Steel shrinks under pressure – Kommersant

Steel consumption in Russia in the first quarter fell by 3% compared to the same period last year, according to a review of Severstal. The largest drop in consumption is observed in mechanical engineering, which is hit by the departure of foreign car manufacturers. Also significantly reduced purchases of pipes “Gazprom” against the backdrop of falling gas exports. In addition to the domestic market, a decrease is observed both in steel production and in exports. However, analysts expect consumption to fall in single digits.

Steel consumption in Russia in the first quarter fell by 3% year-on-year, to 11.15 million tons, but showed an increase of 6% compared to the fourth quarter of 2022, according to a review by Severstal (.pdf).

The main consumers of steel in Russia are construction, mechanical engineering and fuel and energy complex. The largest drop in consumption is observed in mechanical engineering – by 11%, to 1.1 million tons.

The reasons for the decline are the withdrawal of foreign companies from the Russian market, primarily automakers, and problems with the supply of components.

In the fuel and energy complex, the decline was 9% compared to the same period last year due to a decrease in demand for large-diameter pipes (LDP) in the oil and gas sector. “The lack of certainty in the further development of the gas transmission system and the decline in hydrocarbon production do not allow us to give an unambiguous forecast for consumption in this segment,” the review of the metallurgical company says. The main consumer of LDP has traditionally been Gazprom, which, due to the conflict in Ukraine, has lost more than 70% of its main export market in Europe. Although the company has plans to build gas pipelines to China, gas supply contracts have not yet been signed.

The drawdown in consumption in the construction segment amounted to 1%, to 8.75 million tons, due to a slowdown in the pace of mass residential construction and stagnation in non-residential construction. However, the planned implementation of infrastructure projects continues, trading and pipe companies are actively replenishing stocks in anticipation of an increase in seasonal demand. “At the moment, we are noticing negative trends in mass residential construction: the share of unsold housing in construction volumes has reached a historical maximum over the past few years, in parallel with a decrease in the volume of loans issued,” comments Dmitry Maksimov, Severstal Marketing Director. According to him, the main drivers of metal consumption in the construction industry remain state support for infrastructure projects, stable interest in warehouse real estate and demand for individual residential construction. The company also expects a recovery in the engineering segment on the back of the development of the passenger car industry, demand for trucks due to the implementation of infrastructure projects, as well as a growing demand for railcars.

In the first quarter of 2023, the Russian market for rolled metal products, in particular metal structures, continued to decline, a representative of Evraz confirmed to Kommersant. “But against the backdrop of the beginning of the construction season, the market is recovering, and on the horizon of five months we already see growth compared to the same period last year. The number of active projects in the industrial construction segment is now at a high level,” the company said. Other large steel companies did not provide comments.

According to Rosstat, the production of rolled products in January-March amounted to 15.7 million tons, a decrease of 3.5% compared to the first quarter of 2022.

International transportation of ferrous metals fell in January-April by 12.4%, to 10.3 million tons, including through ports – by 20.9%, to 6.5 million tons, Interfax cited data from Russian Railways. At the same time, domestic transportation of ferrous metals amounted to 18.5 million tons, which is 4.8% higher than in January-April last year.

World Steel Association (World Steel Association) predicts a 5% drop in consumption in Russia at the end of the year, to 39.6 million tons against 41.7 million tons in 2022. In 2023, a slight decrease in domestic demand for steel is expected, according to the SberCIB review “Strategy 2023. Fewer unknowns.” However, already in 2024, analysts predict an increase in consumption against the backdrop of large-scale infrastructure and energy projects.

Evgeny Zainullin