Steel production unprofitable in Russia: report

Russian steel producers are experiencing losses in both export and domestic markets, Moscow-based daily Kommersant reported July 14.

All major Russian steel manufacturers saw negative margins in June with the sector actively reducing steel production while also considering reducing investment programs, Kommersant said.

In June, Severstal saw a negative 46% margin in exports though a positive 1% margin in the domestic market, the Kommersant said, citing Severstal’s director and vice President of the Russian Steel Association, Andrey Leonov.

Severstal, being Russia’s biggest steel exporter to the EU, has seen operations hit hard as a result of Western sanctions imposed on it.

In May, Severstal said its hot-rolled coil exports were likely to shrink to half of its total HRC sales this year, down from 71% in 2021, when the company sold 1.9 million mt to the EU.

Severstal’s Latvia-based distribution company ceased activity around mid-March due to sanctions, which targeted the Russian steel industry and Severstal majority shareholder Alexey Mordashov.

Steel producer MMK, which supplies up to 90% of its products to the domestic market, reached an average profitability rate of negative 5.9%, Kommersant said.

In terms of investment programs MMK owner, Viktor Rashnikov, said in June that the plant’s investment program could be implemented with a profitability of at least 15%, but in May this figure was 4%, Kommersant said.

Although coal and iron ore suppliers were reducing prices, there is little room for maneuver, Kommersant said, citing Rashnikov.

Platts assessed Northwest Europe hot-rolled coil stable day on day at Eur855/mt ($855.77/mt) ex-works Ruhr July 14.

Producers expect output to drop

Depending on the Russian steel producer in question, June steel production fell by 20%-50% year on year, the Russian Steel association said last week, while the cost of production increased by 50% year on year.

Taking into consideration current market conditions, the Russian Federation’s Ministry of Industry and Trade has proposed to alleviate the country’s steel sector through tax cuts and cancel the excise tax on liquid steel, which was approved in 2021 as a measure to withdraw excess profits, Kommersant said.

However, the Ministry of Finance was not yet ready to cancel the excise tax, but may look into considering in adjusting it, it said.

Steel producer NLMK expects steel production in Russia to fall by 15%, or 11 million mt, by the end of the year, Kommersant said, with the steepest decline expected in the second half of the year.

In May, steel production in the Russian Federation decreased 1.4% year on year to 6.4 million mt, Kommersant said.

Global crude steel production totaled 169.5 million mt in May, down 3.5% from May 2021, according to World Steel Association data published June 22, while production for the first five months of the year totaled 791.8 million mt, down 6.3% year on year.

— Filip Warwick