Russian steel companies could benefit from exports

Russia is one of the largest steel exporters in the world, delivering goods to a wide variety of destinations. However, steel demand in all regions has declined as COVID-19 hit the world and most steel producers around the world have struggled. Unlike steel mills in other regions, Russian manufacturers did not idle, but increased their maintenance and reduced capacity utilization to reduce production. In the future, however, they will have to decide whether to take more drastic measures to restrict production, depending on their ability to leverage their competitive cost advantages and the growth opportunities that export markets provide.

Given that domestic demand for steel is expected to remain weak in 2020, we believe that Russian steel mills will increase exports due to their favorable prices. Exports to the EU with increased quotas and to Southeast Asia, where demand is expected to recover faster than other regions, will be strengthened. However, this will not be enough to maintain production levels in 2019, and production in Russia will decline by 8% per year.

Even during 2021, Russian demand is not expected to recover to pandemic levels, and production will depend on export demand. Ultimately, there is a risk of lower exports to the EU due to the possible introduction of border tariffs on carbon emissions, which could possibly be introduced during the year. However, sales to Southeast Asia will be strong as demand there will grow rapidly. As a result, net exports will rise and steel production will return to pre-COVID-19 levels by the end of 2021.

Strong premium on the domestic market reduced Russian steel exports in 2019

In 2019, Russian carbon steel exports fell 12% YoY to 27Mt as sales in traditional markets such as Turkey, North America and the EU plummeted. On the other hand, exports to Asia were up 9%, with Taiwan remaining the main destination, receiving over 3.5 million tonnes of material.

Total exports were lower for several reasons. First, domestic demand for finished steel products in Russia grew by almost 10% over the year, while crude steel production remained virtually unchanged due to the already high utilization of production capacities. This increased the premium on the domestic market - for rebar it was $ 55 /t in 2019 compared to $ 5 /t in 2018, and for the HR coil the premium was $ 107 /t in 2019. compared to $ 55 /t a year earlier. With high premiums, manufacturers naturally redirected more material to indoor