According to foreign media reports, Russian steel producers are losing money in both the export and domestic markets.
All of Russia’s major steelmakers posted negative margins in June, and the industry is actively reducing steel production while also considering reducing investment plans.
Severstal is Russia’s largest steel exporter to the European Union, and its business has been hit hard by Western sanctions. Andrei Leonov, a Severstal director and vice-president of the Russian Steel Association, said the company’s export profit margin was negative 46 per cent in June, compared with 1 per cent in the domestic market. In May, Shevell said its hot-rolled coil exports would likely shrink to half of its total hot-rolled coil sales this year, down from 71 percent in 2021, after selling 1.9 million tons to the EU in the same period last year.
Other companies are also struggling. MMK, a steelmaker that supplies up to 90 per cent of its products to the domestic market, has an average profit margin of negative 5.9 per cent. While coal and iron ore suppliers are cutting prices, there is little room for manoeuvre.
The Russian Steel Association said last week that steel production by Russian steelmakers fell 20% to 50% in June from a year earlier, while production costs rose 50%. Steel production in the Russian Federation decreased by 1.4% Yoy to 6.4 million tons in May 2022.
Given the current market conditions, the Ministry of Industry and Trade of the Russian Federation has proposed to ease the pressure on the steel industry by cutting taxes and removing the excise duty on liquid steel approved in 2021 as a measure to extract excess profits. However, the finance ministry said it was not yet ready to remove the consumption tax, but it could be adjusted.
Steel producer NLMK expects Russian steel production to fall by 15 per cent, or 11m tonnes, by the end of the year, with larger declines expected in the second half.