Russian steel demand could fall by 30% in 2022: steelmakers’ association

Russian steel demand could fall by 30%, or 13 million tonnes, year-on-year in 2022, the Russian steelmakers’ association Russkaya Stal wrote in a letter to First Deputy Prime Minister Andrey Belousov.

“Ferrous metal producers in Russia are facing a significant drop in domestic demand for their products, which, among other things, is due to production stoppages in the automotive industry – eight of Russia’s 14 automotive plants have been closed and the cumulative decline in automotive production could reach 50% this year, “said the letter dated March 28 and seen by S&P Global Commodity Insights.
Russkaya Stal’s spokesperson declined to comment on the association’s correspondence with the government.

Russia’s major steelmakers had forecast domestic steel demand in 2022 to rise 2-3% before Russia’s military invasion of Ukraine, due to increased uptake in oil industries and gas and machinery.

The letter was aimed at preventing the discussed increases in rail freight rates over the next few months. State-owned Russian rail network operator Russian Railways was planning an 11.7% increase in fares in the second quarter, 18% in the third and 20% in the fourth, according to the letter.

“There was no such announcement [of the tariff hikes]said a Russian Railways spokesperson. “This is our work correspondence, which we do not comment on.”

Shipping costs have already increased for Russian shippers due to container shortages, fewer ships carrying Russian goods on board, restrictions on handling Russian goods in European ports and the steep devaluation of the ruble due to sanctions imposed on Russian banks and companies, Moscow-based investment firm Aton said in a note on March 29.

The projected loss in domestic steel demand would be on top of the 10 million tonnes of steel volumes that Russia can no longer export to traditional markets due to sanctions and bans on its exports of certain materials, such as finished steel products, according to Aton.

Europe’s refusal to buy Russian rolled steel is forcing Russian steel mills to redirect supplies to China and Asia, but the move is unlikely to bring material economic benefits.

The potential for Russian steel companies to displace some Chinese imports may have been limited, as Russia’s 10 million tonnes/year of steel exports to ‘hostile countries’ amounted to 70% of Chinese imports of steel by gross volume, Aton said.

“China is a commodity giant accounting for 50% of global consumption of steels and other metals, bulk and coal, but it is also a huge producer, which makes its net imports seem relatively weak,” Aton said.

China’s hot-rolled coil spot prices were already 50% lower than Europe and more than 20% lower than FOB Black Sea, suggesting Russian steel companies may have to offer discounts to access the Chinese market, according to Aton.

A distance of 5,360 km from Moscow to a destination in China compared to 1,860 km to Germany would result in higher transport costs associated with moving volumes from Europe to Asia. Rerouting the volumes would also strain a chronically overloaded eastern network of Russian Railways, consisting of the main Baikal-Amur and Trans-Siberian lines.

The alternative North Sea route from Saint Petersburg to Vladivostok, considered one of the gateways to Asia, was relatively shorter at 14,000 km than the widely used 23,000 km route via the canal. from Suez. The North Sea route was however mainly used to transport specific goods from Nornickel and Yamal LNG and its extension to other goods would require the construction of land infrastructure and the expansion of the fleet of icebreakers, a said Aten.
Source: Platts