Dunaferr faces bankruptcy due to an unexpected event

According to the Portfolio, iron and crude steel production at Dunaferr may stop as soon as a week if the closure of MÁV’s tracks continues to prevent rail cars containing raw materials for the company from moving from the Záhony area to Dunaújváros. According to a logistics and shipping expert

this could amount to the bankruptcy of Dunaferr.

What happened?

Raw materials containing iron ore destined for Dunaferr are stored at two industrial sites in the Záhony area. From here, the mineral is transferred to the raw material transport wagons to be transported to the Dunaújváros plant. We know that at the end of last week, MÁV ordered a road blockade for the affected industrial roads and announced that it would begin maintenance work from Monday. Therefore the raw material could no longer be transported as of Monday, it was stuck in the lining, so it might be impossible to supply Dunaferr with raw materials.

We contacted MÁV Zrt. About blocking the track. We asked them if they could confirm the Dunaferr problem due to the road blockage, if they had contacted the management of the forge in advance to resolve the situation, if progress had been made since then and how long the situation could last. As soon as we receive answers to our questions, we will update our article.

Why does a pause of a few days cause so much trouble?

Many may wonder why railway maintenance that seems insignificant at first glance threatens the future of a company. To understand this, you need to know two key concepts:

• just in time and
• pig iron production (blast furnaces).

Dunaferr’s logistics system currently operates in a “just in time” mode, which in practice means that the raw material needed for production is available at the right time, in the right quantity and quality, at the point of use (saving in storage cost). If this supply system is damaged (for example, due to a later delivery), later elements in the chain can start to jam.

In the case of the Dunaújváros steelworks, the closure of the tracks may lead to Dunaferr receiving its deliveries of raw materials from Ukraine through the CIS countries. will be forced to turn off his two blast furnaces (liquid phase in steel production), which could have tragic consequences. The restart of the foundries, by the nature of the technology, entails considerable costs that the company could not cover in its current situation (liquidity stress situation below)., and technology does not allow the use of other bridging solutions.

So what is at stake now is not to reduce production, but to stop production in the company.

Pig iron production in-house

According to the information available on the Dunaferr website, the ferrous base alloy is produced from hot iron ores by fire, usually with a content of 4-5% carbon and other elements. Intermediate product, which is a raw material for the production of steel. Minerals are purchased from imports mainly from Russian and Ukrainian sources. The minerals are melted with 2 blast furnaces. The first furnace was built in 1954, the second the foundry was delivered in 1957. Subsequently, the equipment was renovated several times, furnace No. I in 2014, furnace No. II. and number in 2016. ISD DUNAFERR has a production capacity of 1.3 million tons of pig iron.

What does the company say?

Dunaferr’s management did not want to comment on the Portfolio information, but it was noted that

trust that the Hungarian State will intervene in the matter,

since through the network of subcontractors that work with the group’s employees and Dunafer, the jobs of up to 30,000 people could be put at risk ”.

Unexpected development comes at worst

The danger posed by the severe supply problem is only compounded by the company’s extremely dismal year and performance this year. Two weeks ago, Dunaferr’s manager, Evgeny Tankhilevich, announced in a letter to employees that “due to the low level of production in the recent period, the company is now in a critical and extremely difficult financial situation.” The severe liquidity crisis in the company may be indicated by the fact that, according to the decision of the company management, it was only able to pay September wages and all other benefits owed to employees before the deadline of 10 October. In other words, the employer paid the first installment of the salary up to a net amount of 200,000 HUF. In response, the unions held a rally last week, demonstrating in front of the Russian embassy for the payment of wages and a new collective agreement. Here it was said that they were afraid of their future, because in the recent period processes have been started that they believe will make the car of the only Hungarian steel plant go in the wrong direction. László Molnár, president of Dunaferr Vasas, said here: the factory is dying, but not because of its unfeasibility, since there are orders, good sales prices, but because of the lack of responsible owners, he asked for help.

The Dunaferr crisis has been going on for years (which we have discussed in detail in several of our articles) and is fundamentally determined by the situation in the highly cyclical (generally crisis sensitive) steel industry. The sector was clearly unfavorable due to the crisis and the recessive environment caused by the coronavirus, and the concomitant drop in industrial production (low utilization capacity, high costs, gloomy employment prospects).

And the challenges caused by the negative environment are only compounded by the unique situation of the company.

Special attention is usually paid to the situation of the group of companies as it is the dominant employer in the region. It is the largest employer in Dunaújváros, having 4,500 employees, and more and more employees have been outsourced in the recent period. For this reason, in such situations, the motto “if the factory lives, the city lives” appears regularly.

Top image: A boiler assembly travels to the ISD Dunaferr Zrt smelter. In Dunaújváros on May 4, 2012. Source: MTI Photo / Zoltán Máthé