According to foreign media reports, Russian steel producers suffered losses in both export and domestic markets.
All of Russia’s major steelmakers posted negative profit margins in June, and the industry is actively reducing steel production while also considering reduced investment plans.
Severstal is Russia’s biggest steel exporter to the European Union and its business has been hit hard by western sanctions. In June, Shevel’s export profit margin was minus 46 per cent, compared with 1 per cent in the domestic market, said Andrei Leonov, director of Shevel and vice-president of the Russian Steel Association. Severstal said in May that its hot-rolled coil exports were likely to shrink to half of its total hot-rolled coil sales this year, down from 71 per cent in 2021, when it sold 1.9 million tonnes to the EU in the same period last year.
Other companies are also struggling with profits. MMK, a steelmaker that supplies up to 90 per cent of its products to the domestic market, has an average profit margin of minus 5.9 per cent. While coal and iron ore suppliers are cutting prices, there is little room for manoeuvre.
Russian steelmakers’ steel output fell 20-50 percent in June from a year earlier, while production costs rose 50 percent from a year earlier, the Russian Steel Association said last week. In May 2022, steel production in the Russian Federation fell 1.4% yoy to 6.4 million tons.
In view of current market conditions, the Ministry of Industry and Trade of the Russian Federation has proposed to ease the pressure on the steel industry through tax cuts and to cancel the consumption tax on liquid steel approved in 2021 as a measure to extract excess profits. However, the Finance ministry said it was not ready to abolish the consumption tax, but that it might be adjusted.
Steelmaker NLMK expects Russian steel production to fall 15 percent, or 11 million tons, by the end of the year, with a steeper decline expected in the second half.