Russian steelmakers forecast a capacity under-utilization at the level of over 15 million tonnes (mnt) in 2022 compared to 2021. Russia’s annual crude steel production in 2021 was 76.3 mnt, which placed the nation in the fifth place in the ranking of global steel production. However, owing to a capacity underutilization this time around, Russia’s estimated crude steel production in CY2022 may remain at around 61-62 mnt, according to SteelMint data.
Factors influencing lower capacity utilisation
Fall in domestic steel consumption: The overall reduction in domestic consumption is to be blamed for this “under-loading”, Ukrainian consultancy firm GMK Center reported. Oleksiy Mordashov, President of the Russian Steel Association and owner of Severstal, alerted the Russian government about the impending crisis in a letter.
Worth mentioning here that the largest steel manufacturers in Russia are members of this organization, which includes big players like Evraz, NLMK and MMK.
In the second quarter of 2022, domestic steel consumption decreased by 16% compared to the previous quarter.
Increase in smelting costs: Industry insiders opine that such a fall in the steel production, in turn, increases the cost of smelting, which will eventually force Russian steelmakers to reduce their investments.
Naturally, industry stakeholders in Russia are now worried about the immediate impact of the crisis on the general market sentiment.
Export volumes down: On the other hand, the sanctions of the EU and the United States have also undermined the export opportunities of Russian players. In 2021, Russia exported 30.29 mnt of steel, where EU’s volume was 8.23 mnt. Meanwhile, Russia has exported around 10 mnt of steel till June this year and is expected to export 20-21 mnt in 2022, according to SteelMint data.
Price regulations on anvil: The Russian government is currently working on a mechanism for setting steel prices, said a reliable source from the Russian Steel Association. The mechanism applies to organizations delivering government contracts at prices not higher than at the end of January 2019. Such pricing is similar to contracts for state Defence orders.
“The extension of the mechanism will lead to the fact that a large share of steel products will fall under regulation. This will force steelmakers to produce and ship products with significant negative profitability,” the source informed, adding that the industry is already considering the options of stopping part of the main units, switching to a part-time working week and significantly reducing employees.
Outlook
As mentioned, in Q2 (April-June) of 2022, domestic steel consumption decreased 16% compared to the previous quarter. Hence, now it is expected that in the second half (July-December) of 2022, consumption of steel will decrease by 22% compared to January-June 2022, remarked Mordashov in his letter to the government. Steelmakers share that the current crisis can negatively affect the socio-economic situation in the regions.
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