International credit rating agency Fitch Ratings has stated that steel prices will be moderate throughout 2022, returning the earnings of Russian and Ukrainian steel mills to mid-cycle levels by 2023. These producers will remain competitive due to their low-cost base. However, the transition to carbon-neutral steelmaking and the risk of rising taxes for Russian mills in the longer term could affect their cost positions.
Despite recent increases in steel and raw material taxes, Russian steel mills have maintained their cost leadership, which allows them to maintain high profitability and to sustain reasonable cash flow generation. However, revision of taxes or a further increase might put pressure on the steel sector. In addition, the EU’s Carbon Border Adjustment Mechanism and domestic carbon taxation, which will affect most of the regional steel producers as they are carbon-intensive, create medium-term risks for Russian steel producers.
Meanwhile, Russian steel producers are incorporating emission-reduction targets in their strategies, which could keep investment levels high. The growing focus on decarbonization has encouraged Evraz and Severstal to divest their coal assets, which, once completed, will reduce their raw-material self-sufficiency.