Steel buyers demand rebates from Russian producers

Russian steelmakers were the most profitable in the world industry before the war in Ukraine, but they are now forced to sell to some buyers at deep discounts.

The country’s producers have seen their options dwindle as sanctions stifle sales in the key European market and customers elsewhere become more reluctant to deal with Russian companies. While producers are looking for other buyers, those who are ready to buy want to do so at lower prices.

For example, heavyweights such as Severstal PJSC are facing demands from importers in Asia to sell at discounts of up to 40% off the market price of steel slabs, three people familiar with the matter said. , who asked not to be identified because the information is not available. it is not public.

Customers in Turkey also want price cuts, the people said.

Some Russian steel products have now become unprofitable because the sector is also being hit by a strong ruble and soaring coal, freight rates and marine insurance costs, the sources said.

This is a sharp turnaround for the country’s steel industry, a major exporter and which for decades had benefited from ultra-low costs. Profit margins sometimes exceeded 40%, compared to less than 10% for overseas peers.

The setback for Russia’s steel sector comes as ‘self-sectioning’ occurs in commodity markets as traders and manufacturers debate whether to move beyond government-imposed restrictions. For example, traders’ reluctance to deal with palladium produced in Russia is creating an unusual price dislocation between hubs in Europe and New York.

For steel, the companies affected by the EU or UK sanctions are Severstal, Evraz PLC and Magnitogorsk Iron & Steel PJSC. The EU has also banned imports of certain Russian products.

On top of that, Russian producers face the challenge of a rising rouble, which reduces revenue from overseas sales. Despite sweeping sanctions, capital controls and surging exports have undermined demand for foreign currency and recently propelled the ruble to its highest since 2018.

While another interest rate cut this week halted the rouble’s advance, the currency’s rate is still too strong for steel exporters to make profits on some key products. Sales to China are at a loss of about 16,000 rubles ($239) per ton of steel, the sources said.

Some producers have started cutting production, Alexey Sentyurin, executive director of the Russian Steel Association, told the RBC newspaper this week. Severstal, Novolipetsk Steel PJSC and Evraz declined to comment on Bloomberg News.

Magnitogorsk has already cut production and is operating at about 40% lower capacity than it did in January and February, a spokesman said.

The Russian Ministry of Industry and Trade expects domestic steel demand to fall by 9% this year. Russian producers have called for tax relief because the war is hurting their businesses, though their pleas have yet to be heard by the government.

Other goods:

‧Gold for August delivery on Friday rose US$3.40 to US$1,857.30 an ounce, up 0.8% for the week.

‧Silver for July, delivery rose $0.16 to $22.10 an ounce, gaining 1.9% per week, and July copper rose $0.05 to $4.31 per pound, up 0.7%.

Additional reports per AP

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