The Russian authorities are making attempts to regulate the steel supply and pricing in the domestic market, most probably aiming to ensure domestic buyers will have their requirements covered. While Russian mills are recommended to concentrate on local supplies, they are not yet restricted in terms of exports. Although the sanctions on Russia will bring extremely high risks in terms of importing, flats market players consider the mills will still try to maintain an export presence, but will redirect most of their HRC volumes to Asia for now.
Russia’s Ministry of Industry has released a set of regulations and recommendations for local steel suppliers regarding transparent pricing in terms of the “raw material-producer-distributor-consumer” chain. It was mentioned that local mills are facing increased costs of production due to rising prices for certain raw materials, coal, coke, ferrous scrap, etc. The ministry underlined that the correlation between local and export prices is not valid anymore under the current market conditions. The government will make a list of distributors, trading houses and steel service centers, for which the producers will set the highest allowed margin. The list will be published and given to Federal Antimonopoly Service (FAS) for further control over the prices given to the end-users. If the allowed margin levels are exceeded, the companies’ accreditation will be revoked and they will lose the opportunity to work directly with the mills and therefore will lose their market share. Previously, as SteelOrbis reported, the Ministry of Industry suggested mills should limit their margins to the level of 25 percent of the cost of production, while for distributors the margin was estimated at 3-7 percent.
As for producers, according to the most recent announcement, the government will not regulate their prices or limit maximum levels, but the producers are recommended to secure their requirements in the local market and, once this condition is fulfilled, exports will not be restricted.
The players in the flats segment have been trying to assess the prospects of sales for the near future. Two Russian mills have been restricted in terms of export sales by the EU sanctions on their main owners. “This means that Russia’s mills will not be allowed to supply to Europe, they cannot work through European sales offices, cannot conduct payments in euros and that the European banks and insurance companies will not cooperate,” a source told SteelOrbis. Severstal immediately announced it is stopping exports to Europe, which was the primary outlet for the company. MMK has not officially made a comment on the situation yet. Overall, market players expect that Russian companies will increase their flats supplies to the local market, in particular meeting the missing HRC import supplies from Ukraine. Kazakhstan’s ArcelorMittal Temirtau is expected to continue selling to Russia for now, but volume-wise the situation is unclear for now. The prospects for domestic consumption in Russia are also foggy for now, as a lot of industries are expected to be hit by the international sanctions.
According to the market evaluations, Russia has to export around 20-30 percent of its flats production, HRC in particular. Severstal is expected to try selling up to 100,000 mt of HRC for export in the coming round, for April production, since the previously concluded transactions to the EU were cancelled. MMK, as per the previously disclosed information, may give 250,000-300,000 mt of HRC for export, but once again a lot will depend on the local market situation. NLMK, which is not yet sanctioned, is not expected to be active in HRC exports for now as previously they were selling only around 30,000 mt per month and this volume can be redirected to the domestic market.
Another issue is that exporting from Russia is tricky nowadays as due to the sanctions the financial, operational and reputational risks for buyers have increased tremendously. According to sources, while sales to the EU and US-linked markets are hardly manageable, the Russian mills will target sales to Asia, in particular to markets like Vietnam, Pakistan and China. Still, some of them will continue targeting Turkey and North Africa, but in this case they will have to compete with Chinese offers, which are now more competitive and much less risky to deal with.
In terms of prices, the target levels of Russian mills in Asia have recently been reported at $850/mt FOB Vladivostok for HRC, while in the Black Sea region one of the mills is targeting $1,000/mt FOB. Domestic hot rolled sheet prices seem to have settled at RUB 85,000/mt ($675/mt) ex-works on pre-payment basis, according to the official rate of $1 = RUB 105. As a result, the domestic price for HRS is much lower than the targeted export levels for coils.