The Association Agreement with the EU was promoted in Ukraine as the path to European paradise and social well-being; it has actually turned out to be a time-bomb for the newly minted "democratic" country. As it was reported earlier, agricultural lands are being transferred to oligarchs and foreign agroholdings while its once prospering steel industry is facing complete ruin.

The article originally appeared at German Economic News. Translated for RI by Anita Zalaldinova.

Ukraine is on the verge of national bankruptcy. A resurgence of the steel industry would be a bright spot for the budget. However, the opposite is happening (Photo: Reuters)

Due to corruption, mismanagement and war, Ukraine, being a country with abundant in natural resources, is facing bankruptcy. The Iron and steel industry of Ukraine, which is based on natural resources, is in free fall. The decrease in world prices accelerated this development. The Kiev government has done nothing to counteract.

By 2011 Ukraine had the world's largest diggings of iron ore. These deposits are concentrated in the region Kryvbas, in the centre of the country. Iron ore can be mostly recovered in strip mines there. And, besides, famous coal reserves, especially the manganese deposits, concentrated in the now embattled Donbass region of Ukraine, are significant. Herein Ukraine has a quarter of world reserves. The centre of manganese mining is in the region of Nikopol in the central southern part of the country. Other important ore reserves include titanium, aluminium, and not least uranium.

Iron ore, however, remains the most important natural resource for the Ukrainian steel industry. Manganese and titanium are basically used in the steel industry as well. In 2013 the Ukrainian steel industry held the 10th place in the world production, producing 30% of the country's exports.

Ten largest steel producers in 2013 (Graphic: DWN; Source: data from the World Steel Association)

Development of the Ukrainian steel production (Graphic: DWN; Source: data from the World Steel Association)

Nevertheless, the production figures were well below those of before the financial crisis. In 2007 almost 43 million tons of steel were produced, against 33 million tonnes in 2013. In 2007 Ukraine was also ranked 8th among the world's largest steel producers. Since then Turkey and Brazil have drafted past.

At the beginning of the Ukrainian independence in 1992 the production figures were much higher, at around 42 million tons of steel. The breakdown of the Soviet Union collapsed the markets, and by 1995 almost the steel production had almost halved.

The rest of the article is a rough translation.

And even though the final figures for 2014 are not yet known, it is clear that the last year brought a new fall to the traditional industry. Just as the conflict in eastern Ukraine became the greatest burden for the Ukrainian steel works and smelters. At least two out of four centres of Ukrainian metallurgical industries are now in the conflict zone.

A major problem of the Ukrainian steel industry is its dependence on exports. Only 20% of the output is consumed in the country itself, the lion's share of 80%, however, goes abroad – and Russia has traditionally been the most important customer. 2014 became a disaster for Ukraine.

Even before the current conflict Russia tried to reduce the Ukrainian deliveries with anti-dumping measures. But it was only after the fall of Yanukovych in February last year when the Ukrainian exports to Russia fell downright. The record deficit in the Ukrainian balance of payments reflects this development once again.

Obviously this was only the first knock to the Ukrainian steelmakers. The second has just come. In February the world prices for crude steel have nosedived. At the London Metal Exchange crude steel futures are traded at only $290 per ton, in January there were still at $480.

Theoretically, against such injustice a stronger domestic demand could help. Levyi Bereg, the Ukrainian news portal lb.ua, reported that for replacement of rotten pipes alone Ukraine would need one million ton of steel. The wear of the Ukrainian property and equipment is estimated at a total of 70%. So there is a huge sales potential for steel.

However, modernization of the steel works is necessary. For example, still 20% of steel is produced in the outdated open-hearth furnaces. And per ton of emissions the Ukrainian plants consume four times as much energy as the in the leading countries of the world.