Big investments could be shelved due to uncertainty from partial Russian mobilization: consultancy

Consumers are likely to become more reluctant to make significant investment decisions as a short-term consequence of a partial mobilization announced in Russia Sept. 21 leading to reduced demand for metals, Marcel Genet, managing director of Paris-based consultancy Laplace Conseil, told S&P Global Commodity Insights.

“It is very early to know, the announcement only came out today, but as one of the consequences, uncertainty will grow, which is usually bad for the economy in general and for the steel industry in particular,” said Genet.

“People are digesting information, and steel end-users may decide to wait for better times before proceeding with any big investments and projects, which will translate to reduced demand and production,” he said.

Russian industry analysts believe the mobilization, if it remains partial and to the outlined criteria, should have a minimal effect on the country’s mining and metals industry.

“Mobilization concerns people with special military training. I don’t think that men with appropriate qualifications are concentrated in mining and metallurgical enterprises,” said an industry analyst, who wished to be unnamed.

“It is very unlikely that the partial mobilization will create a labor shortage, and I do not think it poses any risk for the work of metallurgical enterprises, and their production programs,” he said.

The share of working personnel, which directly assist production operations, is relatively small, said another expert. In his opinion, there are much more of those involved in all sorts of divisions that are non-critical for production — marketing, procurements and sales, tax and law specialists, etc — and it is unlikely that production will decrease due to a lack of workers.

So far, the mobilization will affect about 250,000-300,000 Russians, or 1% of the country’s total mobilization base, which is estimated at 25 million-27 million, said the surveyed analysts.

The number of people employed in the Russian mining and mineral development sector in 2020 was 1.6 million, according to Russian federal statistics service Rosstat.

“Let’s assume the percentage of those eligible for mobilization within the mining and mineral resource development industry is twice as high or 32,000 people (equivalent of 2% of the 1.6 million workforce),” said the third metals industry analyst.

If women comprise 30%, this leaves us with just over 22,000 men who can theoretically be recruited, and this is for the entire mineral resource sector, including not only metals, but also oil and gas, etc., according to the analyst’s assumptions.

The partial mobilization should not affect senior managers’ mobility in travelling abroad on business, and a potential loss in IT-competent labor will also be negligible, if any, the analysts reckon, saying that little will change in addition to the adjustments/cutbacks in travel routines and spending that have already been in place since the end of February.

The surveyed analysts expect Russian steel production to decline by a maximum of 10%-15%, and potentially even less, compared with the more negative forecast communicated in the spring. Russian steel is traded at discounts to world prices and is attractive to certain buyers, some said.

“In the past, the Russian steel industry has rarely operated at below 89% capacity. This year, the capacity utilization will certainly decline and I see it at 75%-77%, which is still relatively good by many countries’ standards,” said one of the analysts. He also said that this year will see Russian steel companies transition from being highly profitable to moderately profitable businesses preoccupied with dispatching and freighting optimizations and cost-cutting in their upstream operations, as most such homework in steel casting and rolling has been already completed.

Major steel and mining companies approached by S&P Global declined to comment on possible impacts on them and the industry from the Sept. 21 mobilization announcement.

— Ekaterina Bouckley