Ukraine-Russia tensions to affect semi-finished steel exports

The increasing tension between Ukraine and Russia is likely to affect the global steel trade, especially exports of semi-finished steel such as slabs, Japan Metal Daily understands.

Both the nations are the leading suppliers of semi-finished steel products and account for 30% of the world’s total exports.

However, the already existing tension between the two nations has increased the concerns of a potential supply disruption in the international market.

If Russia’s invasion of Ukraine really happens, it will lead to disruptions in production and logistics in the latter country, and the economic sanctions imposed by the US and Europe on Russia would interfere with dollar settlements, putting manufacturers, that rely on imports of semi-finished products, in a difficult position.

Exports

Russia’s exports of semi-finished products (including ingots) in CY’20 accounted for the largest share in the world’s total exports at 13.62 million tonnes (mnt). Meanwhile, Ukraine ranked third largest exporter in the world after Brazil with 7.49 mnt in CY’20. In CY’21, Ukraine’s semi-finished exports stood at 6.21 mn t.

Production scenario in Russia, Ukraine

In Russia, integrated manufacturers such as Evraz and Novolipetsk Iron and Steel (NLMK), which have interests in raw materials, produce semi-finished products at low costs.

In addition to the vertical division of labour, there is also a lot of external sales.

On the other hand, Ukraine’s Metinvest, the leading slabs exporter, has its Azovstal facility near the Black Sea, from where steel raw materials are extracted.

Outlook

If the Russian mills were to be blocked from settling their accounts with the dollar, it would be extremely unclear whether they would be able to continue exporting semi-finished products.

Also, in Ukraine, production and supply could be disrupted after invasion, as in the case of Metinvest, a major steel producer, which lost its Enakievo steel plant when pro-Russian forces occupied Donetsk in the east. Metinvest owns the Azovstal and Ilyich steel mills and sells more than 3 mn t of pig iron and semi-finished products annually.

Notably, in CY’21, Russia ranked 5th among world’s largest crude steel producing countries with 76 mnt while Ukraine was in 14th position with 21.4 mnt. As both countries are active in steel production, the supply-demand dynamics will be severly impacted if the situation worsens any further.

Note: This insight has been published in accordance with an article exchange agreement between SteelMint and Japan Metal Daily.