The war in Ukraine resulting from Russia’s invasion is expected to have significant consequences for the steel industry. Both countries are among the largest global raw material and steel producers and exporters and it appears they will be out of the markets for a while.
As SteelOrbis reported previously, Ukraine has suspended most of its regular steel production and is not able to make shipments, given that its ports have either been destroyed or port operations have been paralyzed. Purchases from Russia are expected to also decrease to a minimum, following the sanctions already imposed and the further ones foreseen. In particular, the country’s removal from the SWIFT payment system and sanctions against Russian financial institutions will create significant problems for payments. In this situation, market players are trying to evaluate how the steel business will be reshaped and what to do next. “We are all scratching our heads, but basically we have concluded that nothing will be possible with Russia and Ukraine these days. Not only because of SWIFT, but also because of the black listing of ports (Novorossiysk) and also vessel owners not wanting to go there. No insurance is possible, etc.” a large trader told SteelOrbis.
Market players agree that the most critical effects will be seen in the segments where the full substitution of the volumes earlier coming from Ukraine and Russia by volumes of other origins is hardly possible. In particular, India and Brazil are the only alternatives for basic pig iron, and coal export disruptions from the region will also hit buyers, who have already been operating in an imbalanced supply-demand situation. The European market has already been slowing down production, for HRC and plate specifically, since mills will not be receiving slabs, which in large part were supplied by Ukraine and Russia to the spot market and also to their assets in Europe. In the HRC market, some players do not expect a significant reshaping of the market, given that Russia has already been supplying less due to the limited allocation from MMK, and the missing volumes will most probably be covered by Asian or Turkish sources, where possible. Ex-Ukraine HRC sales have been quite large and in some destinations, specifically in Turkey, they are expected to be substituted by volumes from India, South Korea, Japan and Vietnam, and by higher domestic sales by local mills. Some negative effect is expected in the plate market and traders have already started to look for alternatives.
In the longs segment, the situation is more positive in terms of rebar and wire rod supplies, as neither Russia or Ukraine were supplying much to foreign outlets. However, in terms of billet, Ukraine and Russia together are the world’s largest exporters, supplying to Turkey, North Africa, the GCC, Latin America, Europe and, of course, Asia. For now, it is hard to estimate the potential impact of the missing volumes, but sources expect some of them may be covered by Turkish, GCC and Iranian origin billet. “Local production will certainly increase in the countries where steel mills were balancing raw material and import billet usage for the sake of better costs. Now this opportunity is significantly lower,” a source told SteelOrbis. Some of the Asia-based buyers have already started checking ex-Turkey billet availability.
The whole critical situation is definitely having an effect on prices, which have started to rise. The latest billet deal in Turkey was closed at $760/mt ex-works for special grade, but the base offers are mainly at $740-750/mt ex-works. Import scrap prices to Turkey are foreseen to increase due to the billet and slab situation, which will be seen in the coming transactions. Sources say there are few sellers in the market and their targets are in the range of $520-530/mt CFR for premium grades.
In Asia, import billet and slab prices have started to rise as Russia is absent. In terms of imports to Asia, billet and slab customers are concerned as Russia was a large source of supply. Ex-ASEAN suppliers will likely partially substitute ex-Russia semis volumes. “Prices will surge. Dexin is not even giving billet offers today,” a trader said, adding that they are preparing to increase their prices after offering at $710-715/mt CFR to Southeast Asia and China last week. “Vietnamese BF billet prices are at around $720/mt FOB, which is up about $20/mt [from that last week],” a trader based in Singapore said. Vietnam-based EAF producers are asking for $715/mt FOB. With the freight from Vietnam to other Southeast Asian countries and China at $25/mt at least, this price from Vietnam is equivalent to $740-745/mt CFR.
Last week, the tradable level for import billet in Southeast Asia was $700-710/mt CFR, while this week market sources are waiting for $720/mt CFR at least.
Indian suppliers are also expected to increase billet and slab shipments. While last week the tradable level for imported slabs in the Asian region was at $750/mt CFR, market sources said that prices $20-30/mt higher will be seen soon.