Steel deceived expectations – Newspaper Kommersant No. 195 (7396) of 10/20/2022

The WorldSteel Association has improved its steel demand forecast in Russia. In April, the association expected a 20% drop in consumption in 2022, now forecasting a 6% drop. However, in 2023, instead of stagnation in the previous forecast, the WSA now expects a 10% decrease in demand due to tougher sanctions. Thus, the association’s estimates for 2022 are now close to the official forecasts of the Ministry of Industry and Trade.

The WorldSteel Steel Association (WSA) improved its steel demand expectations in Russia for this year, but worsened for 2023. The previous forecast, made in April, assumed a 20% drop in consumption in 2022, to 35.1 million tons, with zero dynamics in 2023. Now the WSA expects demand to decline this year by 6%, to 41.3 million tons, and in 2023 the drop will be 10%, to 37.2 million tons.

According to the WSA, the improvement in the forecast is due to high oil prices and measures of state support for construction. “However, the automotive and engineering sectors are experiencing a deep decline due to their high dependence on imported parts and components,” the association said in a statement. The strong contraction in demand in 2023 is linked to the fact that sanctions become more severe over time.

Total steel consumption in Russia, the CIS countries and Ukraine is expected by the WSA to fall by 9.2% this year and 6.7% next. The improvement of the situation in Ukraine in 2023 in the WSA is associated with work to restore the infrastructure affected by the hostilities.

Global demand for steel will fall by 2.3% in 2022, and is expected to grow by 1% in 2023. The April forecast assumed growth of 0.4% and 2.2%, respectively. The WSA notes a significant deterioration in the global economic environment, as the risk of inflation has fully materialized along with other serious obstacles in the form of an armed conflict between Russia and Ukraine, as well as lockdowns in China. Supply chain issues have eased somewhat in 2022 but continue to hamper manufacturing activity as new disruptions emerge. The WSA believes that if the fighting does not end soon, and China continues to adhere to a strict quarantine policy, supply bottlenecks will not completely disappear, despite the slowdown in demand.

The new WSA forecast is close to the official estimates of the Russian authorities. In May 2022, Minister of Industry and Trade Denis Manturov stated that demand in Russia could decrease by up to 9%. As for production, on June 14 NLMK presented its forecast. According to the company’s estimates, Russian ferrous metallurgy enterprises will reduce production by 15%, by 11 million tons, by the end of the year. However, judging by the published results of the Russian metallurgical holdings for the third quarter, the situation is better. According to the results of nine months, NLMK maintained its production volume at the level of the previous year at 12.8 million tons. Under US blocking sanctions, Severstal and MMK cut production by 8% yoy and 11.7%, respectively.

Russian metallurgy, being export-oriented, is a target for Western sanctions. The draft strategy for the development of metallurgy of the Russian Federation states that EU sanctions have affected the export of 3.9 million tons of finished metal products, 0.2 million tons of pipe products, 0.7 million tons of steel billets for a total of $3.7 billion.

“We predict a 10% drop in demand for steel in Russia in 2022, and a continued decline in demand by 15% in 2023,” says Dmitry Orekhov, managing director of the NKR rating agency. According to him, the main drivers of falling demand are the closure of Western markets for Russian steelmakers due to sanctions, weak demand from the automotive industry and housing construction. Factors for a possible recovery in demand are an increase in the consumption of Russian metal in the domestic market and an increase in supplies to Asia.

Evgeny Zainullin