Before the all-out Russian attack in the spring of 2022, Mariupol, with its population of half a million, and its several huge flagship plants, was the largest industrial center in the Donetsk region. Of these plants, none is better known than Azovstal, the steelworks that captured world headlines in April-May 2022 as it became the last refuge of a brave group of soldiers holding out against the siege by Russian invaders. Its basements also became a place of refuge for many civilians seeking at least a rudimentary sense of security amidst the apocalyptic war landscape overground. It has become a symbol, hopefully never to be forgotten, associated as much with the heroism of Ukrainian soldiers, as with the terrors of an unprovoked war.

The first life of Azovstal

The company was founded in 1933 as part of the Stalinist industrialization plan, but it was not the first metallurgy plant to function on the territory of Mariupol: already in 1898, ‘Russian Providence’ (Rosiysky Providans), a Belgian-financed steel-making factory was working in Mariupol. Built as part of Stalin’s first Five Year Plan (1928-1932), which was known for other mega-projects such as Magnitogorsk in Chelyabinsk oblast in the Urals (see Kotkin 1995),  Azovstal quickly became a symbol of Soviet bootstraps industrialization and came to embody the Soviet mythification of steel, and a heroic industrial field. Thus began Azovstal’s first life. In the decades after Stalin’s death in 1953, this first life of Azovstal unfolded as part of Soviet efforts to turn Ukrainie into a metallurgical powerhouse of all-Union significance. It was largely as a result of projects such as Azovstal – as well as Ukraine’s other major steel producers, such as MMK, Krivoryzhstal in Kryvyi Ryh, Zaporizhstal in Zaporizhzhya, and the development of dedicated mining-metallurgical regions – that Ukraine became the largest metallurgical producer per capita in the USSR. By the mid-1980s, Ukraine was producing more than a third of the Soviet Union’s crude steel, ferrous metals, and cast iron (Marples 1986).

If Azovstal signified the success of Ukraine’s incorporation into the Soviet federal economic project, it was also the product of the direct subordination of key industrial sectors to ministries in Moscow. This process had consequences for professional identities at the plant as well. These identities were shaped not only by Soviet propaganda exalting miners and steel works, but also by what anthropologists such as Burawoy (1979), when studying the ethnography of labor process, conceptualized as the importance of the “shopfloor” in the constitution of people’s interests and identities, which, as I discuss below, also came to have important implications years and decades later.

The second life of Azovstal

The second life of Azovstal began with Ukraine’s independence in 1991, when the plant’s fate was simultaneously shaped by fears of industrial reform, the continuing practice of state subsidies, and Ukraine’s complex relationship with both Russia and the European Union. After the dissolution of the USSR, relationships between enterprises came under stress and in many cases simply collapsed. Factories were left without the feedstock they needed to produce, without customers to buy their products, and without sufficient funds to pay their workers. These challenges had an especially significant impact on the Ukrainian coal and metallurgical sectors. This challenge and opportunity were precisely what a group of young, Donetsk-based economic players seized in the early 1990s. Rinat Akhmetov, independent Ukraine’s most influential oligarch, was one of them, but by no means the only one. Akhmetov would later part ways with the clan, in order to create his own group, System Capital Management (SCM), Metinvest’s and Azovstal’s mother-holding company). These individuals, who would later become some of Ukraine’s richest oligarchs, started their business empires amidst the chaos of the early 1990s. Key to their rise was their role in helping reestablish broken ties by gaining greater control over the sector’s enterprises – first informally, including by means of intimidation tactics vis-à-vis managers and competitors (Balmaceda 2021, 193) and later through formal ownership. 

Doing so, they were able to take advantage of state subsidies to the mines that were meant to fill the financial gaps created by their working at a loss. This created incentives to inflate losses, disincentivizing coal sector reform. These coal-mine subsidies were key to metallurgical production, given the central role played by coal both in electricity production and as feedstock for steel production, involving the most widely-used technologies. In a longer-term perspective, these economic and policy manipulations helped Ukraine remain reliant on outdated, carbon-intensive steel technologies that would make it harder for the country to adjust to the global imperative for decarbonization.

Despite the strong disruptions resulting from the collapse of the USSR, from the late 1990s, Ukraine’s metallurgical exports started to increase, becoming the largest category of Ukraine’s exports, at nearly 33%. However, if at first glance the story of Metinvest’s rise speaks of its successful adaptation to new conditions and its integration into international markets, further analysis reveals a somewhat different story. Although these increasing metallurgical exports were driven partly by Ukraine’s competitive advantages (its access to raw materials, e.g., manganese and iron ore; the local availability of a sizeable, low-cost, and specialized labor force; and easy access to export ports, e.g., Mariupol), the country’s competitive export prices for steel products could not be sustained without the large-scale subsidies mentioned above. Ukraine’s “lower production costs” were related to state subsidies, and also to the fact that prices for key feedstocks were kept artificially low through corrupt deals and administrative manipulation.

These economic manipulations soon gained a political dimension as well. Akhmetov’s group was a key player in what I call the “Donetsk energy-political system” (Balmaceda 2021). This system was built on the unspoken division of responsibilities during the Kuchma period (1994–2004), when Donetsk actors would be given free reign in the region as long as they did not interfere with politics in Kyiv ( “politics are made in Kyiv, money is made in Donetsk”, as the bon mot has it). Some key elements of this tacit pact in terms of its relations with Kyiv were the Donetsk group’s role in helping to prevent the rise of a hardline communist opposition, but rejecting the upsurge of open political regionalism, while instrumentalizing workers’ grievances and demands for their own rent-seeking purposes. Rinat Akhmetov was far from an innocent bystander in these processes. His support of the Party of Regions took place at several levels, including his large-scale financing of the Party, and the use of his vertically integrated and paternalistically run companies in bringing out the vote for Yanukovich, while, at the same time, controlling a group of deputies in the Parliament, who were directly accountable to him.

The role of Azovstal and Metinvest in Mariupol, as a city largely dominated by a single industrial sector as well as a single company (Metinvest), presents the observer with an interesting paradox. On the one hand, Akhmetov’s financial support and the paternalistic, top-down system established around Metinvest’s factories helped solidify the Party of Regions’ and Yanukovich’s power within the context of what Hale has termed “patronal regimes” (Hale 2014). At the same time, Metinvest, while exercising power locally, was thinking globally, and by 2011, developed an impressive vertically-integrated system that involved physical assets in five countries from the EU to the US, and vertical control over the entire production chain from feedstock to end products. This had a number of paradoxical consequences.

The transnational success of Metinvest contributed to the gradual reorientation of Ukraine’s economy towards EU markets, a shift that was to have momentous consequences. If in the 1990s trade with Russia had a clear upper hand, by the Yanukovich period trade was ongoing simultaneously in both directions, with metallurgical-related export income from each being nearly equal (for example, in 2011, 25.6% of Ukraine’s metallurgical exports went to the Commonwealth of Independent States and 27.5% went to Europe, and, in 2013, 29.5% went to the Commonwealth and 26.4% to Europe)¹These foreign trade statistics are from National Bank of Ukraine, “Dinamìka tovarnoï strukturi eksportu,” . Metallurgical exports are defined in the official statistics as “ferrous and non-ferrous metals and their products,” and correspond roughly with commodity g, p 72, “iron and steel,” in the Harmonized Commodity Description and Coding System.. Despite Akhmetov’s role in solidifying the control of the Party of Regions in  Donetsk, and the widespread view of the Yanukovich regime as pro-Russian, by 2014 Metinvest was much more than simply a pro-Russian actor.  Rather its share in the growing exports both to Russia and to the West gave it a unique role. Ukraine’s 2014 Euromaidan Revolution, which was sparked by President Yanukovich’s sudden decision not to sign a long-awaited Association Agreement with the EU, was a response to this very same question: which direction should Ukraine focus its foreign economic ties – eastward, towards closer relations with Russia, or westward, prioritising closer relations with the EU? While we see these events and the Euromaidan Revolution mainly through a political prism, they would not have been possible without the momentous changes taking place in Ukraine’s economy. Azovstal was central to these changes.

European economic orientation grew significantly in the years prior to Maidan: by the 2009–13 period, Ukraine had become one of the largest sources of steel imports. Indeed, it was these growing exports that helped transform metallurgy into Ukraine’s top export sector between 2009-2014. Yet, it is important to understand that these westward chains also involved complex manipulations by Metinvest to avoid EU dumping sanctions: as income from these exports was threatened, Metinvest went on the defensive by aggressively purchasing assets in the EU, including re-rolling mills in Italy, which could be used to avoid EU restrictions by moving the last stage in the technological process (re-rolling into high-value, specialized steel products) out of Ukraine. These newly-acquired mills processed the semi-finished steel slabs from Azovstal, shipped directly from the port of Mariupol or nearby Berdyansk. This unique Azovstal-Italy supply- and value-chain, discussed in detail in my book Russian Energy Chains (Balmaceda 2021), was key to increasing the role of westward exports for Ukraine’s metallurgical industry.

Azovstal’s supply chains went mainly to those industries and mines that supplied the main feedstock used by Mariupol’s metallurgical giants MMZ and Azovstal, that is, mines supplying iron ore and coke, as well as involving significant exports to Russia. Indeed, for many decades, Azovstal had been key for the value chain built around supplying steel slabs to the Khartsyzsk Pipe Plant (also controlled by Metinvest), to make large-diameter pipes using a unique anti-corrosion technology, and for these to be supplied to Gazprom in exchange for natural gas (paradoxically, some of these pipes were used to build the Yamal-Europe gas pipeline that, by rerouting to transit via Belarus, part of the Russian natural gas volumes hitherto transited through Ukraine, reduced Ukraine’s role in, and income from, this transit.)

The third life of Azovstal

These contradictions formed the backdrop for Azovstal’s role after 2014, with the onset of the war in East Ukraine, and following Russia’s escalation of the war in 2022. Starting in 2014 with the Russian occupation of areas in the Donbas, the supply chains that kept Azovstal’s production alive and profitable came under increased pressure, as important feedstock needed for production was now no longer under official Ukrainian control. However, Metinvest found creative ways of dealing with this challenge, some of which, such as a degree of de-facto cooperation with Russian-led leaders in the so-called  Luhansk and Donetsk People’s Republics, so that important factories for the steel value chain could continue to work, were deeply controversial. These ties, however, were no longer sustainable after 2017, when a series of “nationalizations” by Russian-led groups in the so-called LNR and DNR vested the control of these units from Metinvest. This was the backdrop against which Azovstal emerged after February 2022 as a symbol of Ukrainian resilience and defiance against Russian aggression. 

As we remember Mariupol, the issue of Azovstal’s future comes to the fore. The Russian occupiers have stated that the factory will be razed. Its owner Rinat Akhmetov vowed to never reopen the factory under Russian occupation. More generally, the question of the future of Ukraine’s metallurgical industry looms large. The damage inflicted on important steel factories such as Azovstal and the need for rebuilding from the ground up may open the door for leapfrogging the industry into cutting edge, low-carbon steelmaking technologies as part of the post-war reconstruction effort once the area is liberated from Russian occupation.  As we ponder these alternative futures, it is worth remembering all aspects of Azovstal’s past, including its role as a center of hidden coal and steel subsidies, hidden carbon, and oligarchical control.

REFERENCES:

Balmaceda, Margarita M.,  Russian Energy, Value Chains, and the Remaking of Politics from Siberia to the European Union: Chains of Value and Power in Natural Gas, Oil, and Coal. New York: Columbia University Press, 2021.

Burawoy, Michael, Manufacturing Consent: Changes in the Labor Process under Monopoly Capitalism. (Chicago: University of Chicago Press, 1979)

Hale, Henry E.,  Patronal Politics: Eurasian Regime Dynamics in Comparative Perspective.(New York: Cambridge University Press, 2014)

Kotkin, Stephen, Magnetic Mountain: Stalinism as Civilization. (Berkeley: U. of California Press, 1995)

Marples, David, “Crisis in Soviet Industry? An Examination of the Soviet Steel Industry in the 1980s,” Canadian Slavonic Papers 28, no. 4 (1986): 369–84, at 369.