Page last updated at 12:55 GMT, Wednesday, 6 April 2011 13:55 UK



David Stern
BBC Reporter, Ukraine

Andrei and Natalya Lyashko
Andrei and Natalya Lyashko depend on the steel mill for their livelihood

"We hope that there will always be work for us."

Andrei Lyashko, an engineer at the ArcelorMittal steel mill in Kriviy Rih, sits with his wife Natalya in the kitchen of an apartment with their two school-aged children.

"The iron ore is supposed to last for 300 years - enough for us and our children."

Kriviy Rih's raison d'etre can be summed up in one word: metal.

The city sits on top of some of the world's largest iron deposits and is at the centre of Ukraine's steel industry.

It is only 20 kilometres (12 miles) wide, but almost 130 kilometres (80 miles) long - making it one of Europe's longest cities. The name Kriviy Rih means "crooked horn", perhaps a reference to its slightly arching shape along the Saksagan and Inhulets rivers.

The city's central street stretches its entire length from north to south, roughly following the line of the iron mines. The mines' names still bear the mark of the Soviet past: October, Bolshevik and Motherland.

All around is the debris of the mining industry: discarded shafts and craters where the earth has buckled and fallen away because of the digging going on below. Above it all, giant piles of slag that have been dug up from the mines dot the horizon like a mountain range.

Industrial downturn

Metal is Ukraine's lifeblood. The country is one of the world's ten largest steel producers and exports about 80 percent of its output.

Metals make up about 40 percent of Ukraine's exports overall.

As the global metals industry rises and falls, so do Ukraine's steel producing cities - such as Donetsk and Mariupol in the country's east and, of course, Kriviy Rih.

Kryviy Rih is home to Ukraine's single largest mill complex, owned by AcelorMittal, the Luxembourg-based steel giant, as well as a number of other major steel and mining enterprises.

ArcelorMittal offices
London based ArcelorMittal owns Ukraine's largest mill complex

The world economic downturn had a crippling impact on the economy here. In 2009, the worst year, overall industrial production in Ukraine dropped by nearly a third - much of that due to the precipitous drop in steel orders.

Ukraine's GDP shrank by a sobering 15 percent. Steel mills across the country laid off thousands of workers or cut back their hours.

Now the economy seems to be recovering. Exports are once again up, and the mills are working closer to capacity. Unemployment has fallen, although it still remains high.

But a sense of foreboding lingers.

Low costs

In Kryviy Rih some workers wonder if the economic crisis was just a foretaste of cutbacks to come. Others are asking how much longer Ukraine can afford to be so dependent on its steel and metals industry, at least in its present labour-intensive form.

"It would be great if Ukraine could develop something new," said Rinat Starkov , chief executive officer at AcelorMittal in Kryviy Rih.

"On the other hand, don't forget that Ukraine possesses the second or third largest or deposits in the world. It's quite natural that Ukraine counts on what's in the ground, what's available in nature."

One of the reasons that Ukrainian steel remains competitive is because of low labour costs. At ArcelorMittal, workers earn on average around $500 a month, which is slightly higher than at other mills in Kriviy Rih.

But there are other factors which increase the price. ArcelorMittal, for example, bought the Krivorizhstal mill in 2005 for $4.8 billion, the largest ever foreign investment in Ukraine.

The Chinese consumer doesn't care what went into our nice spa facility, or that our kids went south to Crimea for their summer camps
Rinat Starkov, CEO, AcelorMittal

With the purchase, the steel behemoth inherited additional liabilities such as an agricultural concern - which it recently sold - and an extremely large workforce.

Mr Starkov says that the current number of workers is 37,000, down from 55,000 when Mittal first bought the company. Within the next five to 10 years he hopes to reduce that amount to 15,000 - just over a quarter of the previous total.

He believes that would bring the mill's staffing to levels normal in the rest of the world.

And as the labour force decreases, salaries will rise to European levels, Mr Starkov says.

But he warns: "Ukraine should remember that the competition is out there. Brazilians or Canadians can produce the same iron at very competitive prices."

"The Chinese consumer doesn't care what went into our nice spa facility, or that our kids went south to Crimea for their summer camps," he adds. "They just see one price, and that's it."

Future survival

Mittal is the only company in Kryviy Rih to make investments in the community at large. As dictated by the terms of their purchase agreement, they have to build free housing and a medical clinic for employees.

Kryviy Rih plant
As mills become more automated they will need fewer staff

They also are alone in regularly raising salaries every few months - albeit this is usually translates into an extra $50 or so, which workers say is quickly eaten up by inflation. Still, the extra cash is appreciated.

But what will happen to the workers themselves? And how will cities like Kriviy Rih, where the city's economy is closely integrated with the mills, survive?

Local trade union leaders say that they would like companies to provide occupational training.

But workers like Anzhela Marchuk , a sprightly 32-year-old machinist whose husband also works in Mittal's steel yards, question what the future holds - especially as Mittal and other steel companies become more automated.

"It's frightening. No one wants to become unemployed," she says. "Where are we supposed to go? We have the mill, and that's all - nothing else."



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