A slump in commodities’ demand weakens Ukraine’s richest man

Rinat Akhmetov’s survival from the war, the murder of a business partner, and attempts by the president to curb his monopoly haven’t come easily. 

His wealth was worth $22.4 billion once. Over the past seven years, it plunged 80% and marked one of the most significant declines of the Billionaires Index. The Ukrainian magnate’s challenge is now to keep his business afloat. 

Akhmetov’s DTEK Energy, Ukraine’s most abundant energy group producing coal and natural gas, is seeking to restructure more than $1 billion of debt. It will shutter its central coal mining unit, which employs approximately 20,000 people. 

Akhmetov’s other critical business at Metinvest, an international steel company, is collapsing too. Prices of steel have dropped by 20% in 2020.

Prices for steel produced by Metinvest, another critical business, have slumped 20% this year.

Alexander Martynenko, the head of research at Kyiv-based Investment Capital Ukraine, said that the global steel market is inclined to remain oversupplied during the next five years. Steel producing business owners look for diversification into more promising sectors.

HarvEast, Akhmetov’s agricultural holding company, plans to stay focused on core industrial businesses, rather than expanding its operations. 

The coronavirus pandemic crushed industrial commodity prices. Ukrainian industrial production sank in February for a fifth consecutive month. Global trade tensions and the coronavirus pandemic limited demand for commodities. Meanwhile, unseasonably warm weather resulted in less consumption of energy. 

Subsequently, DTEK’s production of coal could drop as much as 30% this year, according to Maksym Timchenko, Chief Executive Officer.

Coal production is sinking in Ukraine

Besides, the Ukrainian Parliament passed a law to prohibit businesses from cutting service to consumers during the coronavirus outbreak has also exerted pressure on DTEK. 

The company didn’t suffer from the lack of orders in April. Still, it may put some modernization projects on hold amid the crisis caused by the coronavirus outbreak.

The future of coal-fired energy is even less promising for the company. Martynenko stated that because of stiffening environmental requirements, investors are shyer and shyer of coal-burning technology. Moreover, Ukraine’s coal deposits are drained and very costly to mine. 

DTEK has spent around $1.2 billion in renewable energy. However, the company may invest less in that area as the global economy slows, and as government regulations present the industry with less and less attractive investments. 

Timchenko stated that DTEK got used to relying on itself in crises and solving them. Yet, the margin of safety is over. He urged the government to encourage electricity producers.