Russian steel and raw material suppliers, while already facing a significant gradual decline in the domestic steel industry in the past four years, have been forced to deal with additional logistical challenges given their need to redirect export cargoes from the Black Sea-Azov Sea region due to the increased risks facing operations in the region caused by drone attacks, which, according to local Russian data, resulted in a 54 percent decline in metals shipments from the region from 1.86 million mt in July-August last year to 860,000 mt in the same period this year.
As a result, Russian steel and raw material suppliers, also facing increasing pressure to export as the domestic market is slowing seasonally, have been forced to redirect their cargoes mainly through St. Petersburg, Murmansk, Ust Luga, Primorsk, Vyborg and Kaliningrad, although the first two are considered the main ports. However, again due to seasonal factors, priority is currently given to grain shipments from Russia which are also being redirected via the Baltic. “Grain exporters are taking all the vessels and are paying extra. They can't stock grain and so they have broken the freight market. But, I think, from mid-November freight will start returning back to normal. Currently, for [BPI] 20,000 mt lots the freight is $80-90/mt, while for 30,000 mt it's around $70/mt. And the grain guys are paying even more than that,” a raw materials supplier told SteelOrbis. In the scrap segment, the situation is similar. Market players reported that freight rates from the EU's Baltic region for 25,000-30,000 mt vessels stood recently at $70-80/mt to Turkey. “From the UK and Holland, the freights I am hearing for 40,000 mt are at $50/mt, but their loading rates are around 15,000 mt daily and the route is five days shorter,” a source said.
In terms of steel product shipments, most recent freights for 35,000-40,000 mt of HRC have been assessed by suppliers at around $62-65/mt for Turkish markets, while some expect the rates for 40,000-50,000 mt cargoes to North Africa to be $55-60/mt for December shipments. “There is a chance that by then we will be left with only seasonal and fuel impacts, and the grain factor will fade away,” a Russian producer told SteelOrbis.
Inland logistics has also become increasingly challenging, also following an 8.5 percent tariff increase for rail transport as of early October. Currently, the railway authorities have been greatly rejecting transportation inquiries for steel, limiting the volumes of some steel suppliers as well as cancelling earlier agreements. Among the stated reasons are the slow unloading rates at some northwestern ports, and the lack of locomotives and staff leading to problems with the timely retraction of empty rail wagons from port-adjacent stations. Russian steel producers have sent a letter to the minister of transport in a request for steel and steelmaking raw materials to be given temporary priority in terms of using Russia's northwestern ports, threatening that otherwise the situation could lead to steel production stoppages. “Unlike the grain sector, there are no priority decisions for the steel industry specifically in terms of railway tariffs. As a result, the delivery costs are rising and the competitiveness of Russian steel products is declining, making the situation for steel mills harder than it already is,” a source from the sector commented to local media.
The extra overland transportation cost is 20-30 percent higher than exporting though the traditional ports. Some sources explained that the additional cost of railway transportation from the southern region is around $50-60/mt and higher, depending on the distance. “These are the extra costs which are not being covered by the [product] price due to oversupply in the global market,” a source said.
Some market players believe that the intensified usage of the Baltic and northern ports will not continue for long, stating that, while it is the best option for now, there are still many though issues for business to overcome. One, despite the capacity of ports being large if combined, is the obvious congestion due to slow unloading rates and the lack of certain facilities for the handling of specific products. “The local rail system is a pure black market in Russia. There are no set rates, no schedules and whoever pays more gets the wagons. And there is no one to finance these operations now. The mills are on their own. It is a jungle now,” a source familiar with the situation commented to SteelOrbis. “There is a chance also that the UK will detain some vessels. There have been to many checks [recently] and then the [ship] owners will not go anyway,” he added.
