heavily on the metallurgy sector, with thousands of local residents employed by companies like Metinvest. The town has already suffered from workforce shortages, electricity blackouts caused by Russian strikes and disrupted supply chains, according to Reuters.

An unnamed source from Ukraine’s steel industry told Reuters that producers are already seeking alternative sources of coking coal within Ukraine. However, imports will likely be required if the Pokrovsk mine is lost, driving up production costs and making Ukraine’s steel less competitive on global markets.

The loss of Pischane would be yet another blow to the cash-srtapped government and cut it off from another lucrative and essential revenue stream, following the blow already delivered to Ukraine’s grain trade after Russia imposed a naval blockade that stymied Ukraine’s own grain exports.

Metal exports have been increasing this year, as Russia’s Black Sea fleet was beaten back from its Crimean bases thanks to Ukraine’s long-range missiles. Ukrainian metallurgical enterprises saw iron ore exports increase by 96% y/y in the first ten months of 2024, reaching 27.79mn tonnes. Revenue surged by 59.4% to $2.34bn, with key export markets including China, Poland, and Slovakia.

Semi-finished steel exports also rose by 61.8% to 1.67mn tonnes, generating $827.9mn in revenue. Turkey, Bulgaria, and Egypt were the primary buyers. Long-rolled product exports grew by 23.3% to 527,440 tonnes, primarily to Romania, Poland, and Germany. But these incomes will dwindle rapidly if Pischane is unable to provide Ukraine’s steel mills with sufficient coking coal.

Domestic steel production remains under pressure. Turkey, a key trading partner, imported 210% more Ukrainian steel billets this year but continues to dominate Ukraine’s flat-rolled steel imports, which rose 8.9% to 823,380 tonnes.