Rouble depreciation may lead to cheaper flat steel export offers and greater export gains for Russia, giving tough fight to Chinese offers.
The Russian Rouble fell to its weakest level against dollar at RUB 84.29/USD on 22 Jan’16 as crude oil prices continue to slide. The brent crude oil prices have plunged by about 36% in last one year from USD 52.99/bbl in Jan’15 to USD 33.86/bbl in Jan’16.
Why Crude Oil Prices are Falling?
United States’ domestic crude oil production has doubled over the last several years, forcing major oil producing countries including Russia to compete for South East Asian markets by lowering down their oil prices. On the demand side the economies of European and developing countries are weak and vehicles are becoming more energy-efficient resulting in lag in fuel demand.
How is Russian Rouble related to Crude oil prices?
Russia is one of the world’s largest oil exporting country. With fall in oil prices, the country is faced with increased risk of devaluation of its currency, high inflation and financial instability. Looking the current scenario, the Russian economy is anticipated to contract by 5% or more than that.
Advantage to Russian Steel Exporters
Russia’s domestic steel demand is likely to fall by 10-15% in 2016 owing to falling crude prices which is major source of revenue for Russian economy. Due to high inflation and falling levels of private income, demand for construction activities is likely to slow down in coming years.
The weak Rouble is already proving beneficial to Russian steel exporters as devalued currency is bringing more dollars to the exporters. The country’s total rolled steel exports stood at 25 MnT in 2015, up by 7% Y-o-Y basis.
Russia’s HRC export offers have fallen by 42% while CRC offers plunged by 40% in last one year. Russian flat steel export offers are giving tough competition to the Chinese material in the international arena.
Current offers for 2.5 mm HRC from Russia is in the range of USD 245-260/MT, FoB Black Sea whereas offers from China are at USD 270-275/MT, FoB China. While 0.9mm CRC offers from Russia are assessed at USD 305-310/MT, FoB Black Sea and from China at USD 320-330/MT, FoB China.
Looking at the current scenarion, if Rouble continues to fall freely in the coming years, there are chances that Russia will become the new China in steel sector by offering its steel exports at rates much cheaper than China.
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