Probable new sanctions against Russia to swing global steel trade flows again

A probable new round of international sanctions against Russia from October may again re-adjust the global trade flow of steel products and raw materials again, sources told Fastmarkets.
South America and European countries – including Italy and Turkey – which are still importing Russia steel products, especially semi-finished and substrate steel products such as billets and hot-rolled coils, may be forced to stop buying from Russian and look for new alternatives, a senior official at a leading Chinese steelmaker said.

“On the one hand, the [European] buyers don’t want to give up the cheap Russian supply. Yet, on the other hand, they are eyeing on new alternatives. They are hesitating and waiting for the sanctions,” the same source told Fastmarkets.

Italy has already stopped buying Russian steel, and China and Vietnam are now the major steel suppliers to Italy. Turkey is a buyer of Russian steel, although China also is a top steel supplier for the country.

Will Russian steel flood Asia?
Asia will be the most likely market for Russia if its steel comes under more sanctions from Western countries, market participants said.

Still, the chances are slim that volumes to Asia will greatly increase, especially as many Southeast Asian countries do not take Russian steel. This leaves China as the sole major potential market. While there are countries in east Asia and southeast Asia that still import Russian steel, the volumes are scattered and minimal.

“Poor demand in China and the wide Asia region is limiting China’s demand for steel imports,” a trader source in northern China said. This is especially as other Asian countries such as Vietnam, Indonesia and the Philippines ramp up domestic steel production and has plans for more blast furnaces and hot strip mills in the future.

The latest customs data shows that China imported 3.74 million tonnes of steel products in the first half of 2023, down by 35.2% from the same period of last year.

Despite the poor demand, risks from the sanctions will reduce the appeal of Russian steel to Chinese importers, a trader source in eastern China said.

“There are still fears that they can’t re-export if they use Russian semi-finished or substrate and there might be financial penalties from the sanctions,” the eastern China-based trader source added.

“Of course, someone will still import Russian steel to China only if the prices are attractive enough,” the eastern China-based trader source said.

The same source also doubted how severe the measures could be to constrain Russian steel exports on top of the existing measures.

“People reacted calmly to the speculation [of a potential escalation of EU’s sanctions on Russia in October], likely because people don’t expect more substantial impact on trades from the sanctions,” the eastern China-based trader source added.

Steelmaking raw materials also affected
Steelmakers based in Germany have been actively seeking alternative supplies of iron ore pellets from regional markets ahead of anticipated sanctions, according to a source familiar with the EU iron ore market.

The same source added that implementing stricter measures against Russia-based iron ore could lead to additional supplies being diverted towards natural import markets such as China.

This may exert downward price pressure on the seaborne and domestic markets.

“Russian iron ore has been finding inroads into the Chinese market with deals getting concluded in terms of the Chinese yuan,” a Shanghai-based trader source said.

This could be further exacerbated by an uptick in iron ore shipments from major exporters in Australia and Brazil in the second half of 2023.

India is a major importer of Russian pulverized coal injection (PCI), with major Russian miners enjoying good sales volumes to steelmakers there.

“It may affect India to an extent but not majorly, especially as Indian steelmakers cater to domestic markets and only exports when overseas margins are better,” a coal producer source in Southeast Asia told Fastmarkets.

Even if the sanctions really do happen and India abstains from importing Russian PCI, “Australia has an ample supply of PCI and will have no problems fulfilling India’s demand,” a trader source in India told Fastmarkets.

Published by: Paul Lim, Zihuan Pan, Norman Fong, Olivia Zhang