Threat of expanded US sanctions holds little to fear for Russia’s steel industry

The effect on the Russian steel industry from the potential imposition of expanded US sanctions would be negligible because trade in the metal between the two countries is so small, while industry insiders believe the US would not go as far as to exclude Russia from the SWIFT banking communications system.

The Biden administration has signaled it is prepared to block the startup of the Nord Stream 2 gas pipeline from Russia to Germany and to impose harsh economic sanctions, including additional restrictions on Russia’s energy sector, in the event of a Russian military escalation in Ukraine.

“Sanctions will target sensitive sectors, but I will be very much surprised if they will be extended to the steel industry. The volume of steel trade between the two countries is too insignificant,” said a Switzerland-based steel distributor.

Over January-September, Russia’s export of steel in both semi-finished and rolled forms, including rails and pipes, is estimated at 22 million mt. Shipments to the US equated to less than 1% (up to 138,000 mt) of this volume, according to data published by the Eurasian Economic Commission, the regulatory authority overseeing the customs union between Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan.

In the first nine months, Russia also exported 2.7 million mt of direct reduction iron products, 2.3 million mt of steel scrap and 0.7 million mt of ferroalloys; none of these went to the US, but the latter absorbed 45% (1.3 million-1.4 million mt) of Russia’s pig iron exports.

Russia’s ferrous imports from the US in the reported period were even tinier: the country shipped a little over 1,500 mt of steel in various forms and 500 mt of ferroalloys, scrap, ferrous granules and powders, according to EEC’s statistics.

Meanwhile, industry sources said exclusion from the SWIFT system, a secure communications platform used by financial institutions, would be the most uncomfortable of the measures for Russia but that they did not see it as likely even in the event of a Russian invasion of Ukraine.

Today, only Iran and North Korea are cut off from SWIFT.

Any exclusion would see SWIFT lose a big chunk of its market, a source at an exporting mill told Platts, adding that such a move could encourage other countries like China to accelerate development of their own systems to be able to do without SWIFT should they become the targets of sanctions. “This is not a good prospect for SWIFT,” he said.

A Moscow-based steel trader said that, in the highly unlikely event that Russia was excluded, it does have its own payment system, called Mir, and many countries buying oil and gas from Russia would have to switch to that.

“The worst could only be a full embargo on energy and metal supplies from Russia, but for the initiators, it will be the same as to shoot themselves in the stomach,” the trader said.

A SWIFT suspension would be digestible though, according to sources. “Most metallurgical companies, which export, are doing so through their own trading firms in the EU and other countries, and customers are paying to those firms’ accounts. Moving their revenues to Russia bypassing SWIFT is not an issue,” said the mill source.

— Ekaterina Bouckley