On April 12, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC), in coordination with the United Kingdom, has announced new sanctions on “the facilitation network of Alisher Usmanov.” This time sanctions have been imposed on 30 persons and 90 companies, including Nazim Efendiev, Chairman of Metalloinvest Trading AG and CEO at Metalloinvest Holding, and Vakhtang Kocharov, CEO of Metalloinvest Trading AG, board member of Metalloinvest Management, Metalloinvest Holding and Baikal Mining.
In addition to sanctions on Metalloinvest itself, the US revoked Russia-related General License 15. “As a result of this revocation, any entities that are owned, directly or indirectly, 50 percent or more by Usmanov are blocked, regardless of whether such entities are listed on the SDN List,” the statement of OFAC said.
Since the start of the Russia’s large scale military invasion of Ukraine on February 24, 2022, Metalloinvest, as well as other Russian steel and raw material exporters, has been impacted by sanctions, but mainly indirectly (payment and insurance limitations), while there were no official sanctions on the company itself or its owners or managers, who have more than 50 percent stake. In 2021, the total iron ore production of Metalloinvest was around 41 million mt, which supported 28.5 million mt of pellets production. The company is one of the major pellet exporters in the world, having DR pellet capacity of around 5 million mt and up to 25 million mt of BF pellet per year. In 2021, HBI output of Metalloinvest reached 7.7 million mt, the major part of it is for exports. The major buyers of iron ore, pellets and HBI are North Africa, Egypt and Algeria in particular, and the Middle East, as well as China and India.
Metalloinvest is also one of the major semis suppliers, producing 2.4 million mt of pig iron and 4.9 million mt of crude steel in 2021.
Though the effect on new sanctions (both from the US and UK) has yet to be seen, most market sources agree that this is a serious move, which will impact the producer’s operations. Some market sources believe that the production cuts in such situation are inevitable, taking into account that previously a number of customers have been working with the producer specifically thanks to absence of direct sanctions. “They will reduce production. And for iron ore and HBI exports sales will not be that easy,” a Europe-based trader said.
Some other market sources think that the impact on export volumes will be less than pricing pressure. “The problem will be who will buy, let’s see. If buyers will get limited, they will dip prices,” a Turkey-based source said. Turkey is one of the major buyers of ex-Metalloinvest billets nowadays. Before the Russia started war against Ukraine, the company’s monthly export volume was around up to 200,000 mt, but by the end of 2022, the volume came down by up to 30-40 percent, according to market sources evaluations, and the share of Turkey as the major buyer increased to over 50 percent. “On the strength of experience of other sanctioned mills, the impact will be in general for all operation chain,” a large trader commented.
As it was reported earlier, Russian steel producer MMK almost fully left the export market after the sanctions imposed early last year, increasing significantly sales in the local market. Another mill, Severstal, managed to adopt to the market conditions to lower production first and finding new markets instead of traditional European sales destination together with cutting sales prices. Large Russian supplier in the Far East, Evraz, who is under the UK sanctions, was less impacted in terms of export volumes, since a number of customers from China, Taiwan and some other Asian countries continued purchases, but again, the prices became at discount to ex-ASEAN suppliers, for example. The only big Russian steel producer not impacted directly by Western sanctions is NLMK. “There are rumors that Lisin [Vladimir Lisin, the chairman and majority shareholder of NLMK] could be included in 11th package of sanction of the EU,” a source from the market said.