Russian steel mills are expected to face a significant decline in production this year as a result of falling exports and shrinking domestic demand. Another reason may be the domestic legislation of the Russian Federation, aimed at withdrawing the excessive margin of local steel mills.
Vladimir Lisin, the head of NLMK, who is not yet under direct sanctions from the US, UK and EU, said that he expects the production of flat products in Russia to fall by 23% in 2022 and a 15% reduction in the production of semi-finished steel.
In general, the Russian steel business expects total steel production to fall by 15% this year, or 11 million tonnes.
It is noteworthy that a deeper decline is expected in the second half of the year - by 9 million tons.
International sanctions applied against Russia in general and directly against some steel producers have greatly affected their positions in the domestic and export markets.
At home, the automotive sector already saw a 78.5% fall in April, while the figure for May is estimated at 83.5%. The main reason is an acute shortage of spare parts, limited access to foreign technologies and a general decline in the purchasing power of the population. The same reasons also affected the construction sector, where steel consumption decreased by 15-20 percent.
According to WorldSteel estimates, domestic steel consumption in the Russian Federation this year will fall by 20% to 35.1 million tons. In terms of exports, Russian factories are having a hard time finding buyers as EU, UK, US and some Asian markets have banned or restricted imports of Russian-made products.
Moreover, if a buyer is found, then selling prices for metal products from Russia should be significantly lower than prices for materials of "clean" origin, especially in the markets for pig iron, slabs and hot-rolled steel. While Russia is receiving less export earnings, its underpriced offerings are hurting the steel market balance and the prices of related products, especially in Turkey and to some extent in Asia.
Steel production in Russia will certainly decline this year, but some market participants believe that 15% for all steel and 23% for flat products is an optimistic scenario.
According to market information, some mills in May have already reduced sheet production by about 20-30 percent, and further significant reductions are expected in June. In the rebar segment, low construction demand, near-zero exports and inbound shipments from the Donbass have already reduced production in mainland Russia by about 20-25 percent, sources say.