Russia, Ukraine, and the “New Normal” of Global Steel Supply

Steel prices have waxed and waned more than usual this past year. MetalMiner has reported extensively on all of the various factors contributing to this unpredictability. Of course, you can’t ignore China’s rolling COVID lockdowns or the year-long supply chain hangups. However, we feel one of the biggest X factors for the global steel supply has been Putin’s disastrous war on Ukraine.

The War Limps Past the Five-Month Mark, Steel Supply Suffers

Back on February 24^th, few analysts could have predicted the path the Russian invasion of Ukraine would take. For instance, Russian state news has largely played down the significant casualties suffered in the country’s recovery of the Donbas region. Meanwhile, foreign correspondents have repeatedly published reports about confused Russian troops, jury-rigged weaponry, and the embarrassing loss of the country’s flagship, the Moskva.

Despite these setbacks, Putin seems utterly committed to achieving his goals in Ukraine. This means the world at large cannot expect a return to normalcy anytime soon, particularly when it comes to economics. From sanctions to pipeline problems to commodities hangups, the war in Ukraine has made itself figurative “wrench” in the global trade machine. One of the most affected commodities, of course, is steel.

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A Dramatic Impact on Prices and Production

Ukraine stands as the world’s eighth largest producer and third largest steel exporter. Iron ore and other mineral resources are also abundant in Ukrainian soils. As a result, when the invasion first took place, steel prices took a significant leap upward. HRC, for instance, jumped from $974 a ton to $1185 in just over a week. Steel rebar followed suit, reaching $753 on March 7 after closing at $694 the day the war began.
Back in April, the CEO of Kyiv-based commodities site GMK Center, Stanislav Zinchencko, published his thoughts on the matter. Specifically, he mentioned how the war has significantly affected supply chains, leaving 90% of steel capacities non-operational. He went on to detail how the conflict had reduced export opportunities due to Russian warships blocking the Black Sea.
“About 1/3 of Ukrainian steel capacities are located in Mariupol – Azovstal and Ilyich Iron and Steel Works,” Zinhencko said. At the time, this was the hottest area of the war. As most of us know from the heavy news coverage, Azovstal has since been completely destroyed in a weeks-long siege. Ilyich was also heavily damaged. However, since Mariupol fell securely in Russian hands, its ability to produce or not produce remains a moot point.
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A Two-Sided Problem for Global Steel Supply

Against all odds, Ukraine is still producing steel, but at a reduced capacity. For example, at the end of April, we reported on Zaporizhstal, the country’s fourth largest steelmaker, as well as Kamet Steel in Dnipro. Both of these facilities have seen little, if any, impact from the war as of yet. For that reason, they are still producing much as they would in peacetime. In fact, in an effort to boost the country’s economy, the Biden administration lifted tariffs on Ukrainian steel exports in early May.
But all the (completely understandable) focus on Ukraine, it’s important to remember that there are two sides to the problem. Firstly, Russia remains the world’s third-largest steel exporter, shipping around 33.3 million metric tons in 2018. Secondly, as part of their sanction packages, the US and Europe have banned steel imports from the country in an effort to deal Putin an economic blow.
Unfortunately, there are still plenty of buyers for Russian steel. Still, as Bloomberg has reported, many of these nations demand huge discounts that dramatically reduce profitability. The Asian market, in particular, has developed a particularly strong appetite for cheap Russian metals, and beleaguered metals traders have been forced take what they can get.

Still, China Remains the Biggest Factor in Steel Prices

Well-informed readers may have been taken aback by the steel prices reported earlier in this article. After all, HRC just closed at $855 after a stark decline from March highs. Meanwhile, Rebar has been on the decline since May and only started ascending again as of last week. Of course, the main reason for this has little to do with the war. Instead, it has to do with China.

China’s construction industry has been contracting for years now, savaging demand for homemade steel goods and imports alike. To add fuel to the fire, the country currently has a massive surplus of the metal. After all, the country produces around 56% of the world’s crude steel. With Beijing rejecting calls to curb production and minimal demand at home or abroad, suppliers are sitting on a growing mountain of crude.
And here’s where it all ties together – with the war affecting trade so dramatically, normal metrics for evaluating the steel market no longer apply. As we stated several months ago, the steel market seems to have moved away from traditional supply-and-demand-based predictability. Instead, economists are rushing to produce new models that better reflect the 2022 marketplace.
For now, it’s a waiting game being played by some very stubborn participants.
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