Exclusive A disappearing resource: challenges for Ukrainian scrap collection

Scrap collection volumes in Ukraine have decreased sixfold since independence

The deindustrialization of the economy has become the main factor determining the state of the scrap market in Ukraine. Realistically speaking, this is an irreversible process. Analysts’ calculations show that the previous volumes of scrap collection are a thing of the past, most likely forever. GMK-Center investigated what is happening with scrap collection.

On a downward trajectory

The rise in scrap collection in Ukraine occurred in the second half of the 1990s. At that time, volumes grew 3.7 times in five years and reached a historic high of 11 million tons in 2000. However, there is nothing to be particularly proud of here: the disposal of the Soviet industrial legacy was in full swing. Idle factories were being cut up for scrap on a massive (and often illegal) scale. Then, starting in 2001, the industry went into a steady decline.

The decline is explained by a reduction in the resource base. Which, in turn, directly depends on the state of the steel fund. In 2006, when the state-owned enterprise Ukrpromvneshexpertiza conducted its first study, it was estimated at 670 million tons. By the end of 2019, the figure had fallen to 452 million tons (further calculations were discontinued).

This is due to the extremely low level of investment in the renewal of the steel stock: road and building structures, industrial equipment, and transport. And it is not that investment is not needed. On the contrary. By the beginning of the 2020s, the degree of wear and tear of the steel stock was already around 90%.

The relationship between the renewal of the steel stock and the resource base for scrap collection can be illustrated by the example of railway car manufacturing. In 2017, the degree of wear and tear of the passenger car fleet of PJSC Ukrzaliznytsia reached 79%. The freight fleet, broken down by category (open cars, grain cars, pellet cars, oil tank cars, etc.), ranged from 90% to 98%.

At that time, UZ developed a program for a large-scale renewal of its rolling stock. The need for new freight cars for 2017-2020 was estimated at 53,727 units under the restoration scenario and 69,240 units under the investment scenario. To build these cars, factories needed 1.24-1.59 million tons of rolled steel. In this case, replacing the worn-out rolling stock with new ones would have increased the scrap resource by 1.15 million tons. However, the railway workers did not implement the program. Therefore, old worn-out cars continued to be operated instead of being scrapped.

The production of freight railway cars in Ukraine fell by 93% between 2003 and 2024! The production of electric motors decreased by 88% in 2003-2020, tanks and cisterns by 85%, tractors by 81%, etc. With the start of full-scale war, the situation worsened even further.

This is an extremely important point. Mechanical engineering is the main source of scrap not only because it generates products for the renewal of the steel stock. It is itself an important source of scrap. This refers to the production waste of mechanical engineering enterprises (steel shavings, cuttings, etc.).

We should also remember what happened to the Ukrainian automotive industry. In 2014, the Zaporizhzhia Automobile Plant (ZAZ) and the Lviv Bus Plant (LAZ) ceased production, and in 2022, the Lutsk Automobile Plant (LuAZ), the Cherkasy Automobile Plant, and the Kremenchug Automobile Plant (KrAZ) shut down. In essence, the industry “died.”

The situation is similar in other sectors: energy machinery, aviation, shipbuilding, etc. As a result, the share of machine building in Ukraine’s GDP fell from 30.5% in 1991 to 11-12% in recent years. This has led to a steady decline in scrap collectionin . Plus, there is a full-scale war.

Now we can see this in the figures: the 78% decline in scrap collectionin 2003-2024 is due to a similar decline in output in key scrap generation sectors by 80-90%. So where does scrap come from in Ukraine?

Lack of potential

The main source of scrap in Ukraine in recent years has been depreciation scrap, which accounted for up to 75%. In other words, this industry has been and continues to operate on accumulated resources from the Soviet era. These resources are not being replenished properly due to low steel consumption in Ukraine over the past three decades, which puts Ukraine in a vulnerable position compared to other countries.

It is no secret that Ukraine ranks among the lowest in the world in terms of per capita steel consumption. However, it is also necessary to take into account the specifics of steel consumption in Ukraine to understand that the resources available for extraction are decreasing every year. For example, even before the war, up to 80% of steel consumption in Ukraine was accounted for by the construction sector. The share of rebar and wire rod in total steel consumption is about 30%, or conditionally more than 1 million tons out of 3.5 million tons of steel consumption. Technologies for extracting rebar from concrete are not used in Ukraine. Therefore, this part of steel consumption cannot be considered a resource for generating scrap in the future.

The remaining 2.5 million tons, with an average extraction rate of 80%, will provide up to 2 million tons of scrap. Therefore, given the realities of the last few decades, the current procurement level of 1.7 million tons is organic for Ukraine, fully corresponding to its generation potential. The main decline in industrial production and steel consumption occurred much earlier than 2022. Therefore, the degradation of scrap collection to the level that Ukraine has today would have come with time even without the war.

This situation jeopardizes the prospects for the implementation of projects announced by steel companies: expansion of production at Interpipe, an electric furnace project at DMZ, which will potentially require from 1 million to 2 million tons of scrap. In other words, the demand for scrap will grow exponentially over time.

The impact of the war

The war has exacerbated the problems of resources and scrap procurement. Part of Ukraine’s territory has been occupied or has become an arena for active hostilities. Currently, the volume of scrap collection in Donetsk, Luhansk, Zaporizhzhia, Kherson, and parts of Kharkiv and Sumy regions is close to zero. Previously, these regions provided about 1 million tons of scrap per year. It is impossible to compensate for the lost volumes by increasing procurement in other regions. As we discussed above, the potential for scrap generation in other territories is limited. The Soviet industrial heritage was largely concentrated in the industrial regions of eastern Ukraine.

Active hostilities, economic decline, the collapse and stagnation of industrial production, emigration from the country and staff shortages, and mobilization processes are all having a negative impact on the scrap industry. As a result, the number of market participants is declining. In 2009, there were about 1,700 scrap companies in Ukraine. Now, according to expert estimates, there are no more than 100-120 left, with an active number of scrap collection sites ranging from 250 to 300.

Scrap collectors had certain hopes for the disposal of damaged military equipment, but the legislative framework is still imperfect, according to market participants. However, this resource will only become truly accessible after large-scale demining of the territories where fighting took place and is still taking place. How many years this will take is a rhetorical question, given the experience of countries such as Cambodia and Afghanistan.

Future prospects

The volume of Ukrainian scrap collection in the coming years, and therefore the very future of the industry, directly depends on the situation in the machine-building sector. To see this, one need only look at the top five global leaders in scrap exports.

These are developed countries where machine building is the foundation of economic power. It accounts for 40-45% of all exports in monetary terms. In Ukraine, the contribution of machine building to exports is only 10-12%, part of which is the assembly of cable systems under a tolling scheme for international companies, which is not manufacturing in essence.

Initially, the main market for Ukrainian machine products was Russia. However, since the 2000s, Moscow has consistently promoted a strategy of import substitution. As a result, Ukrainian locomotives, gas pumping stations, railcars, etc. have become unmarketable. In other words, new sales markets are needed for the potential revival of Ukrainian machine building.

Now Ukrainian railcar manufacturers, KVSZ and Dneprovagonmash, have mastered the production of rolling stock according to European standards (for the narrower gauge used in the EU). And it has been only 10 (!) years since Ukrainian railcars were rejected in Russia… But, for example, nuclear and thermal turbines, aircraft engines, etc. are much more complex products than railcars. And here it is many times more difficult to break into the European market. There is a huge lag in production technologies. Therefore, hopes for a Ukrainian machine-building renaissance are very slim.

Therefore, it is obvious that Ukrainian scrap collection will continue to remain at roughly the current level. For the current year, the UAVtormet association forecasts 1.45-1.65 million tons of scrap collection with an increase in exports to 350,000 tons and domestic consumption of 1.1-1.2 million tons. The forecast is confirmed by data from PJSC Ukrzaliznytsia on scrap transportation volumes. In 2024, it amounted to 1.044 million tons, and in January-May of this year, it amounted to 411,300 tons. Extrapolating this indicator for the whole of 2025 shows a 5.5% decrease in railway scrap transportation.

Based on this, the prospects for scrap collection in Ukraine are bleak:

• there is no available scrap due to deindustrialization and the economic decline over 3.5 years of full-scale war,
• there are no prospects for the formation of machine-building scrap, as the industry has been shrinking for 20 years and has very poor
• prospects due to the war and geopolitical risks,
• it is not possible to work actively with military scrap due to legislative restrictions,
• there is no potential for increasing scrap collection due to the limited capacity of the industry itself, which has shrunk significantly and collapsed during the war.