Russo-Ukrainian war rapidly reshapes trade patterns

As the global steel trading community remains watchful over the evolving armed conflict in Ukraine, consequent supply and demand issues are already reshaping established trade patterns in some areas.

Exports of steel products from both countries halted completely on Friday, with many participants telling Kallanish a swift resolution of the conflict and return to stable trade is unlikely given Russian President Vladimir Putin’s demands. The fallout from Russia’s offensive on Ukraine will likely create even tighter conditions in the near term, creating a gaping hole in supply of an essential quantity of various steel products, continuing to reshape trade flows.

On Friday, loading halted of steel cargoes at all Ukrainian and Russian Black and Azov Sea ports and Russia’s northern Baltic ports. Suppliers and buyers were not willing to take any of the numerous risks associated with wartime maritime international trade and a possible tightening of sanctions against Russia. Although existing financial sanctions do not forbid general trade with Russia, numerous banks have already informed their clients they are ceasing financing trade with Russia, including, rather unexpectedly, several Chinese banks. Ukrainian trade is similarly affected due to the paralysing effect of the invasion.

CIS suppliers’ abrupt and potentially long-term absence has already reflected on prices of steel products, and scrap and trading patterns. The largest trade volume so far this year has taken place in the CIS billet market following the removal of Egypt’s import duty late in 2021. The cancellation of existing order loading at CIS mills has sent traders scouring the Turkish market for billet at significantly elevated prices. Starting from $720/tonne fob Turkey earlier last week and rising to $740/t fob towards its end, these deals, totalling over 100,000 tonnes, are close to rebar in prices, and have also lifted Turkey’s scrap import market.

Some of the volumes purchased, up to late-April loading schedule, are destined for other North African destinations and are far from enough to cover rapidly rising demand, according to traders.

Indeed, with the CIS, which supplies around 30% of the global merchant billet market, out of the picture for some time, demand is expected to rise further, pushing up prices for steel. Valuable feedstocks, such as metallics and ferroalloys, will also be impacted. With no supply coming from the CIS, some European mills are bidding vehemently for available alternatives, but ongoing shortages may force these mills to halt production and cancel orders, sources say.

Merchant slab supply, however, is even more critical, after several months of very scarce trade due to supply shortages, and very few available alternatives. CIS mills’ combined global merchant slab market share is almost 50%, with the only alternative being Brazil, and, in case of prompt lifting of sanctions, Iran.

The delay in booked volumes’ delivery, temporary suspension of intercompany volume shipping to CIS mills in Europe and the US, and the likelihood of the absence of CIS slab in Western markets for some time, is already reflecting in higher hot rolled coil and plate prices (see separate articles).

The halting of HRC shipments from Russia’s northern ports, even temporary, is also creating a supply vacuum, driving up prices, but alternative Asian supply is at the ready, with the EU now reconsidering its quota allocations for certain suppliers (see Kallanish passim).

For now, the rising prices are likely to stay, traders say, for all products, for some time, depending on the outcome of the conflict. There has been a lot said about China becoming Russian steel’s ultimate destination for diverted exports, due to the friendly ties between the countries.

Katya Ourakova UK