Russia's invasion of Ukraine could leave a significant gap in EU flat products supply.
Participants anticipate significant upward pressure on prices, as sanctions against Russia and disruption to Ukrainian output continue to curb supply and push up energy costs. Some expect the owner of one Russian mill to be named in EU sanctions, which could erode imports from the country.
Mills in central and eastern Europe sourcing CIS raw materials are already seeing an impact from the invasion. A mill in one of the Visegrad group countries paid $400/t fob US east coast for a 10,000t cargo of high-volatile A coal yesterday, loading 27-28 February, as supply from Russia has been disrupted. Visegrad mills also rely on Krivbass iron ore from Ukraine, although this supply has not been impacted yet. Natural gas prices have spiked above €100/MWh in response to the invasion, which is a large cost-burden for producers that they will look to pass on.
Ukraine and Russia are both consistently in the top-five net exporters of steel globally. Ukraine's largest steelmaker, Metinvest, has stopped production at its Mariupol plants and ArcelorMittal Kryvyi Rih (AMKR) has reduced production to a technical minimum. Trade from the Black Sea region has slowed, and with select Russian banks being removed from Swift financial system, many buyers have already started to shift to non-CIS suppliers.
The CIS region is an important hot-rolled coil supply source for European buyers. Combined, Russia and Ukraine sold 2.6mn t into the EU last year — over 28pc of imports. Ukraine's Metinvest alone sold over 940,000t into Turkey last year, so its absence will tighten supply in another key supplier for Europe.
The EU imported 370,486t of CIS cold-rolled coil in 2021 — 15,434t from Russia and 355,052t from Ukraine. This was considerably down on pre-2015 levels, largely owing to the introduction of safeguard measures in 2016 against Russia. The EU imposed a duty ranging between 18.7pc and 26.2pc on Russian CRC imports. But 2021 imports from Russia were at their highest since the duties were imposed. The EU imported over 2.85mn t of CRC last year.
Nearly 10pc of Ukraine's CRC exports went to Turkey, which imported 50,793t. Lower Russian and Ukrainian exports could disrupt production of finished steel products in Turkey.
The CIS is also a source for hot-dip galvanised imports, although there is an ongoing dumping investigation into Russian supply.
In 2021, Russia sent 367,801t and Ukraine sent 286,363t to the EU. Imports of HDG from the region have increased sharply in recent years, growing every year since 2014, when just 14,872t was received.
Some sources suggest the EU could increase import allowances for certain products of non-CIS origin in an effort to alleviate supply disruptions in its review of steel safeguard measures, which are likely to apply from July onwards. European mills would probably lobby against this, given the extraordinary circumstances.
The EU currently imposes tariffs on imports of several Chinese steel products. But Chinese exports to the EU of CRC, HRC and HDG nearly doubled in 2021, to 700,900t. Europe may be able to look to China to fill some supply gaps, although it is unlikely that the European Commission would alter tariffs for the world's largest steel producing country. Duties on Chinese HRC will lapse in summer if they are not reviewed. The EU may also be able to increase supply from India and elsewhere in Asia for some products. HRC volumes from Taiwan have increased, as it is in the 'other countries' quota and does not have its own limit. It sold 56,258t into the EU in December, almost 20pc of the import market. Egyptian shipments could also fill the gap on HRC to an extent, as it is exempt from the EU's safeguard.
Brazil could be an alternative slab source for HRC and plate producers, as it already competes with CIS producers.
Russian mills could channel more sales into Asia, given the relationship between Moscow and Beijing, which could spark a change to trade flows, with Asian buyers taking more material from Russia than their European counterparts, and sending more to the bloc to help compensate for lower Black Sea volumes.
