The US issued a new package of sanctions against Russia on August 2, this time including restrictions on Viktor Rashnikov, the majority owner of Russia-headquartered steel giant MMK, who has already been sanctioned by the EU. Moreover, in this latest round of sanctions, the US has slapped direct sanctions on MMK and its affiliated structures such as IMMK-FINANS and MMK Metalurji (based in Turkey), including its port facility. On the same day of August 2, the US authorities issued a direction forbidding transactions involving MMK and its affiliated entities, though with a grace period until September 1 for regular operations and until October 3 for operation related to derivative contracts and securities.
Since the US sanction regulations is quite fresh, market players are trying to assess the possible outcome for MMK and its market operations. Some of them are quite pessimistic and expect a significant shrinkage of MMK operations both in term sof exports and in the local market in Turkey, while others believe that, although there will be an obvious negative impact on the company, still some ways may be found to continue relatively normal operations, though with a good deal of difficulty.
Particularly, Russia-based steel producer MMK, according to sources, is now in the same position as Severstal, which was sanctioned the first among Russian steel producers. “They are now in the same situation. Few will be eager to work with [MMK] legal entities and the company will work on alternative ways to conduct operations,” a producing source said. Mainly, it is expected that MMK will now have even bigger trouble finding banks and insurance companies ready to work with them, while some players expect there will be problems with all legal entities, including ship owners. However, many do not expect that the export operations of Russia’s MMK will be severely affected, given that the mill has been barely present in the global market in recent months and has been concentrating on domestic sales, having at the same time cut production. The only steel product flow reported in the market was the regular HRC supply from MMK to its Turkey-based affiliate. “They [MMK] will make it until fall and then, if they don’t come up with how and to whom to sell, they will shut down part of the production,” one source stated.
The situation around Turkey-based MMK Metalurji, which is also in the sanctions list, is not yet clear. Market players believe that soon the dust will settle and more details will be known, although it is believed that the company might face certain difficulties.
Overall, for now, the main result of the US sanctions against MMK is the increased risk of the imposition of secondary sanctions on the companies linked to the US and working with MMK entities. Market sources report that secondary sanctions are usually implemented in the form of the turnover fines, which could result in huge amounts of money having to be paid. “It means that one could buy for $1 million and end up paying a turnover fine of $100 million,” one exporter told SteelOrbis.