The Russia-Ukraine war resulted in the loss of 8.5 million mt of ferrous steel exports from Ukraine in the first eight months of this year due to the loss of 40 percent of Ukrainian capacities and transportation problems caused by the blockade of ports, but the impact on Russia’s steel exports has been milder than expected, at least up to now, according to Anastasiia Kononenko, head of Asian market at SteelOrbis, during the 2022 SEAISI Steel Mega Event & Expo being held in Malaysia on November 14-18.
Russian mills redirected some volumes from Western outlets to Asia, focused more on their local market, and were working through third companies to bypass sanctions. As a result, in the first half of 2022 exports of the major products from Russia (billets, slabs, HRC, longs and pig iron) declined by just five percent versus the drop of over 20 percent which had been foreseen for the whole year. Local consumption, which was expected to shrink by 20 percent, posted a 10-15 percent decline on average. Production in Russia also was down by seven percent, though the forecast for the whole 2022 was for a decline of 15 percent.
The lower-than-expected drop in Russian exports due to the significant changes in Russia’s product sales portfolio. The sharp drop in finished steel exports, flats mainly, was offset by rises in semis and pig iron shipments. The share of semis in Russian exports increased from 55 percent to 63 percent. But even within the semis segment, the trend has shown some divergence. Slab sales increased so much that they fully offset the declines in billet exports. Billet shipments were down by 12 percent in the first half of the year with Turkey remaining the main buyer. Regarding slab exports from Russia, which rose by 22 percent in the first half, Turkey and China increased their purchases the most, by up to 100 percent.
Besides, while Europe has substituted slab imports from Ukraine with Asian shipments, slab imports coming from Russia have not changed much as the EU ban on semis imports has a very long grace period until 2024 before it will take effect. More interest in billet imports in Europe is also seen. However, in this segment Asian sellers have to compete with sources closer to Europe, such as Algeria and Turkey.
In general, sanctions had a smaller impact on Russian semis sales to the Asian market than in some other western markets. But even here trade flows changed. The Philippines, once one of the main buyers of Russian billets, saw its billet imports from Russia dropping to zero in June due to payment issues and the risks of US secondary sanctions. While Taiwan has become the biggest buyer of Russian billets in Asia mainly owing to lower prices, China has also remained a regular buyer of Russian semis, buying less billets, though increasing its slab imports from the country. On the other hand, finished steel exports from Russia became the most affected by western sanctions. HRC shipments declined by 50 percent in the first half. Russian sellers were trying to redirect some volumes from the closed European market to India or some other Asian destinations, but in lower volumes. Also, sales to the local Russian market or other CIS countries like Kazakhstan and Uzbekistan helped prevent HRC production from falling too much.
One of the impacts of the war on the global steel market has been the continuous decline in prices. Billet prices surged at the beginning of the war amid supply disruption concerns, but since then they have been falling continuously as Russia was trying to keep its export share. Billet prices have been fluctuating within a limited range since July as they hit breakeven point for a number of Russian Black Sea-based suppliers, especially those using the EAF route. A number of smaller scrap-based plants in the south of Russia had to stop production in such conditions or sell mainly in the local market.
As for the expectations for the future, Russian exports will depend strongly on sanctions and on markets that keep buying despite the risks, while prices will continue to be discounted compared to material of other origins. And in general Russia will continue to lose its export market share to alternative suppliers, especially in Western markets, and so Russian mills will remain under financial pressure.