Russian invasion of Ukraine could have big impact on NLMK and steel buyers globally

An invasion of Ukraine by Russian armed forces could negatively impact Novolipetsk Steel’s (NLMK) export sales, due to possible sanctions by Western nations, one industry watcher told MetalMiner on Jan. 31.
Steel distributors in Europe have become hesitant about what an invasion could mean in the event that they purchase steel from NLMK, the analyst added. This could be part of the reason that European steel prices have stabilized.
“Many clients are looking at this from a risk-management perspective,” the source said.
The comments came as NLMK announced on Jan. 20 that its consolidated sales volumes came to 16.6 million metric tons, reflecting a 5.1% decrease on the year from 17.5 million metric tons.
What an export shortfall could mean for the US market
From that volume, one-third or 5.2 million metric tons went to end-users in export markets. This represents a 22.4% decline from the 6.7 million metric tons exported in 2020. In that year, the market saw higher steel consumption in Russia as well as in the United States, where the group has two assets. Furthermore, this includes slab to NLMK’s US reroll facility. Without an alternative slab source for the U.S. market, this could impact the entire amount of available tons for the US domestic steel market. 
Though this shortfall may not create a “true shortage,” from an actual tonnage perspective,  emotional buying often trumps reality. At the end of the day, it’s about the  supply constrained narrative. 

Geopolitics could impact NLMK’s largest export markets 
Besides Russia, NLMK’s first and second sales markets in 2019 included the European Union and the United States. After that,  biggest export markets include the Middle East/Turkey, data from the group noted.
The United States, Britain and several West European countries have warned of severe sanctions against Russia in the event that its forces move into Ukraine. Fears of an invasion started in late 2021 when the buildup of troops, estimated at 125,000, and heavy weaponry arrived at Ukraine’s border.
Russian troops also arrived into Belarus in January, which borders Ukraine to the north, ostensibly for military exercises with Belarusian armed forces.
One of the reasons for the buildup of troops is Russia’s opposition to further eastward expansion by the North Atlantic Treaty Organization (NATO), a military alliance between 30 member states, 27 of which are European while Turkey is also a member.
The United States and Canada also belong to NATO.
Russia seeks security guarantees that neither Ukraine nor Georgia would join the alliance. It also wants NATO to withdraw from several current members, including the Baltic states of Estonia, Latvia and Lithuania, along with Poland and Hungary.
Talks are taking place between the United States and Russia to find a diplomatic solution, though US officials have described Russia’s NATO demands as a “non-starter.”
Sanctions and metals markets
Sanctions against Russia, in the event that it invades Ukraine, might not directly impact NLMK’s assets abroad. However, the restrictions could potentially extend to metals exports and lead to closure of Western ports to Russian ships, the first analyst warned. That would, in turn, make NLMK unable to supply slabs as feedstock to its assets in the United States and in Europe.
The following rundown of NLMK facilities highlights the global footprint of the company and markets/products that could be impacted.
NLMK capacity utilization across all assets

  • Novolipetsk Steel (NLMK) reported a 10.4% increase year on year in its crude steel production on 17.4 million metric tons from 15.8 million metric tons. Modernization works at its main production site at Lipetsk as well as higher rolling at subsidiary assets supported the decline. Capacity utilization across the group’s hot ends for 2021 was 93%, practically unchanged on the year from 94%, group data indicated. The main, integrated site at Lipetsk, about 450 kilometers southeast of Russian capital Moscow, can produce about 12.5 million metric tons per year of crude steel via its five blast furnaces and five basic oxygen furnaces. Modernization of a blast furnace and casting equipment at NLMK’s main site in Lipetsk, increased production at the group’s Long Products Russia and NLMK USA 
  • The figures do not include poured steel from NLMK Belgium Holdings (NBH), a joint venture between NLMK Group (49%) and the Belgian state-owned investment fund SOGEPA (49%). The remaining 2% belong to the Belgian treasury.
  • NLMK USA’s total sales were also up 27% year on year to 2.04 million metric tons, from 1.6 million metric tons on a return to demand for steel products. Q4 sales in the USA segment increased 41% at 522,000 metric tons compared to 370,000 metric tons. Analysts have also noted that the US Infrastructure Investment and Jobs Act which President Joe Biden signed into law on Nov. 15 will be metals positive as it frees up $1.2 trillion for updating the nation’s infrastructure network as well as building out its transport infrastructure.
  • NLMK Indiana, on the shores of Lake Michigan, can produce up to 1. 2 million short tons per year of hot rolled coil in widths of 949-1,536mm and 1.8-19.38 gauges on its single hot strip mill. The site also has an electric arc furnace with an annual melting capacity of 770,000 metric tons, which it can cast into slabs of 205mm gauge by widths of 991-1,524mm.
  • NLMK Pennsylvania & Sharon Coating can roll up to 2 million short tons of rolled coil in 889-1,346mm widths and in 1.5-16.5mm gauges, information on the company’s website stated.
  • In Europe, NLMK NBH reported crude production of 209,000 metric tons from its electric arc furnace at Verona, in Italy. That volume is up by more than a quarter from 166,000 metric tons over the same time in 2021, NLMK data indicated. NBH’s production assets comprises NLMK Strasbourg European strip manufacturers, NLMK Manage Service Center as well as plate manufacturers NLMK Clabecq and the NLMK Verona sites.
  • Sales declined by 20%, however, to 1.66 million metric tons from 2.08 million metric tons as the hot strip mill at La Louvière is still ramping up production after its modernization in H1. 
  • Plate roller NLMK Dansteel, in Denmark and 60 kilometers northeast of capital Copenhagen, operated at capacity in 2021, with sales at 589,000 metric tons, the group noted. That sum was up 12% on the year from 524,000 metric tons, thanks to a resumption in demand from European end-users, NLMK said. Dansteel can roll plate on a single mill in 5-20mm gauges and 1,000-4,050mm widths for construction, bridge building, the wind industry, offshore oil and gas, shipbuilding, boiler and pressure vessels as well as transport, from slabs cast at NLMK’s Lipetsk site as feedstock.
  • Sales from NLMK Russia Long Products division totaled 3.05 million metric tons, reflecting a 15% rise on the year from 2.65 million metric tons to the largest increase of all the group’s divisions. About one third of that volume were exports at 820,000 metric tons. That division’s two main melting sites are at Revda and at Kaluga. Each site casts square billets, which they roll into rebar, though Revda also produces bar in coil as well as wire rod, while Kaluga produces sections. Kaluga is 200 kilometers southwest of Moscow, while Revda is 50 kilometers west of Yekaterinburg and sits on the Europe-Asia political border.

The Takeaway
Though many industrial buying organizations consider the steel market as more regional than say aluminum, (after all, most companies like to buy steel within a 325 mile radius of their manufacturing facilities), almost no commodity remains immune to geopolitics. A Russian invasion of the Ukraine would impact buying organizations that have existing supply contracts with NLMK, and as suggested, those that don’t could see the availability of steel in both the US and European markets impacted.
As the old adage goes, buyer beware!

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